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You spend weeks waiting for payment and haven’t heard anything from your customer. You notify your client of the payment delay — and they tell you that your construction invoice was rejected. No explanation. No reason. Just rejected.

All companies experience this at some point. Since payments are so slow in the construction industry, it can be more difficult to know when your invoice has been rejected or if it’s just stuck in a slow payment process.

The good news is that contractually, customers are usually required to notify you that your invoice has been rejected. And in some cases, if they don’t notify you, they still have to pay you even if they’re rejecting your invoice.

We’re going to take a look at some common reasons invoices get rejected, look at the contract language that requires notification of rejection, and provide some guidance on what to do if your invoice has been rejected.

Why was my invoice rejected?

There are many reasons why an invoice may be rejected. Some may seem petty, while others make more sense.

Here are some common reasons:

  • You submitted an invoice after the billing deadline or your customer’s invoice due date.
  • You’re billing for more work than has been completed (or at least your customer thinks so).
  • You didn’t include the required backup documentation, like payroll reports, invoice copies, signed change orders, etc.
  • There’s a math error on your invoice.
  • You’re billing for change orders that haven’t been approved and processed.
  • According to your customer’s records, you’re not in compliance (insurance has expired, need W9 form, a license has expired, etc).
  • You sent your invoice to the wrong person, email address, or company.
  • Your invoice is missing or has incorrect work order, purchase order, or job information.
  • You used the incorrect form or invoice format.

What an invoice needs to be approved

While it may seem like your customer has it out for you and is rejecting your invoice just to make your life difficult, that’s not usually the case. They usually think they have a valid reason to not process your invoice.

First, let’s look at what an invoice needs to be approved. 

According to the federal Prompt Payment Act, an invoice needs to be “proper.”

What does this mean? A “proper invoice” must include:

  • The name and address of the contractor
  • The invoice date
  • Applicable contract and line item numbers
  • Description, quantity, unit of measure, unit price, and extended price of the material or services provided
  • Shipping and payment terms
  • Name and address of the person or company to whom payment needs to be sent
  • Name and contact information of the person to notify if the invoice is rejected
  • Other information or documentation as required by the contract

So, as long as your invoice includes the information listed above, it should be accepted. 

One thing that isn’t on the list is whether the work has actually been completed or not — and that’s the source of most of the conflicts regarding invoices.

Are customers required to provide notice when an invoice is rejected?

The short answer is: It depends on the state laws and the contract language.

Prompt payment laws provide guidance on rejecting invoices, and some have very specific instructions for notifying contractors that their invoices have been rejected. In addition, the contract language may include requirements for notification. 

Prompt payment laws

Most states have their own prompt payment laws that govern private and public projects. These laws provide guidance for when invoices can be rejected.

Each state has its own requirements, so be sure to refer to the law for the state your project is located in. Generally, these laws state that invoices can be rejected because of the following reasons:

  • Unsatisfactory work or a dispute on the amount of work complete
  • Defective work that has not been remedied
  • Not complying with contract terms
  • Failure to pay lower-level contractors and suppliers
  • Damage to the project caused by the contractor or supplier
  • Not turning in backup documentation as required by the contract

As was mentioned above, the federal Prompt Payment Act requires that a proper invoice be turned in by a supplier or contractor. 

Besides the information listed in the act language (see above list), a proper invoice also includes any documentation or requirements spelled out in the project contract.

Note that the federal law applies to federal public projects only. States may have different requirements in their laws depending on the type of project, so be sure to refer to specific state laws before submitting an invoice.

After a proper invoice has been submitted, the owner or contractor generally has a timeframe to approve or reject the invoice. This timeframe varies by state and can be up to 25 days (like in Illinois) or as few as 12 days (in New York). If no action is taken by the owner or contractor within that time frame, the invoice is considered approved as submitted.

If the owner or contractor has a concern with the invoice, they need to let the vendor know within that approval time. Generally, the notice needs to be in writing, list the reason(s) why the invoice is being rejected, the contractual basis for the rejection, and what the vendor needs to do in order to correct the issue. If the vendor corrects the issue and resubmits the invoice, then payment is due as per the terms of the contract.

In a recent court case in Massachusetts, invoice rejection notifications came under fire, as the state court ruled that if they didn’t include the required information per statute, they were essentially null and void. Because of this, an owner had to pay for rejected pay applications and interest charges. Make sure you read your state’s prompt payment laws carefully.

Again, note that different states have different laws regarding prompt payment. Not all of them apply to private projects. 

ConsensusDocs contract language

If you’re using the ConsensusDocs standard contracts, there are prompt payment terms within those agreements that you should be aware of. Form 200, the contract between owner and contractor, requires written notice of an invoice rejection within seven days of submission.

If you are a subcontractor and the GC is using form 750, the contract between general contractor and subcontractor, then you also should receive written notice of your invoice’s rejection within seven days of invoice submittal.

AIA contract language

If you’re using the AIA contract templates, there are also notification requirements that you should be aware of. Under the A201, which is the general conditions document that underlies all the AIA contracts, the GC needs to be notified if their payment application is being rejected by the architect or owner. After notification, the architect, owner, and general contractor work together to come to an agreement on an appropriate payment amount. The architect then certifies the payment application for the revised amount.

For subcontractors using the A401 subcontractor contract, notification is required for either a partial or full invoice disapproval. No particular timeline is given as to how long the GC has to review the invoice.

What to do after your invoice has been rejected

The steps you should take after being informed that your invoice was rejected will depend on why it was rejected.

Fix mistakes and resubmit forms

If there’s a mistake on your invoice or you submitted the wrong form, you’ll need to fix it and resubmit. Sometimes your customer will make the changes on their end and not require you to resubmit your invoice. Ask if you need to resend it once it has been corrected.

Supply any missing documents

If you’re missing documents that needed to be included with your invoice, like certified payroll reports, turn them in as soon as possible. Often forgetting these documents doesn’t really affect the timing of your payment, so turning them in late is fine.

Research the point of disagreement (and document your evidence)

If your customer thinks you’re overbilling for work that isn’t completed, you’ll need to do some research on your end to verify your costs and completion. 

If it turns out your customer is right, you need to revise your invoice and resubmit. If you think you’re right, you’ll need to submit backup documentation to prove it. And if you’re overbilling to improve your cash flow, you may need to have a conversation with your customer about your concerns and see if you can come to an agreement to get help with expenses.

If there’s a disagreement about change orders and their approval, you’ll need to provide backup documentation to show the approval you received or negotiate to get your invoice approved after the fact. Review the contract language regarding change orders before you submit your invoice to avoid future problems.

Submit a demand letter

If your invoice has been rejected and it’s past the review period per the prompt payment act for your state, you’ll need to submit a demand letter.

This letter serves as notification that your customer has violated the act and that you are requesting payment as per the law. If you do not receive payment after sending a demand letter, then your next step is to file a lawsuit for delayed payment.

Invoice rejection isn’t the end of the world

Invoice rejection happens to everyone. Contractors need to make sure their customer provides them with the required notice, or ask for it if they haven’t. Once they know why their invoice is being rejected they can take the next steps to fix the problem.

Owners and GCs need to be aware of the prompt payment statutes in the states they work in, and ensure that invoice rejection notices meet the requirements and are sent in a timely fashion. Otherwise, they could find that they owe a contractor payment, no matter the reason the invoice was rejected.