Applications for payment processing means that a company applies for money from its customers on a regular basis based on the work completed. Applying for payment for work completed is a critical part of the business for companies working on contracts. It is vital that they are able to have financial control of their contracts, and make sure that payments are received as agreed.
Normally a company applies for money from its customers on a regular basis based on the work completed. Whether a external valuation tool is used or an Application for Payment (AFP) is created, the valuation is done against the contract items by valuing the work done up to a cutoff date. With Application for Payment this can be done in a number of ways, including:
The valuation and certification process is cumulative. This means that for each application created, the previous application amounts are included in the valuation.
An application for payment will always be based on a contract. See the about description for Contract Management. The application normally goes through the following stages: Planned, Approved, Submitted, Certified, Paid, and Canceled.
Planned
The application is created and all contract lines and items are copied from the active contract revision. A quantity surveyor usually reports the works progress, which is then entered into the system upon which the application is approved.
Approved
The application should be approved internally before sending it to the customer. During this phase, it is important that the amounts applied for reflects the progress for the period.
Submitted
After the application for payment is approved, it should be sent to the customer for certification. When sent, the application creates financial postings to recognize the submitted amount and the expected revenue.
Certified
When the customer receives the application for payment, it is reviewed. In some cases the customer might send someone to inspect the site and assess the work performed.
The customer might certify the application as it is, but it is not unlikely that there is a disagreement on some of the valuations. If customer and contractor have different opinions on the work performed so far, a negotiation will take place. The negotiation process might contain several iterations. In the end, this means that when the customer responds to the application for payment there can be amendments to the figures initially submitted.
When the certificate is received and the certificate values are entered in the application and certified, the financial postings will be created. When the application is submitted and reversed, new postings for the certified amounts are created.
Paid
Once the certificate is received from the customer, there are several options on how to proceed. Depending on the agreement with the customer, an invoice can be issued directly to the customer. Alternatively the customer can make a payment based on the certificate and then we can issue an invoice once the payments are received.
Canceled
In certain situations it is necessary to cancel an application. When canceling an application, all financial postings created will be reversed.
The solution will retain this information by the customer in a Sales Contract Ledger, keeping track of payment requests, amounts paid, and amounts withheld. Complete financial control for recognizing revenue, cost of sales and offsets in the Contract Sales ledger and Accounts Receivable Trade is held throughout the lifecycle of a payment request.