Dilemma 4:  Invoicing - Dilemma

You are the newly appointed project director of a construction company.  You are given some monthly payment applications to sign.  These are meant to show the amount of work on each project which has been completed by the company at the date of the certificate, and the company’s monthly payment calculations are based on these calculations.  You ask the quantity surveyor whether he is happy that the certificates are accurately calculated.  He tells you that they are almost, but not quite accurate.  In fact, they are all incorrect to the extent of approximately two weeks worth of work.  In order to increase cash flow from projects, your company has for a number of years had a general policy of advance invoicing.  This means that, in interim payment applications which are based on progress, the company applies for payment slightly ahead of work done.  This is possible because your clients generally tend to rely on your company’s measurement of works, and only check by overall visual inspection of progress once per month.  By the time the project owner’s quantity surveyor undertakes this check (which is approximately two weeks after the payment certificate has been submitted), the claimed work has been undertaken.  By the end of each project, the payments balance out so that overall the company receives no more money than it should do.  It simply receives interim payments earlier than it would otherwise do (which improves your company’s cash flow, and as a result reduces borrowing costs).  You are concerned about this, as it means that you are signing a payment certificate which certifies that work has been done by a particular date which has not actually been done.  You discuss this issue with your company’s finance director who believes that there is nothing wrong with this.  Changing the policy will seriously affect the group’s cash flow.  As far as you are aware, other contractors follow the same process, so it is “industry practice”.

 

What do you do?

 

Consider your position, and then go to the answer on the next page.