💰 Pay Application Process Playbook
Submit monthly pay applications with complete documentation and get paid faster. An incomplete pay app gets bounced — costing you 30+ days of cash flow. This playbook ensures first-time acceptance.
Why Pay App Management Matters
| Issue | Impact |
|---|---|
| Incomplete submission | Rejected — lose 30 days waiting for next billing cycle |
| Late submission | Missed billing deadline — wait another month |
| Overbilling | GC or owner rejects, damages trust, may trigger audit |
| Underbilling | Your cash flow suffers, you're financing the project |
| Missing lien waivers | Payment held until waivers are provided |
| Missing certified payroll | Payment held on public work projects |
Cash Flow is King
In construction, you don't go broke from lack of work — you go broke from lack of cash flow. A 30-day payment cycle means your pay app process must run like clockwork.
Roles and Responsibilities
| Role | Responsibilities |
|---|---|
| Superintendent | Verify work-in-place percentages, confirm quantities, walk the site with PM |
| Project Manager | Prepare pay app, calculate progress, compile documentation, submit on time |
| Project Engineer | Assemble backup documentation, lien waivers, certified payroll |
| Accounting | Process sub pay apps, prepare lien waivers, track AR |
| Subcontractors | Submit their pay app to you by your internal deadline (typically 5–7 days before your deadline) |
Monthly Timeline
| Day | Activity | Who |
|---|---|---|
| Billing cutoff date | Progress measured as of this date | Per contract |
| Cutoff + 1 | Walk the site — verify progress by SOV line item | PM + Super |
| Cutoff + 2–3 | Collect sub pay apps, prepare your pay app | PM + PE |
| Cutoff + 3–4 | Internal review — verify percentages, compile backup | PM |
| Cutoff + 5 | Submit complete pay app to GC/owner | PM |
| Cutoff + 5–7 | Respond to any questions or corrections | PM |
| Per contract | Payment due (typically 30–45 days from submission) | Owner/GC |
Know Your Billing Deadline
Your contract specifies the billing cutoff date and submission deadline. Miss it by one day and you wait another month. Put it on your calendar with 2 weeks of advance warning.
Step-by-Step Process
Step 1: Establish the Schedule of Values (SOV)
At project start, create the SOV that breaks your contract amount into line items.
SOV best practices:
| Practice | Why |
|---|---|
| Break into 20–50 line items | Enough detail for tracking, not so much it's overwhelming |
| Front-load mobilization and early work (within reason) | Improves early cash flow — but don't overdo it |
| Include stored materials as a line item | Bill for materials on-site but not yet installed |
| Separate general conditions | Track overhead costs separately from production |
| Match your estimate breakdown | Makes cost-to-complete analysis easier |
| Include change orders as separate line items | Track change order billing separately from original contract |
Sample SOV structure:
| Line | Description | Contract Amount |
|---|---|---|
| 1 | General Conditions / Mobilization | $85,000 |
| 2 | Earthwork and Site Grading | $120,000 |
| 3 | Concrete Foundations | $245,000 |
| 4 | Structural Concrete — Elevated | $380,000 |
| 5 | Structural Steel | $290,000 |
| ... | ... | ... |
| 25 | Final Cleaning and Closeout | $15,000 |
| Original Contract Total | $2,450,000 | |
| CO-1 | Added outlets — Conf Room B | $4,200 |
| Revised Contract Total | $2,454,200 |
Step 2: Calculate Progress
For each SOV line item, determine the percent complete as of the billing cutoff date.
Methods for calculating progress:
| Method | Best For | Example |
|---|---|---|
| Percent complete | Work that spans multiple months | Concrete foundations — 60% complete based on CY placed |
| Installed quantity | Measurable work | 4,200 SF of drywall installed out of 12,000 SF = 35% |
| Milestone | Work with clear milestones | Rough plumbing: 0%, 50% (rough complete), 100% (trim complete) |
| Cost ratio | General conditions | $52,000 spent of $85,000 budget = 61% |
| Stored materials | Materials on-site but not installed | $45,000 of steel delivered, stored on-site, not yet erected |
Walk the site to verify:
- PM and superintendent walk each area together
- Compare actual progress to the percentage you plan to bill
- Be honest — overbilling destroys trust and invites audits
- Photograph work-in-place to support your percentages
Step 3: Collect Sub Pay Apps
- Set an internal deadline for sub pay apps (5–7 days before your deadline)
- Review each sub's pay app:
- Does the percent complete match what you see in the field?
- Are stored materials actually on-site?
- Is the amount within their contract + approved COs?
- Are lien waivers included?
- Reject or adjust submissions that don't match field conditions
- Include approved sub amounts in your pay app
Step 4: Compile the Pay App Package
A complete pay app includes:
| Document | Description |
|---|---|
| AIA G702 / G703 (or equivalent) | Application and Certificate for Payment + Continuation Sheet (SOV) |
| Updated SOV | Each line item with: scheduled value, previous billings, this period, stored materials, total complete, % complete, balance to finish, retainage |
| Lien waivers | Conditional waiver for current billing + unconditional waiver for previous billing |
| Sub lien waivers | Same from each sub being paid |
| Certified payroll (if public work) | For the billing period |
| Stored material documentation | Invoices, delivery tickets, photos of on-site storage |
| Change order backup | Approved change orders being billed for the first time |
| Progress photos | Photos supporting work-in-place claims |
Step 5: Internal Review
Before submitting, verify:
- Math is correct — line items add up, percentages calculate correctly
- Previous billing amounts match last month's approved pay app
- Retainage is calculated correctly per contract (typically 5–10%)
- Change orders are listed correctly (approved COs only)
- Stored material amounts are supported by invoices
- Lien waivers are correct (right amounts, right periods, correct form for your state)
- Certified payroll is complete and accurate (if applicable)
- Billing doesn't exceed contract amount + approved COs
- PM signs the application
Step 6: Submit
- Submit per contract requirements (hard copy, electronic, or both)
- Submit by the deadline — not one day late
- Confirm receipt
- Log the submission in your AR tracking
Step 7: Follow Up
| Day After Submission | Action |
|---|---|
| Day 3 | Confirm receipt and that review has started |
| Day 7 | Check status — any questions or corrections needed? |
| Day 14 | If no response, formal follow-up |
| Per contract payment terms | Payment due — if not received, start collection process |
Handling Rejections
| Rejection Reason | How to Prevent | How to Fix |
|---|---|---|
| Overbilling | Walk the site before billing, be honest | Adjust percentages to match actual progress, resubmit |
| Missing lien waivers | Collect from all subs before submitting | Provide immediately — don't let this delay payment |
| Math errors | Double-check all calculations | Correct and resubmit same day |
| Unauthorized change orders | Only bill approved COs | Remove unapproved COs, resubmit |
| Missing certified payroll | Submit certified payroll with pay app | Provide immediately |
| Incomplete documentation | Use the checklist above | Provide missing items same day |
Retainage Management
| Phase | Typical Retainage | Notes |
|---|---|---|
| During construction | 5–10% withheld | Per contract |
| At 50% complete | Some contracts reduce to 5% | Check your contract |
| At substantial completion | Release retainage less 150–200% of punch list value | Negotiate this |
| At final completion | Release remaining retainage | After punch list complete + all closeout docs |
Tips for retainage release:
- Track retainage on every pay app
- Request retainage reduction at 50% if your contract allows it
- At substantial completion, push for retainage release (minus punch list holdback)
- Don't let retainage sit for months — follow up aggressively after final completion
Common Mistakes
| Mistake | Impact | Fix |
|---|---|---|
| Missing the deadline | Wait another 30 days for payment | Calendar reminders, start prep 1 week early |
| Overbilling | Rejection + trust damage | Be honest, walk the site, compare to last month |
| Underbilling | Cash flow suffers, you finance the project | Review every line item, don't leave money on the table |
| Missing lien waivers | Payment held — even if pay app is perfect | Collect waivers from all subs before your submission deadline |
| Not tracking sub billing | Sub overbills you, you pass it through | Review every sub pay app against field conditions |
| Ignoring retainage | Tens of thousands held indefinitely | Track and pursue retainage release per contract |
Metrics
| Metric | Target | Frequency |
|---|---|---|
| Pay app submitted on time | 100% | Monthly |
| First-time acceptance rate | over 90% | Monthly |
| Average days to payment | Per contract terms | Monthly |
| AR aging > 60 days | $0 | Monthly |
| Retainage % of contract | Per contract, actively managed | Monthly |
Related Resources
| Resource | Link |
|---|---|
| Pay Application Guide | Full Guide |
| Progress Billing Calculator | Calculator |
| Lien Waiver Generator | Generate Waiver |
| Schedule of Values Generator | Generate SOV |
| Invoice Generator | Generate Invoice |
| Retainage Calculator | Calculator |