We wrote this article originally in 2017, when our director was asked during one of our workshops, “What is the difference between an invoice and a payment claim?”
Not only was it a great question, but it made our director stop to think about these terms that we all use in contracts and in the construction industry, and how often we stop to consider what the terms actually mean.
In the new Building Industry Fairness (Security of Payment) Act 2017 [BIF Act] world, it would be fair to say there is even more confusion about the differences between invoices and payment claims and vice versa.
The purpose of this article is to take away any confusion and give you clarity about the meaning of these terms and the differences.
The first thing to understand about payment claims, progress claims and invoices is that you can now have one document that is all three. However, to be absolutely clear:
not all invoices are payment claims;
not all payment claims are invoices; and
not all progress claims are invoices.
To understand the differences, let’s first talk about what makes up each individual document.
Payment claim
The BIF Act states that a payment claim is a written document that:
“(a) identifies the construction work or related goods and services to which the progress payment relates; and
(b) states the amount (the claimed amount) of the progress payment that the claimant claims is payable by the respondent; and
(c) requests payment of the claimed amount; and
(d) includes the other information prescribed by regulation.”
The confusion stems from subclause (c). To help contractors know what could be considered a request for payment, the BIF Act further states that:
“A written document bearing the word ‘invoice’ is taken to satisfy subsection (1)(c).”
In other words, if your claim states “invoice” that is going to be enough to satisfy the requirement that the payment claim requests payment. However, as you will see below, just having the word “invoice” on your claim is not going to be enough in itself to satisfy the ATO’s requirements for an invoice.
To be a valid payment claim, the payment claim must be made on or after:
the date your contract states a claim for payment can be made (e.g. fortnightly, monthly, 25th day of the month); or
if your contract is silent, the last day of the named month that you first carried out the construction work and the last day of each later month.
There are a few additional rules to making sure that your payment claim is valid, however the first step is making sure that your claims for payment comply with the above points.
Invoice
When we use the term invoice, we really mean tax invoice. According to your tax obligations, if your claim is more than $82.50 (including GST) your GST registered customers need a tax invoice.
A tax invoice must have the following information:
state it is intended to be a tax invoice (this is usually done by labelling the document “invoice”);
your identity;
your ABN;
the date of the invoice;
a description of the goods or services;
the GST amount payable; and
the payer’s identity or ABN (if the invoice is over $1,000).
To read more about tax invoices see the ATO’s website.
In the construction industry, recipient created tax invoices (RCTI) are often used. This is where the payer creates the invoice after receiving your progress claim and/or payment claim. The RCTI is based on how much the payer considers is owing to you. This is often set out in the payer’s payment certificate and/or payment schedule. Your contract will set out the process for payment and whether you are to be provided a tax invoice or whether the payer will create an RCTI. If your contract is silent, the obligation of providing a tax invoice will rest on you.
Progress claim
A progress claim is a term that is usually used in contracts. It refers to claims for payment being made progressively as the works are completed. Usually your contract will allow you to make claims for payment either:
at the completion of certain stages in the works (e.g. first fix and second fix); or
at certain time periods (e.g. fortnightly, months, 25th day of the month).
Contracts often set out criteria for progress claims and what they are to contain to be valid under the contract. A common criteria is the inclusion of a statutory declaration.
The reason the term progress claim is often used in contracts instead of payment claim is:
a valid progress claim does not need to be a valid payment claim (however in the current BIF environment it would be hard for a valid progress claim not to be a valid payment clam);
payers may not want to remind you that you can use the BIF Act to protect your interests in getting paid; and
for domestic building work, you can only use payment claims if the owner is not a resident owner.
Want to know more?
We are based in Wellington Point 4160. Our work hours are Monday to Friday 9.30am to 4pm.
If you’d like to speak with us about a matter or concern you have right now in your business, feel free call us on 07 3128 0120 or email us on subcontractors@arbuildinglaw.com.au.
How else do we help tradies and subbies?
The estimated cost of a bespoke tradie contract from Aitchison Reid starts from around $3,500 to $4,500 upfront, plus estimated costs of around $1,000 each time the bespoke contract needs to be updated for changes in the law. We've observed over many years that cost has been a significant barrier to tradies and subbies getting the contracts, terms and subcontracts they need for their businesses.
So we decided to work with TradeBox Australia on a solution. We have crafted commercial trade terms, domestic trade contracts and subcontracts specifically for tradies and subbies. These products are licensed to TradeBox Australia, so that they can make them available on low cost subscriptions to tradies and subbies.
From Wednesday 7 December 2022 (previously 7 November 2022), TradeBox's monthly subscription fees including GST start from:
$49 per month for Commercial Trade Terms;
$59 per month for Domestic Trade Contracts;
$69 per month for Subcontracts.
Sounds good? Want to find out more? Grab the handy introduction to TradeBox PDF on the link here, and check out TradeBox Australia online.
