What is the difference between an invoice and a payment claim? Revisited
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.
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.
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”);
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.
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 have developed an easy, video-based online course for subbies and tradies, designed to help you understand the BIF Act rules about getting paid, plus rules about paying others, adjudication and other security of payment education. Check out our online course anytime 24 hours a day 7 days a week on these web addresses: www.subbiesgetpaid.com.au or www.tradiesgetpaid.com.au.
We are based in Ormiston 4160. Our office hours are Monday to Friday 9am to 5pm.
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 email@example.com.
Our previous article content was published 7 August 2017, now obsolete and struck-out below: