Why documentation matters for contractors

It's easy to underestimate the necessity of a seamless paper trail until things become adversarial and it is necessary to prove a case in a lawsuit. Whether there is a labor dispute, a dissatisfied client, or a supplier disagreement, having the proper documentation is of utmost importance.

Essentially, a paper trail is a series of documents that give a chronological account of transactions. These may be receipts, contracts, material delivery, insurance certificates, site inspection, etc. While maintaining these documents can be cumbersome, especially if done manually, it's still essential to have them all. 

However, the goal should be to digitize as many records as possible. In addition to freeing time and improving efficiency, digitization helps minimize the risk of losing vital documents, which can be costly. PricewaterhouseCoopers approximates the cost of recreating a lost document at $220. That's too much.

Why is a paper trail important to your business?

There are numerous benefits of maintaining an accurate paper trail. The top three include:

• Evidence in disputes – Documenting agreements and safeguarding documents is imperative when disputes arise in future. If someone files a lawsuit against a company, having documented evidence can be the difference between paying a hefty penalty and subsequent reputation damage, or being acquitted. Without evidence, the court would have to rely on personal recollection of events, which can make it difficult to prove a case. 
• Easy underwriting – When underwriting business insurance coverages, insurers rely heavily on business documents to assess a company’s risk profile. Having construction costs/finances, agreements, change orders etc., well documented provides an easy way for the underwriters to understand your business operations, and the potential risk. Proper documentation of business operations demonstrates that the company closely monitors its performance, and therefore is a lower-risk business.   
• Accurate accounting – Construction finance plays a crucial role in profitability. Without proper management of construction costs and accurate financial forecasts, the risk of running into losses or stagnating in growth can be high. However, efficient accounting requires keeping accurate records, as incomplete records can distort your financial position.

Types of documents to maintain

Construction businesses have different categories of documents. From contracts to financial documents and project paperwork, the records are many and diverse. While the documents may differ from one company to the other depending on the construction contracts, the most common ones include:

• General ledger and journals (captures all financial transactions the company undertakes)
• Project billings
• Pre-construction agreements
• Contractual agreements/ work orders
• Change orders
• Site inspection forms
• Insurance certificates
• Contract drawings and revisions
• RFIs

How to improve your paper trail

Seamless documentation of procedures may not be possible without the involvement of the entire team. For this reason, it's essential to sensitize teams – managers, workers, site foreman, and supervisors – to follow procedures by educating them on how to conduct proper documentation. 

Lastly, we began by emphasizing the importance of digitizing your procedures. Doing so can save the company money and time, leading to an improved bottom line. There are different facets to digitizing your operations. For efficient paper trailing, start by implementing digital document management and integrating departments for real-time updating of records. Digitization also alleviates the need for physical storage space which can be cumbersome and costly.

Briq is a financial automation platform that unifies your business data and helps you run a better business. Speak with our experts today.