Late payment has become a systemic problem in Ontario’s construction industry. Over the last ten years, the average age of receivables in the construction industry has increased, with payers in all sectors routinely paying late, creating problems for all concerned. Many construction companies are struggling to meet the new legal requirements which only allows 14 days to dispute an invoice because of the way in which invoices and claims are processed.
In an effort to curb the trend of elongated payment durations, the prompt payment and adjudication amendments to the Construction Act were introduced in October 2019, which presented a strict prompt payment regime in Ontario, changing the future of the Canadian construction industry for good.
For many construction companies and contractors, this law is an administrative headache. However, the introduction of technology, such as OnePosting allows companies to adhere to these strict timelines for prompt payment and adjudication. Let’s take a closer look at how OnePosting and our invoice technology can help the construction industry get paid on time, in addition to streamlining the invoice approval process, releasing staff to focus on more productive activities, and removing paper handling and storage.
What is prompt payment and adjudication?
Prompt payment and adjudication rules are designed to speed up payment throughout various construction projects, and across all facets of the construction industry while also streamlining the mediation of disputes.
While rules in other jurisdictions may vary, Ontario was the first to introduce this type of legislation in Canada. Other provinces and the federal government—for federally funded projects—are either updating their legislation or considering it, but nothing has been implemented as of yet. Given Ontario’s experience as a first adopter, many jurisdictions are looking to Ontario for learnings and outcomes, before implementing in their own jurisdictions.
The Ontario rules apply to any construction project in Ontario, which has forced construction companies across the country to assess their readiness for compliance when it comes to prompt payment (Source).
Prompt Payment Rules
The Ontario rules for prompt payment follow these steps:
1. Starting point – Contractor invoices the owner of the project.
2. Within 28 days – Owner of the project must pay the invoice within 28 days after receiving the invoice. The 28-day clock begins only if the invoice conforms to the specifications of Ontario law.
3. Within 7 days – Contractor must pay all subcontractors within seven days of receiving payment from the owner. Payment must be made to all subcontractors whose services or materials were included in the contractor’s invoice to the owner. This obligation extends down the chain to sub-subcontractors—they must also pay their own subcontractors within seven days.
Parties also face new tight timelines to express their disagreement with an invoice. They must deliver a notice of non-payment within a specified amount of days, even if they dispute part of the invoice (Source).
How can companies respond to prompt payment and adjudication?
The prompt payment and adjudication law requires a prompt reaction from construction companies in terms of payment, while also referring to tracking the mandatory timelines for delivering invoices and notices of non-payment.
Additionally, businesses should anticipate the possibility of adjudication for any job, and at any time. Historically, parties who wished to put forth a dispute could spend months or even years collecting evidence. However with adjudication, both parties must be able to access their documentation at all times. Therefore, it is vital that recordkeeping and accounting be accurate, robust, and digital.
How Technology Can Help
Many companies have yet to introduce systems to help them adhere to these strict deadlines, and the majority of the responsibility falls on the back-office. It is important to access your processes, and invest in new systems, or perhaps examine opportunities for add-ons to current systems. More importantly, companies will need to adjust their workflows- either by adjusting their processes to reduce turnaround times in the payment and adjudication process, or by adapting to new technologies such as OnePosting to improve the process.
How Can OnePosting Work for You?
OnePosting’s solution can help you comply with the prompt payment aspects of the Construction Act. It works with your existing accounting, finance, or ERP systems to increase the speed at which invoices can be processed, reduce the manual effort involved, decrease the number of errors, while also providing better visibility to project owners and finance teams.
Supplier invoices can be checked for a valid PO, quantity, pricing, and tax before they reach your team, and errors and omissions can be returned, and rectified in a timely manner. Once an invoice has been approved, it can be posted to the accounting system or ERP system without any of the traditional manual entry, ensuring 100% accuracy.
There is no IT spend or infrastructure involved and our industry leading invoice data extraction technology ensures that we’ll have you up and running in no time.
Additional benefits of OnePosting include
- Monitoring profitability of jobs in “real time”
- Central visibility of all current and pending financial commitments
- Traceability and accountability for every invoice
- Multiple approvals for high value invoices
Where should You start?
When looking at prompt payment and adjudication, construction companies should begin with three immediate actions:
1. Understand prompt payment and adjudication in your jurisdiction
2. Revisit internal operations, and your existing ERP system. Could your team benefit from OnePosting’s invoice automation?
3. Assess current systems, capabilities, and workflows against new requirements, to establish all of the opportunities presented from a faster invoice approval process?
Ensure compliance with the new timelines for prompt payment and adjudication with OnePosting, and our invoice automation software. There may not even be a need for an IT project, as OnePosting provides all of the technology needed. Streamline your invoice approval process, release staff to focus on more productive activities, and remove paper handling and storage.