The Contractor's Dilemma
One simple invoicing mistake can cost you thousands in unrecoverable material costs or tax liabilities. This guide covers the specific accounting needs of tradespeople.
1. The Golden Rule: Labor vs. Materials
One of the most common mistakes independent contractors make is lumping everything into one big number. This confuses clients and looks suspicious.
Invoice Example
Labor: Installation Services
15 Hours @ $85/hr
$1,275.00
Materials: Lumber, Wiring, Paint
Pass-through cost
$4,500.00
2. Handling Deposits & Draws
Never start a major renovation or construction job without a deposit. For large projects, use a "Draw Schedule".
30-50%
Upfront
To cover materials
25%
Milestone
Rough-in complete
Bal.
Final
Upon walkthrough
3. Managing Change Orders
"Scope creep" is the enemy of profit. If a client adds work mid-job:
- Stop working on the new task immediately.
- Issue a Change Order invoice (essentially a new invoice for the specific extra task).
- Get it approved/paid before continuing.
Don't forget the tax!
In many regions, labor services are taxed differently than physical goods. Check your local laws to see if you need to charge sales tax on your labor.