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Contractor glossary

Progress billing

Updated

Definition

Progress billing is invoicing a job in stages as the work is completed, instead of sending one invoice at the end. Each invoice bills the part of the contract earned so far, either for reaching agreed milestones or by percent complete against a schedule of values.

Also called: Progress invoicing, Progress payments, Milestone billing

Two ways to bill progress

Progress billing keeps you from financing a customer's project out of your own bank account. It comes in two forms:

Method How each invoice is figured Where it fits
Milestone billing A set amount when an agreed event happens, such as materials delivered or a rough-in inspection passed Residential projects: roof replacements, solar installs, repipes, remodel wiring
Percent complete Each line of a schedule of values times its percent complete, minus what you've already billed Work for general contractors, commercial jobs, large remodels

Either way, tie each stage to something the customer, a general contractor or an inspector can confirm, not a calendar date that slips with the weather.

The schedule of values

A schedule of values breaks the contract price into lines whose values add up to the contract total. Each billing period, you show how far along each line is, and the general contractor or owner checks it against what they can see on site. Write lines someone can verify on a walk, like "rough-in, second floor" or "service and panel," not "labor." Approved change orders go on new lines and raise the total.

Example: An electrical subcontract worth $40,000 has four lines: service and panel $8,000, rough-in $16,000, devices and fixtures $10,000, and final and closeout $6,000. At the first billing, the service is done and rough-in is half done, so $8,000 + $8,000 = $16,000 is earned. At the second, rough-in is complete and devices are 40% done: $8,000 + $16,000 + $4,000 = $28,000 earned to date, minus the $16,000 already billed, for a $12,000 invoice. If the contract holds back retainage, each invoice shows that too. The numbers are made up for illustration.

What each progress invoice shows

  • The contract total, plus approved change orders
  • The milestone reached, or percent complete by line
  • Earned to date, previously billed and payments received
  • Any retainage held
  • The amount due now and the balance left on the contract
  • Proof: the inspection result, a delivery receipt or photos

Check the rules before you set the schedule

Your contract sets the stages, but state law can limit them. On home improvement contracts, some states cap down payments and limit how far payments can run ahead of the work, and retainage rules vary too. Check with your state's contractor licensing board or a construction attorney before you write a schedule.

Common mistakes

  • Front-loading. Inflating early stages to get paid ahead of the work invites rejected pay applications, can break your state's home improvement rules, and leaves you owing work you've already been paid for if the job stops.
  • Underbilling. A stage that's done but not invoiced is money you're lending the customer. Bill the day you reach it.
  • Burying changes. Changes billed inside the original lines make the schedule stop adding up. Keep them separate.
  • Waivers before payment. Give a conditional lien waiver with each request, using your state's form if it has one, and an unconditional one only after the money clears.

How it connects

A deposit usually opens the schedule, and the stages themselves are payment terms, so they belong in the signed contract. Each unpaid stage sits in your accounts receivable until it's collected. How much deposit to ask for covers how the deposit and progress payments fit together, and how to invoice electrical jobs shows pay applications and retainage on work for a general contractor.

Go deeper

GuideHow Much Deposit Should a Contractor Ask For?How to size a contractor deposit from what you'd lose if the customer cancels, check state limits and cancellation rights, and write terms customers sign.GuideHow to Get Paid Faster as a ContractorHow contractors get paid sooner: payment terms set at booking, invoices sent the day the job ends, pay links, deposits, progress billing and reminders.Electrical guideHow to Invoice Electrical JobsHow electricians invoice service calls, panel and EV charger jobs, and GC work: progress billing, permits, change orders, retainage and lien waivers.Solar guideHow to Invoice Solar InstallationsHow solar installers bill in milestones: deposits, equipment and install payments, PTO, lender funding, panel upgrade change orders, lien waivers and serials.
RetainageRetainage is a set percentage of each progress payment that the customer or general contractor holds back until the work is complete, as security that the job gets finished and corrected. It's money you've earned but get paid later, usually at closeout.DepositA deposit is a payment the customer makes before work starts, credited toward the final price. Contractors use it to cover materials bought for the job and to hold a place on the schedule. Some states limit how much a contractor can collect up front on home improvement work.Change orderA change order is a written amendment to your contract that changes the scope of work, the price or the schedule, approved by the customer before the changed work starts. It records what changed, the added cost or credit, the new contract total and any new completion date.Lien waiverA lien waiver is a signed document in which a contractor, subcontractor or supplier gives up some or all of its lien rights on a property in exchange for payment. A waiver is either conditional or unconditional, and covers either a progress payment or the final payment.Payment termsPayment terms are the conditions on your estimate, contract and invoice that say when payment is due, how the customer can pay and what happens if they pay late. Common terms include due at completion, due on receipt, net 15 and net 30.Accounts receivableAccounts receivable (AR) is the total your customers owe you for work you've done and invoiced but haven't been paid for yet. It's money you've earned but can't spend, which is why a busy month can still leave you short on cash.

See every term in the glossary