Mastering the Construction Billing Process: A Step-by-Step Guide

The construction billing process is about getting paid accurately and on time, not only about mailing invoices. Working with many contractors who feel overwhelmed by billing forms, progress payments, retainage, and compliance documentation as an experienced construction bookkeeper, I have seen the correct technique, though, this process may be seamless and stress-free.

I will walk you through the main elements of billing in construction in this tutorial, discuss typical mistakes, and provide you with practical tips you may use right now.

What Makes Construction Billing Different?

Unlike most service companies, construction work is usually billed based on progress billing, which means that clients are charged in small amounts as parts of the work are finished. This means that billing needs to match up with project milestones, rules for keeping money, and thorough cost breakdowns.

Here’s what sets construction billing apart:

• Use of forms like AIA G702/G703

• Inclusion of retainage in construction

• The need for lien waivers and compliance docs

• Complex construction draw schedules

Types of Construction Billing Methods

Depending on your project type and contract terms, you might use one or more of the following methods:

Billing Method	Description
Lump Sum Billing	One price for the entire project, paid in stages
Time and Materials Billing	Bill for labor and materials with markup
Unit Price Billing	Bill based on units completed (e.g., per square foot)
Progress Billing	Bill a percentage of work completed

Progress billing for contractors is the most common method in commercial and public works jobs. It’s also where most billing confusion starts.

Read more: AIA Billing vs. Progress Billing: Which One Works Best?

Step-by-Step Construction Billing Process

Let’s break the construction billing process down into manageable steps:

1. Understand the Contract Terms

Your billing process should reflect what’s outlined in your contract. Key details include:

• Billing frequency (monthly, bi-weekly, etc.)

• Retainage percentage

• Required documentation (e.g., certified payroll reports, lien waivers)

• Payment application format (e.g., AIA billing explained)

2. Track Work Completed Accurately

You can’t bill what you haven’t completed. Implement job costing and billing tools or systems to ensure each cost is assigned to the correct job and phase.

3. Create a Billing Schedule

For larger jobs, build a construction draw schedule. This outlines how much will be billed at each project milestone, helping both you and your client stay on the same page.

4. Prepare a Detailed Invoice

Your invoice should include:

• Description of work completed

• Materials used

• % of work completed to date

• Amount being billed this cycle

• Retainage withheld

Using a construction invoice template ensures you cover all necessary details.

5. Submit Supporting Documents

Don't forget:

• Lien waivers

• Compliance forms

• Change order approvals

• Certified payroll reports if required

This reduces back-and-forth and speeds up payment.

6. Follow Up on Payments

Late payments affect your contractor accounts receivable. Be proactive. Send polite reminders and keep a paper trail. If needed, prepare to file a mechanic’s lien (state laws apply).

Read more: What is a Past Due invoice? Guide for Contractors on How to Handle Late Payments

Common Questions Contractors Ask

How do I handle retainage?

Retainage in construction is a portion (typically 5–10%) withheld from each invoice to ensure project completion. Track this carefully in your accounting system. You’ll bill for it once the project wraps up and passes inspection.

What’s the difference between an invoice and a pay app?

A payment application is more detailed than a typical invoice. Especially when using AIA billing, it includes both forms G702 (summary) and G703 (breakdown of costs by trade or section).

What documents do I need for government jobs?

If you're working on public projects, you may be required to submit certified payroll reports and follow Davis-Bacon wage laws. Make sure your billing reflects these added layers of compliance.

Tips to Avoid Billing Mistakes in Construction

Tip	Why It Matters
Use software with construction billing workflow features	Reduces manual errors and automates repetitive tasks
Double-check draw schedules	Prevents overbilling or underbilling
Communicate with the GC or owner	Billing delays often come from missing info
Maintain organized job files	Keeps all change orders and support docs handy
Review contractor invoicing tips monthly	Helps fine-tune your billing strategy

Mistakes like billing for unapproved work, using outdated forms, or forgetting lien releases can delay payments and damage relationships.

What If You’re Still Struggling With Billing?

Sometimes, even with the right tools, contractors struggle to stay on top of billing. Maybe you’re managing too many projects, or maybe you're just not confident in your accounting skills.

Start by organizing your workflow:

• Keep a digital folder for each project

• Use templates for consistency

• Revisit your billing calendar weekly

But if you find yourself constantly chasing down payments or making corrections, it may be time to get help.

How Construction Cost Accounting Can Help

You're not the only one who finds the building billing process hard to handle. A lot of the contractors we work with either billed late, didn't send us the right papers, or charged too little without realizing it.

At Construction Cost Accounting, we help construction companies set up billing systems that are clean and follow the rules. This is what our team can do for you:

• Track job costs in real-time

• Prepare accurate invoices and payment applications

• Avoid billing mistakes in construction

• Organize all supporting documents seamlessly

You can begin by using the ideas in this piece. But if you care about time, accuracy, or peace of mind, you might want to let our experienced team handle the numbers while you focus on your work. 

Conclusion

Mastering the construction billing process doesn’t have to be complicated. With a clear understanding of contract terms, accurate job tracking, and a consistent workflow, you can bill confidently and get paid faster.

Take control of your billing, reduce stress, and build stronger relationships with clients and subcontractors. If you need help tightening up your process or scaling your operations, we’re here when you’re ready.