Progress Billing Explained: How Contractors Get Paid on Long-Term Jobs
- Cost Construction Accounting
- 1 day ago
- 4 min read
Cash flow is very important in the building business. But when jobs take weeks or months, freelancers rarely get paid in full up front or even when the job is done. Instead, they use progress billing, a method that makes sure they get paid for work done in small chunks as it's finished.
It's not just helpful to know how progress billing works; it's necessary to stay in business, pay employees and suppliers, and keep the project going forward. We will talk about how to bill for building work, what problems to avoid, and how to make your billing better so that you get paid on time and correctly in this guide.
What Is Progress Billing?
Progress billing is the method of invoicing a client in installments as a long-term job progresses, typically based on the percentage of work completed or specific milestones achieved.
Rather than submitting one invoice at the end of the project, contractors send payment applications at agreed-upon intervals. This process provides steady cash flow and protects both the contractor and the client.
Why Use Progress Billing for Long-Term Jobs?
Most of the time, contractors can't pay for large or custom building projects with their own money until the job is finished. In the same way, buyers want to know that work is being done before they give money. Progress billing takes care of both problems by:
Creating a billing schedule for contractors
Aligning payments with project progress
Reducing risk for both parties
Common Progress Billing Formats
There are a few recognized ways contractors bill for progress:
Billing Method | How It Works |
Percentage of Completion | Invoice based on the estimated % of work completed for each line item |
Milestone Billing | Invoicing upon reaching defined project milestones (e.g., completion of framing) |
Unit Pricing | Billed according to completed units (e.g., per square foot, per window) |
AIA Billing (G702/G703 Forms) | Widely used for commercial jobs; structured progress invoicing per contract scope |
How to Structure a Progress Billing Invoice
For accurate billing and to avoid disputes, every progress invoice should include:
Original contract amount
Change orders (if applicable)
Amount billed to date
Current percentage completed
Retainage in construction (typically 5–10% withheld until final approval)
Balance remaining
Using a progress billing template or certified AIA forms ensures consistency and professionalism.
What Is Retainage & How Does It Affect Payment?
Retainage is when the client holds back some of each invoice, usually between 5 and 10 percent, until the job is mostly finished. It's a safety measure to make sure the job is done right.
For instance, if you bill $100,000 for a part of the work, the owner might only give you $90,000 and hold on to $10,000 until the job is finished.
Keeping track of retainage the right way is important for managing cash flow and making sure it's not forgotten when the job is over.
Pitfalls to Avoid in Construction Progress Billing
Managing progress billing can be hard for even skilled contractors.
Underbilling or overbilling is a common problem that happens when the amount of money on the paperwork doesn't match the amount of work that was done. This imbalance can slow down cash flow, hurt trust with clients, and lead to project delays.
Failing to keep track of change orders is another common issue. Changes to the project scope should be written down and accepted by everyone involved before the bill is sent out. If you go ahead without official permission, you might not get paid for extra work you do.
A lot of the time, checking retention is also forgotten. Contractors might forget to keep an eye on the part of payments that is held until the job is finished. If this isn't done, large amounts of money could go uncollected.
Another mistake that can mess up the payment cycle is sending bills too late. Sending bills late often leads to payment delays that can be avoided, which makes it harder for contractors to keep up with their ongoing costs.
Lastly, mistakes made by hand on invoices, like wrong totals, missing backup papers, or typos, can slow down approvals and make the invoice look less trustworthy. Making sure something is correct before sending it in is important for staying professional and avoiding arguments.
Contractors can improve the accuracy of their bills, protect their cash flow, and build more trusting relationships with their clients if they catch and fix these problems early on.
How Contractors Can Manage Billing Internally
Smaller firms may handle progress billing internally using tools like spreadsheets or built-in invoicing features from their accounting software. Here’s how you can manage billing without outsourcing:
Set a consistent billing cycle (e.g., monthly)
Assign a staff member to handle invoicing and payment follow-ups
Create a job folder for each project with billing records, contracts, and change orders
Reconcile the contractor invoicing ledger with actual bank deposits
However, as your project load grows, the complexity and volume of billing may outpace internal capabilities. When billing errors start to affect cash flow, it's time to reassess.
When It’s Time to Seek Professional Support
If you often have problems like missed payments, client complaints, or late invoices, you might want to work with a professional bookkeeper who specializes in construction.
At Construction Cost Accounting, we help contractors set up and run construction invoice management tools that work well. Once you've set up the basics, we can handle your recurring bills, get rid of old invoices, and make sure that your progress payment tracking stays accurate and organized.
Our team knows how to handle the special needs of billing for big projects, like retainer payments, change orders, and confirmed payment requests. This help can make all the difference for busy workers who want to spend more time on the job site and less time in the office.
Conclusion
Progress billing is more than just paperwork—it’s the financial lifeline of your construction business. When structured and managed correctly, it keeps your projects funded, your crew paid, and your relationship with the client on track.
By understanding the progress billing process, avoiding common errors, and implementing a reliable system for documentation and follow-up, you’ll be in a stronger position to grow profitably. Whether you handle billing in-house or lean on experts like us, the key is consistency, accuracy, and clear communication.
Need help creating a custom progress billing template or want a walkthrough of AIA payment applications? Just ask—we’re here to support your success.
