Progress billing means invoicing a construction job in stages as the work gets done, instead of in one bill at the end. You can bill by percent complete against a schedule of values, by milestones or on a set schedule. Whichever you pick, the contract should spell out each payment, the work it covers and anything held back as retainage.
Below: how each method works, two worked examples, how retainage fits in and how to write payment stages into your contracts. This is general information, not legal advice. Payment rules vary by state, especially for home improvement contracts, so check your state’s rules and talk to a local attorney.
On a job that runs for weeks or months, waiting until the end to bill means you pay for labor, materials and subs long before the client pays you. Progress billing spreads payments across the job, so cash comes in as costs go out, and the client pays for work that’s actually in place.
It’s standard on commercial and public work. Federal construction contracts, for example, make progress payments monthly (or more often if the contracting officer sets a shorter period), based on estimates of completed work that the contracting officer approves. Many private commercial jobs use the AIA G702 and G703 forms, which AIA calls “the industry standard for monthly payment releases.” On residential jobs, the same idea usually shows up as a payment schedule in the contract.
A schedule of values breaks the contract price into lines, like foundation, framing and rough-ins, each with a dollar value. The lines add up to the contract sum. Each billing period, you bill the percent of each line that’s done, minus what you’ve already billed.
This is how the AIA G703 continuation sheet works. For each line it tracks the scheduled value, work billed on the previous application, work completed this period, materials presently stored, total completed and stored to date, percent complete, balance to finish and, where the contract allows it, retainage.
You bill a set amount when a defined stage is done: rough-in inspections passed, cabinets set, final walkthrough complete. It’s easy for homeowners to follow, which makes it a good fit for remodeling. The catch is that milestones need to track the cost of the work, or you end up billing ahead of or behind the job.
You bill on fixed dates, such as the 25th of each month, for the work done since the last invoice. Federal construction contracts pay monthly. A fixed date is easy to run, but each invoice still has to reflect the work actually completed, not just the calendar.
Say you’re building a $150,000 addition with 10% retainage. Your schedule of values:
Total: $150,000.
Billing period 1. General conditions are 15% done ($1,800) and the foundation is 75% done ($18,000). Work completed: $19,800. Retainage at 10%: $1,980. Payment due: $17,820.
Billing period 2. General conditions reach 30% ($3,600), the foundation is finished ($24,000) and framing is 60% done ($18,000).
After two periods, the job is 30.4% billed ($45,600 of $150,000), with $104,400 left to finish and $4,560 held in retainage.
The habit that makes this work: bill from the percent complete on each line, and back up the numbers with photos, inspection results and delivery tickets so the client or lender can check them quickly.
Say you sign a $60,000 kitchen remodel with five payments:
Each stage is tied to something the client can see, and the last payment waits until the punch list is done, which gives the client the same comfort retainage would.
Now check it against your state’s rules, because some states regulate home improvement payments closely:
Other states have their own rules. Check yours before you set a deposit; our state license guides are a good place to start.
Retainage is a percentage held back from each progress payment until the job is complete. In the addition example, 10% of every payment is held, so after billing period 2 the owner holds $4,560. At completion, the full 10% ($15,000 on a $150,000 job) is due once the contract’s release conditions are met.
The rate and the release rules come from your contract and, sometimes, the law. On federal contracts, the contracting officer may retain up to 10% only when progress isn’t satisfactory. New York caps retainage at 5% on private construction contracts for projects of $150,000 or more (with several residential exclusions) and requires release within 30 days after final approval of the work.
Show retainage on every invoice: the amount held this period, the total held to date and the net amount due. It keeps your books and your client’s in agreement, and it makes the final release invoice easy to write.
The free contract template includes a payment schedule table by milestone that you can adapt with your attorney. The invoice template has lines for progress payments and change orders, plus payments received and balance due.
Progress billing is invoicing a job in stages as the work is completed, instead of billing the full price at the end. Payments are usually based on percent complete, milestones or a set monthly schedule, as the contract defines.
Milestone billing is one kind of progress billing. You bill a set amount when a defined stage is done, while percent-complete billing bills the share of each line in a schedule of values that’s finished each period.
Add up the value of work completed to date, subtract what you’ve already billed, and subtract any retainage on this period’s work. The result is the payment due for this period.
It depends on your contract and your state. Federal contracts allow materials stored on site to count, and off-site materials only if the contract allows it. California home improvement contracts can’t collect payment for materials not yet delivered.
It depends on the state. California caps home improvement down payments at $1,000 or 10% of the contract price, whichever is less, and Maryland caps deposits at one-third of the contract price. Check your own state’s rules.
A progress payment is a payment for the work completed so far on a job that’s billed in stages, instead of one bill at the end. It can be based on percent complete, a milestone or a set date, as the contract defines. Federal construction contracts make them monthly, based on estimates of completed work that the contracting officer approves. On home jobs, they usually appear as a payment schedule in the contract.
Break the contract price into a schedule of values, with a dollar amount for each line. Each period, bill the percent of each line that’s done, minus what you’ve already billed and any retainage. The AIA G703 continuation sheet tracks this line by line, and AIA calls its G702 and G703 forms “the industry standard for monthly payment releases.” The free invoice template has lines for progress payments.
Tie each payment to a verifiable event, like a passed inspection or installed cabinets, list the amount and the work it covers, and keep the stages in line with cost. Hold the last payment until the punch list is done. Check deposit limits first: California caps home improvement down payments at $1,000 or 10% of the contract price, whichever is less. This isn’t legal advice, and rules vary by state; see the license guides.
In ECHOPS, a quote can carry a payment plan by stage (or lender financing), and the client signs it online. Once the job is won, invoices come from that payment plan: deposit, progress payments and balance. Each signed change order bills itself on an invoice of its own. Clients can pay invoices online by card, Apple Pay, Google Pay or ACH, other payments are recorded by check, ACH, cash or card last 4, and clients see their invoices and payments in the client portal. See invoicing and accounting.
Posts are general information, not legal, tax or financial advice.
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