What Is Progress Billing? How It Works, With a Worked Example

You’re four months into an eight month job. You’ve paid for materials, you’ve paid your crew, and the client pays on completion. So you’re funding somebody else’s building out of your own account and hoping nothing goes wrong.

That’s the problem progress billing solves, and most guides explain what it is without ever telling you the thing you actually need: how to work out what to invoice this month.

So that’s what’s below. What it is, a worked example with real numbers, the three ways of measuring how complete a job is, what retainage costs you, and what to do when a client reads your invoice and says no.

What progress billing actually is

A normal invoice says here’s the job, here’s the price, please pay. A progress billing invoice says something different: here’s the whole contract, here’s how much of it is finished, and here’s what you owe me for that part of it.

Construction has done it this way forever, but it belongs in any job long enough that your money goes out well before it comes back. Fit-outs, software builds, consulting projects, design work, anything past a few weeks really.

Each progress billing invoice carries four numbers a normal invoice doesn’t:

• The adjusted contract total, which is the original price plus every approved change
• The amount billed to date, including this invoice
• The percentage complete
• The balance to finish

Those four lines are the whole difference, and they do more work than they look like they do. A client who can see them rarely queries the total, because the running maths is sitting right there in front of them.

A worked example

Say you’ve agreed a $60,000 fit-out over four months, billed monthly.

By the end of month two you’ve done the strip-out, the first fix and about half the joinery. The client also approved $4,000 of extra work in week five, so your contract total is now $64,000.

Here’s the progress billing invoice.

PROGRESS INVOICE 2 OF 4

Original contract: $60,000.00
Approved changes: $4,000.00
Adjusted contract total: $64,000.00

Work completed to date: 45%    $28,800.00
Less previously billed: $15,000.00
Less retainage held at 5%: $1,440.00

Due this invoice: $12,360.00

Balance to finish: $35,200.00

Notice the client can check every line of that without picking up the phone. Forty-five percent of $64,000 is $28,800, minus what they’ve already paid, minus the bit they’re holding back. There’s nothing in there to argue with.

How to work out the percentage complete on a progress bill

This is the part every progress billing guide skips, and it’s the only number on the invoice that isn’t obvious.

There are three ways to get at it, and you want to agree which one you’re using before the job starts, not halfway through when you’re sending the first bill.

Cost to cost. Divide what you’ve spent so far by what you expect to spend in total. Spent $18,000 of a projected $40,000 in costs, you’re 45% complete. It’s the most common method because the numbers already exist in your accounts, and it’s the easiest to defend. It’s also the logic US tax law applies to long-term contracts, under the percentage of completion method.

The weakness: buy all your materials in week one and the maths says you’re miles ahead when nothing is actually built. If you work this way, agree up front whether materials on site count before they’re installed.

Milestones. Break the contract into named stages with a value against each. Strip-out $9,000, first fix $15,000, joinery $22,000, and so on. You bill a stage when it’s finished, nothing before.

This one is the cleanest to explain to a client and the hardest to game. It’s also the least forgiving, because a stage that’s 90% done is worth nothing until it’s 100%.

Physical measure. Count the actual units. Twelve of twenty windows fitted, you’re 60% on that line. It works where the work divides neatly, and nowhere else.

Most businesses using progress billing land on cost to cost for the overall figure and milestones for anything a client might dispute. Using both is fine as long as the contract says which applies where.

Retainage, and why it’s bigger than it looks

Retainage is a slice of each progress billing payment the client holds back until the job is signed off. Five to ten percent is normal in construction, and ten on public work.

Most people treat it as a rounding error. It really isn’t.

On that $64,000 contract at 5%, the client is sitting on $3,200 of your money by the end. If you’re running four jobs that size at once, that’s $12,800 out of your account, and you’ll typically wait 30 to 90 days after completion to see it.

Two things worth doing about it. Get the release terms written down, specifically what counts as practical completion and how many days after it the retainage is paid. And price it in rather than absorbing it, because a job quoted without accounting for 5% held back for four months is quietly a cheaper job than you thought.

Where change orders fit

The adjusted contract total on your invoice is the original price plus approved changes, and that word approved is carrying a lot of weight.

If you add $4,000 of extra work to the contract total on an invoice, and the client doesn’t recognise it, your whole progress billing invoice is now in dispute. Not just the $4,000. All of it, because the percentage was calculated against a total they don’t accept.

Which is why extras get agreed in writing before the work happens, not noted on the invoice afterwards. If you’re not clear on what that looks like, a change order is the document that does it, and it exists precisely so this conversation never happens.

When the client disputes a progress billing invoice

Hardly anybody writes about this part, which is odd, because it’s the bit that costs you money.

Progress billing gives the client a scheduled moment to object, and sometimes they take it. It’s usually one of three things.

They disagree with the percentage. You say 45%, they say 35%. This is why the method goes in the contract. If it says cost to cost, you show the cost report and the conversation is over in five minutes. If the contract says nothing, you’re negotiating from scratch every month.

They’re unhappy with quality. Fair or not, it’s a different argument from the invoice. Split it: ask them to pay for the parts they’re happy with, and hold only the disputed line. A client who refuses to split usually isn’t really disputing the quality.

They want to withhold for a delay. Check the contract. Most of the time there’s no right to withhold payment for programme slippage unless it’s written in, and saying so calmly and early is better than finding out in month six.

In all three, invoice the undisputed portion straight away. Holding the whole invoice hostage to one line is how a small disagreement becomes a cash flow problem, and the same thinking applies to any invoice you send.

The progress billing terms to agree before you start

Five things in the contract, and every one of them fits in a single sentence.

The billing schedule, monthly or by milestone. The method for measuring completion. The retainage percentage and when it’s released. The payment window, and net 30 payment terms are the usual default. And what happens when an invoice is late, which is where a stated late payment fee does more work than people expect.

None of this is complicated. Progress billing terms are just much harder to agree in month three than in week one.

Frequently asked questions

Is progress billing only used in construction?

No. It started there and the terminology comes from there, but it suits any project long enough that you’re carrying costs before payment. Agencies, consultants, software teams and fabricators all use it.

How often should you send a progress billing invoice?

Monthly is the default for progress billing and it matches how most clients run their own payment runs. Milestone billing works better on shorter jobs with obvious stages. Weekly is rare and tends to annoy the person approving it.

What is the difference between progress billing and advance billing?

Advance billing is money before the work. Progress billing is money for work already done. Plenty of contracts use both, taking a deposit at the start and then progress billing against the rest.

Can you charge interest on a late progress payment?

Usually yes, if your contract says so. Rules on statutory interest vary by country, so check what applies where you trade, and either way write your own term into the contract rather than relying on it.

The short version

Progress billing invoices the client for the share of a project finished so far. Each bill shows the adjusted contract total, the amount billed to date, the percentage complete and the balance to finish.

Agree the method for measuring completion before you start, because that’s the number clients argue about. Price retainage in rather than absorbing it. Put extras through a change order before they reach an invoice.

And when a client disputes one line, bill the rest anyway.