Invoicing basics: What is progress billing?

Discover how progress billing benefits customers and contractors for large-scale construction projects.

Traditionally linked to construction projects, progress billing has emerged as a versatile invoicing strategy. However, its utility goes beyond diverse industries, proving that it is beneficial for transparent financial transactions and steady cash flow management. Let’s explore the adaptability of progress billing and its application in sectors like web development, consulting, manufacturing, marketing, software development, and real estate.

What is progress billing, exactly?

Progress billing is one of the different types of invoices a business can use for ongoing projects. Typically used for large-scale construction projects, progress billing bills for work completed along the way. Instead of invoicing at the end of a project, progress billing occurs incrementally as the project advances.

How do progress billings on construction contracts work?

Usually, both the contractor and the customer discuss and agree upon a payment schedule before work begins. Accurate progress billing is critical for contractors to receive payment for labor and materials costs at regular intervals. An added benefit to the customer is the use of progress billing, which means they won’t have to fund the entire project upfront.

Traditionally, based on the percentage of work that’s been completed, some customers may negotiate to withhold a fixed percentage of the total amount due until project completion. Because payment schedules and tracking completed work can get complex quickly, accurate progress billing procedures are vital to a construction company’s success.

What’s included when progress billing for a project?

Here’s a breakdown of what’s typically included in progress billing:

• Total project amount. This is the overall agreed-upon cost for the entire project.
• Completion percentage. The percentage of the project that has been completed at the time of billing.
• Work summary. A brief description or summary of the work that has been completed since the last billing cycle.
• Milestones. Identification and documentation of specific project milestones achieved, as these often trigger a payment.
• Cost Breakdown. Costs associated with materials, supplies, labor, and equipment used during the completed phase of the project.
• Remaining Balance. The amount remaining to be paid by the client after the current billing cycle.
• Payment Details. Provide details on when the client is expected to make the payment and how they should make the payment. This should include bank account information or any other relevant payment instructions.

Progress billing example scenario.

Home renovation involves careful financial management through progress billing. Payments are strategically tied to project milestones, offering a more systematic approach to invoicing. For example, let’s consider a $50,000 home renovation project.

Progress Billing Breakdown:

• Initial phase (20% Completion). The demolition of existing structures is completed. This could incur a cost of about $10,000. Progress billing is set at 20%.
• Foundation and framing (40% Completion). Following up next is the foundation and framing, with costs now reaching $15,000 (cumulative: $25,000). Progress billing now reflects 40%, at $20,000.
• Rough plumbing and electrical (60% Completion). Rough plumbing and electrical work are next to be finished, costing $12,000 (cumulative: $37,000). Progress billing stands at 60%, equivalent to $30,000.
• Drywall and finishing (80% Completion). Drywall installation and finishing touches are done next, with costs reaching $10,000 (cumulative: $47,000). Progress billing is at 80%, totaling $40,000.
• Final phase (100% Completion). The final phase, which includes inspections and finishing details, incurs costs of $3,000 (cumulative: $50,000). The last progress billing is set at 100%. This concludes the project with a final payment of $50,000 and a remaining balance of $0.

This breakdown involves incremental payments aligned with the specific project milestones. So, both parties are provided with a structured financial roadmap.

Can other industries use progress billing for invoicing?

Progress billing is not only confined to the construction industry. It can be applied across a variety of different sectors. In web development and IT services, milestones such as design completion and project launch can trigger payments.

Consulting and professional services, including legal or management consulting, can tie billing to project phases or deliverables. Also, product development, manufacturing, marketing, advertising agencies, software development, event planning, and real estate can benefit from structuring payments around project stages.

Tell me how to set up and send progress billing invoices.

Because progress billing protects both the customer and the contractor, it’s important to ensure the billing workflow is solid from the outset. This will help prevent issues before they arise.

To set up progress billing, create a branded invoice template or upload an existing file with an easy-to-use set of online services. Customize your invoices with important details and information according to the project’s contract, payment schedules, and local, state, or federal laws. Make it easy for customers to review, sign, and pay progress invoices by using e-signature software powered by Adobe Acrobat.

When you’re ready to bill, all you have to do is enter your customer’s contact information, and the invoice is securely sent and encrypted along the way.

Streamline your progress billing process — plus, explore what more you can do with Acrobat today.