Progress billing is when you invoice a client in stages as work gets completed rather than waiting until the entire project is finished. It’s standard practice in construction and contracting, especially on jobs that span weeks or months where the contractor would otherwise be funding all labor and materials out of pocket.

Before the project starts, you create what’s called a schedule of values. This is a breakdown of the total contract price by phase or trade. A $200,000 remodel might split into demolition, framing, electrical, plumbing, drywall, and finish work, each with a dollar amount assigned. That schedule becomes the basis for every invoice you send throughout the project.

As you complete each phase or hit certain milestones, you submit a billing (sometimes called a pay application on commercial work) for the portion of work that’s done. If framing is worth $35,000 and it’s complete, you bill $35,000. If electrical is 50% done and worth $20,000, you bill $10,000. Some contractors bill monthly based on percentage of completion. Others bill when specific milestones are reached. Either way, the client reviews the billing, confirms the work matches what you’re claiming, and approves payment.

Retainage is often part of the process. The client holds back a percentage of each payment, usually 5% to 10%, until the project is substantially complete. So if you bill $35,000 for framing with 10% retainage, you receive $31,500 and the remaining $3,500 gets held until the end. You invoice for all that accumulated retainage once the project wraps up. It protects the client, but it creates a real cash flow consideration that you need to plan around, especially when you’re running multiple jobs at once.

The biggest reason progress billing matters is cash flow. Without it, you’re covering payroll, materials, and subcontractor costs for the entire duration of the job before seeing a dollar. On a three-month project that can put you in a tough spot. Progress billing keeps money coming in while you’re spending it, which makes everything from paying subs on time to taking on the next project much more manageable.

From a bookkeeping standpoint, progress billing needs to be tracked carefully. Each invoice should tie back to the schedule of values. You need to know how much has been billed, how much has been collected, how much retainage is outstanding, and how that compares to actual costs on every active job. When this tracking falls behind or gets sloppy, you lose visibility into whether a project is actually profitable or just generating revenue. Good contractor bookkeeping services will keep all of this organized so you always know where each job stands financially, not just on the ground.