What Is Progress Billing?

Q: 1. What percentage should I bill upfront?

Industry standards: 10-30% deposit common Construction : 5-10% retainage Creative work : 50/50 split

Q: 2. How do I handle scope changes?

Issue change order forms Get written approval Adjust future invoices

Progress billing is an invoicing method where businesses bill clients incrementally as work is completed on long-term projects. This approach is essential for:

Managing cash flow on extended projects
Reducing financial risk for both parties
Maintaining healthy client-contractor relationships
Common in construction, consulting, and creative services

Key Characteristics:

Phased payments tied to project milestones
Detailed documentation of completed work
Regular client approvals at each stage
Flexible scheduling (monthly, quarterly, or milestone-based)

How Progress Billing Works?

The 5-Step Process:

1. Contract Agreement – Define billing schedule and milestones
2. Work Completion – Finish predefined project phase
3. Documentation – Prepare reports/photos of progress
4. Invoice Submission – Bill for completed portion
5. Payment & Continuation – Receive payment and proceed

Types of Progress Billing

1. Milestone-Based Billing:

Payments at critical project stages
Example: 25% after design approval

2. Percentage-of-Completion:

Bills based on % of total work done
Requires accurate progress tracking

3. Time & Materials:

Regular invoices for hours + expenses
Common in consulting and legal services

4. Unit Price Billing:

Payment per completed unit
Ideal for manufacturing/construction

Benefits of Progress Billing

For Contractors/Vendors:

✅ Improves cash flow stability
✅ Reduces non-payment risk
✅ Identifies project issues early
✅ Builds client trust through transparency

For Clients:

✅ Controls budget allocation
✅ Allows performance verification
✅ Provides payment flexibility
✅ Enables course correction

Progress Billing vs. Other Methods

Method	Best For	Payment Trigger	Risk Level
Progress Billing	Long projects	Milestones/phases	Medium
Retainer	Ongoing services	Regular intervals	Low
Lump Sum	Short projects	Project completion	High
Recurring	Subscriptions	Calendar schedule	Low

How to Implement Progress Billing

Essential Contract Clauses:

Payment Schedule – Defined milestones / percentages
Retainage Terms – 5-10% held until final approval
Change Orders – Process for scope modifications
Late Fees – Typically 1.5% monthly

Sample Invoice Structure:

Progress Invoice #3  
Project: Office Renovation  
Milestone: Drywall Completion (30% of total)  
Contract Amount: $50,000  
This Invoice: $15,000  
Balance Due: $20,000