What is a Progress Billing?

A progress billing is an invoice that is intended to obtain payment from a customer for that portion of a project that has been completed to date. Progress billings are especially common in the construction industry, where projects could last for more than a year, and contractors need the cash from these billings to fund their work.

Advantages of Progress Billing

There are several advantages to issuing progress billings, from the perspectives of both the seller and the client. The key advantages are noted below.

Advantages for the Seller

Improved cash flow. Progress billing allows sellers to receive payments at regular intervals rather than waiting until the project is fully completed. This improves liquidity and ensures funds are available to cover ongoing expenses like labor, materials, and overhead.
Reduced financial risk. By billing in stages, sellers minimize the risk of non-payment. If a client defaults or cancels the project, the seller will have received payment for work already completed.
Easier budget management. Regular inflows of cash help service providers better manage their budget and allocate resources efficiently throughout the project lifecycle.
Enhanced client accountability. Requiring payment for completed milestones ensures clients remain invested in the project and discourages delays in payment.
Better project monitoring. By tying payments to specific project milestones or completion percentages, progress billing helps providers monitor and manage project progress more effectively.

Advantages for the Customer

Enhanced transparency. Progress billing provides clients with clear updates on the status of the project, as invoices are typically tied to specific milestones or work completed.
More manageable payments. Instead of paying the entire project cost upfront or in a lump sum at the end, clients can make smaller, more manageable payments over time.
Reduced financial risk. Clients only pay for work that has been completed, reducing the risk of overpaying or being left with an unfinished project.
Opportunity for quality control. With regular billing, clients can review completed work before making the next payment, ensuring the project meets agreed-upon standards.
Improved collaboration. Progress billing fosters a collaborative relationship between the client and the provider, as both parties stay engaged and aligned throughout the project.

Contents of a Progress Billing

A progress billing contains the following unique information that is not found on a standard invoice:

The adjusted total contract amount
The cumulative amount of progress billings to date
The percentage of completion of the project
The total amount remaining to be billed

Customers sometimes build into the calculation of progress billings a withheld percentage of the total contract, which is not billed until the project is complete. This withheld amount is used to exert pressure on the contractor to fix any remaining problems found by the customer.