How do I handle progress billing for construction projects?
Progress billing means invoicing clients at defined points during a project rather than waiting until the end. For construction, this is essential because projects can take months and you need cash flow to cover materials, labor, and subcontractors along the way.
Start with a clear billing schedule in your contract. Most contractors tie invoices to either project milestones or percentage of completion. Milestone billing works well for projects with distinct phases: foundation complete, framing complete, dried in, trim complete, final. Percentage billing works better for projects where work flows continuously. Either way, spell out exactly what triggers each invoice and what amount or percentage applies.
Document completion before you bill. Take photos showing the work is done. Get signed field reports or daily logs confirming the milestone was reached. If you’re billing based on percentage complete, have a clear method for calculating that percentage. When disputes arise, documentation protects you.
Track retainage as a separate line item. Most construction contracts hold back 5% to 10% of each progress payment until the project is substantially complete. This retainage is money you’ve earned but won’t collect until later. In your accounting, record the full invoice amount as revenue, but split the receivable between what’s due now and what’s held in retainage. This gives you an accurate picture of what you’ve earned versus what you can actually expect to collect soon.
In QuickBooks or similar software, set up each project as a customer with sub-jobs or use the project feature. Create invoices against the project as you hit billing milestones. If you’re tracking job costs properly, you can compare your billings to your actual costs at any point and know whether the project is profitable.
Apply payments correctly when they arrive. Match each payment to the corresponding invoice and track the retainage portion separately. When retainage releases at the end, invoice for that amount and apply the final payment. Sloppy payment application makes it hard to know what’s actually outstanding on each project.
Watch for billing getting ahead of actual progress. Some contractors bill aggressively early in a project to improve cash flow, then find themselves finishing work that’s already been paid for with no more billing milestones left. This creates cash crunches at project end when you still have costs but no incoming payments. Keep your billing schedule aligned with real completion.
Communicate with clients before each invoice. A quick heads-up that you’re hitting a milestone and will be billing keeps the relationship smooth. Surprise invoices lead to payment delays and questions. Working with small business bookkeepers in New Mexico who understand construction can help you set up systems that track all of this without becoming a second job.
The goal is knowing exactly where every project stands at any moment: how much you’ve billed, how much you’ve collected, how much is in retainage, and how all of that compares to your costs. That clarity lets you manage cash flow and catch problems before they become expensive.
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