How progress billing works
On a construction project that runs for weeks or months, you don't wait until the end to get paid. You bill at regular intervals — usually monthly or at agreed milestones — for the share of the work completed so far. That share comes from a schedule of values: the contract price split into parts of the job, such as foundation, framing, roofing and finishes.
Each invoice (often called a pay application) shows, for each part of the job:
- the scheduled value — that part's share of the contract price
- the percentage complete to date
- the amount earned — scheduled value × percentage complete
- previous payments — what has already been billed and paid
- retainage — the share the client holds back until the end
Example construction invoice
| Line item | Qty | Rate | Amount |
|---|---|---|---|
| Site work and foundation – 100% complete (of $18,000) | 1 | $18,000.00 | $18,000.00 |
| Framing – 60% complete (of $32,000) | 0.6 | $32,000.00 | $19,200.00 |
| Roofing – 25% complete (of $14,500) | 0.25 | $14,500.00 | $3,625.00 |
| Approved change order #3 – additional footing (100%) | 1 | $2,200.00 | $2,200.00 |
| Less retainage 10% of work completed to date | 1 | $-4,302.50 | $-4,302.50 |
| Less previous payments (Pay applications #1–2) | 1 | $-16,200.00 | $-16,200.00 |
| Total | $22,522.50 |
Here the quantity column holds the percentage complete as a decimal (0.6 = 60%), so the amount works itself out from the scheduled value. Retainage and previous payments are entered as negative lines, so the total is what's due for this period.
Retainage
Retainage (or retention) is a percentage of each payment — often 5% or 10% — that the owner or general contractor keeps until the project is finished, as security that the work will be completed and defects fixed. Many states limit how much can be held back and how quickly it must be released once the work is done. Keep a running total of retainage held, and invoice for it separately at substantial completion: "Release of retainage – Pay applications #1–6".
Lien waivers and deadlines
On many projects, the owner or general contractor won't release a payment without a lien waiver for the amount being paid. Lien rights protect you if you aren't paid, but they come with strict notice deadlines that vary by state, and they can start running from the first day you supply labor or materials. If you work on construction projects regularly, learn your state's preliminary-notice rules — or ask a construction attorney — before you need them.
Big projects need cash-flow planning
Progress billing smooths cash flow, but net-30 terms plus retainage can still leave you paying crews and suppliers weeks before you're paid. If you're self-employed, also remember that no tax is withheld from these payments. Use our quarterly tax calculator to plan your estimated tax payments so a large job doesn't turn into a large tax bill.
Frequently asked questions
What's the difference between this and an AIA pay application?
AIA G702/G703 forms are a standard format many commercial projects require. If your contract asks for them, use them. This template follows the same logic — scheduled value, percentage complete, retainage, previous payments — in a simpler invoice that suits residential and smaller commercial work.
How do I bill a change order on a progress invoice?
Add it as a new line once it's approved, with its own value and percentage complete, as in the example. It then appears on every later invoice until it's fully billed.
Is retainage taxable income when I invoice it or when I'm paid?
Most small contractors use the cash method, so income counts when it's received. Retainage usually counts when it's released and paid. If you use the accrual method, the timing can differ — check with a tax professional.
Can I use this for a one-off job?
For a single job billed at the end, the contractor invoice template is simpler.