Handbook / Invoicing and getting paid

Progress billing: how to invoice long projects in stages

On a project that runs for weeks or months, waiting until the end to invoice means funding the whole job yourself. Progress billing solves this by spreading invoices across the project as work is done. It improves cash flow, reduces the risk of a large unpaid bill and keeps clients aware of how the project is moving.

How progress billing works

You and the client agree, before work starts, how the project will be billed in stages. Then, as each stage is reached, you send an invoice for that portion. The final invoice covers the remaining balance.

Methods

Milestones. Invoices are tied to defined deliverables, such as approved designs, a completed first draft or finished framing. This is clear for both sides and suits creative, technical and consulting work.

Percentage of completion. You bill based on how much of the project is complete, such as a quarter done. This is common in construction and requires an agreed way to measure progress.

Time-based. You invoice on set dates, such as monthly, for work done in that period. This suits long engagements and hourly work.

Combination. A deposit at the start, milestone payments and a final payment on completion.

Setting the schedule

Write the schedule into your agreement or statement of work. Include:

• each stage or milestone
• the amount or percentage billed at each
• what counts as completion or approval
• payment terms for each invoice
• what happens if a milestone is delayed by the client

Front-load where you can. If your costs or risk are heaviest early, bill more early.

Deposits and progress billing

Many projects start with a deposit. Decide whether the deposit is credited to the first progress invoice, spread across invoices or applied to the final one, and state this in writing.

Retainage

In construction, clients often hold back a portion of each progress payment, called retainage or retention, until the project is finished and accepted. If your contract includes retainage, track it separately so you remember to invoice for its release at the end.

What a progress invoice should show

• invoice number and date; see invoice numbers
• project name and contract reference
• total contract value, including approved change orders
• the stage or period being billed and its amount
• total billed to date
• payments received to date
• deposits applied and any retainage held
• amount due now and balance remaining
• payment terms and methods

A running summary on each invoice prevents confusion about what has been paid and what is left.

Handling changes

When the scope changes, update the contract value through a change order and either add a new billing stage or adjust remaining stages. Do not quietly add changed work to a progress invoice without approval.

Keeping records

Track each project in your bookkeeping: contract value, invoices, payments and balance. The IRS says your records must support the income you report. Your accounting method affects when progress payments count as income; IRS Publication 538 explains cash and accrual methods, and certain long-term contracts can have special rules. If you are unsure, ask a tax professional. See cash vs accrual.

Chasing late progress payments

If a progress invoice is not paid, follow your payment terms. Your agreement can allow you to pause work until overdue invoices are paid, which is much safer than continuing to work on credit.

Benefits for clients

Progress billing also helps clients: payments are spread out, each one is tied to visible progress and there is no single large bill at the end. Explain it this way when proposing it.

A simple schedule in words

A small website project might be billed in four stages: a deposit on signing, a payment when the design is approved, a payment when the site is built and ready for review, and the final balance at launch. Each stage has a clear trigger that both sides can see, and each progress invoice shows what has been billed and paid so far. A renovation might instead bill on a percentage of completion agreed at site visits.

Communicate each stage

Send a short note with each progress invoice summarising what was completed and what comes next. Clients pay faster when they can see the progress they are paying for.

Agree a stage-by-stage billing schedule before you start, invoice each milestone promptly, show running totals, deposits and retainage on every invoice, update the schedule through change orders and pause work if progress payments stop.