Project-Based Invoicing: How Progress Billing and Deposits Keep Your Business Cash Flow Stable

When you're running a small business that works on long-term projects-whether it’s building a deck, renovating a kitchen, or installing solar panels-getting paid on time isn’t just nice. It’s the difference between staying open and shutting down. That’s where progress billing comes in. Instead of waiting until the job is 100% done to send one big invoice, you break the project into stages and bill as you go. It’s not just for big construction firms anymore. Small contractors, designers, and freelancers are using it to avoid cash crunches and build trust with clients.

Why Progress Billing Works Better Than Waiting for the End

Imagine you’re hired to remodel a 2,000-square-foot home. The total contract is $75,000. If you wait until the last nail is hammered to invoice, you’re carrying the cost of materials, labor, and equipment for months. That’s risky. What if the client runs out of money? Or changes their mind? Or just delays payment for 60 days? You’re stuck.

Progress billing solves this by splitting the payment into clear phases. For example:

• 20% upfront (deposit)
• 25% after demolition and rough framing
• 25% after plumbing, electrical, and insulation
• 20% after drywall and finishes
• 10% final payment after walkthrough and punch list

According to a 2024 study by Construction Cost Accounting, contractors using progress billing saw 32% fewer cash flow disruptions and 28% fewer project abandonments on jobs lasting longer than 90 days. That’s not luck-it’s structure.

How Progress Billing Actually Works: The Three Main Methods

Not all progress billing is the same. There are three common ways to track and bill for work done:

1. Milestone Billing

This is the most popular method for small to mid-sized projects. You agree on specific, measurable checkpoints. Each one triggers a payment. Examples:

• “Completion of foundation”
• “Roof installed and inspected”
• “All cabinetry hung and sealed”

Sixty-eight percent of residential contractors use 4 to 6 milestones per project, according to the same 2024 benchmarking study. It’s simple. The client knows exactly what they’re paying for. And you know when you’ll get paid.

2. Percentage of Completion

This method calculates payments based on how much of the total work is done. If you’ve completed 45% of the project, you bill 45% of the contract value. Sounds fair-but it’s tricky.

It requires detailed tracking. You need to document every task, estimate time spent, and often use photos or digital logs to prove progress. A 2023 survey by DepositFix found that 41% of contractors using this method had disputes over whether a task was 70% or 75% done. Clients don’t always understand how percentages are calculated. That’s why clear documentation is non-negotiable.

3. Unit Pricing

Used for repetitive, standardized work. You bill per unit completed:

• $150 per square foot of flooring
• $200 per window installed
• $50 per linear foot of trim

This works great for projects with lots of repeatable elements-like installing 30 windows or laying 800 sq ft of tile. It’s transparent and hard to argue over. If you installed 15 windows, you bill $3,000. No guesswork.

Deposits: The First Step, Not the Whole Payment

A deposit isn’t progress billing. It’s the first piece of it. Most contractors ask for 25% to 50% upfront. Why? To cover material costs, secure subcontractors, and show the client is serious.

QuickBooks’ 2024 small business report found that firms with fewer than 10 employees are 3.2 times more likely to rely on deposits than formal progress billing. That’s because they’re often solo operators without the tools to track complex percentages.

But here’s the trap: if you take a 50% deposit and then don’t bill again until the end, you’re back to the old problem-you’re still carrying the financial risk. The best approach? Combine a deposit with a clear progress billing schedule.

Example: $50,000 kitchen remodel

• 30% deposit ($15,000) → covers cabinets, appliances, permits
• 30% at rough-in ($15,000) → plumbing, electrical, framing
• 30% at finish-out ($15,000) → countertops, tile, paint
• 10% final ($5,000) → walkthrough, punch list, keys handed over

Now you’ve got steady cash flow, the client knows what’s happening, and you’ve reduced your risk.

The AIA G702/G703 Standard: What Big Projects Use

If you’re working on commercial projects over $1 million, you’re likely using the AIA G702 and G703 forms. These are the industry gold standard for progress billing in construction.

The G702 is the actual invoice. The G703 is the Schedule of Values-a detailed breakdown of every line item in the contract, with assigned dollar amounts. Together, they create a transparent, auditable trail.

Eighty-five percent of large commercial projects use AIA billing. It’s not just about being professional-it’s often required by banks, insurers, and public agencies.

Even if you’re a small contractor, using this format builds credibility. It shows you’re serious about accounting. Clients who’ve been burned before appreciate the structure.

What Every Progress Invoice Must Include

A bad progress invoice causes disputes. A good one prevents them. Here’s what you need in every single one:

• Original contract amount → Exact dollar figure, no rounding
• Current invoice amount → What you’re billing now
• Cumulative billed to date → Total paid so far
• Percentage completed → To one decimal place (e.g., 62.3%)
• Retainage withheld → Typically 5-10% of this invoice, held until final approval
• Remaining balance → What’s left to bill after this payment
• Change orders → Any additions or reductions to scope, signed and dated

Federal regulations require retainage on public projects. Many states have their own rules too-24 states cap retainage between 5% and 10%. Don’t guess. Know your state’s law.

Tools That Make Progress Billing Easy (Not a Nightmare)

You don’t need to do this in Excel. There are tools built for this.

• Procore → Used by 28% of mid-to-large firms. Tracks progress with photos, updates percentages automatically, integrates with payroll and purchase orders.
• QuickBooks Contractor Edition → 17% market share. Has built-in milestone templates and retainage calculators that auto-adjust for state laws.
• Houzz Pro → Popular with remodelers. Lets clients view progress photos and approve invoices in-app.

As of Q3 2024, 92% of construction firms with 50+ employees use specialized software. Even small teams are adopting it. QuickBooks users report saving 3-5 hours per billing cycle after switching from manual tracking.

And the tech is getting smarter. In 2024, Procore rolled out AI that analyzes site photos to estimate completion percentages. It’s not perfect-but it cuts manual work by 65%.

Common Mistakes and How to Avoid Them

Progress billing works-but only if you do it right. Here are the top three mistakes-and how to fix them:

1. Vague Milestones

“Finish framing” isn’t enough. What does “finish” mean? Are windows in? Is the roof sheathed? Are all load-bearing walls up?

Solution: Define each milestone with measurable criteria. Example: “Framing complete when all exterior walls, floor joists, and roof trusses are installed, inspected, and signed off by the structural engineer.”

2. No Change Orders

Client wants to upgrade from laminate to quartz countertops. That’s a $3,000 change. If you don’t get it in writing, you’re not getting paid.

Solution: Every change-big or small-needs a signed change order. Add it to the Schedule of Values. Update the remaining balance.

3. Forgetting Retainage

You bill $10,000. You withhold $500 (5%). You send $9,500. But you don’t track it. Next month, you bill another $10,000, withhold another $500. Now you’ve withheld $1,000. But your client thinks you’ve only withheld $500. Dispute.

Solution: Track retainage separately. Show it on every invoice. Sum it up. Make it crystal clear.

What Clients Really Think

Some clients hate progress billing because they don’t understand it. Reddit user u/ElectricalGuru said: “Spent 3 weeks arguing whether the wiring was 70% or 75% done.”

But others love it. u/FrameMaster87 said: “Switched to milestone billing after getting stiffed on a $42k job. Now I get paid on time. Clients appreciate the transparency.”

The difference? Communication. Show photos. Send weekly updates. Explain each invoice like you’re talking to a friend, not a lawyer.

When Progress Billing Isn’t Right

Not every project needs it. If you’re doing a $5,000 bathroom remodel that takes 10 days? A deposit and one final invoice might be fine.

Sarah Chen, a finance director at a $200M firm, warns: “I’ve seen contractors create 20+ milestones for a $50,000 job. That’s more paperwork than work.”

Keep it simple. Use milestones for projects over $25,000 and longer than 45 days. For smaller jobs, a deposit plus final payment is cleaner.

Final Checklist: Are You Ready to Start Progress Billing?

Before you send your first progress invoice, ask yourself:

• Have I defined clear, measurable milestones in the contract?
• Have I agreed on retainage percentage (5-10%) and when it’s released?
• Do I have a system to document completion (photos, sign-offs, dates)?
• Am I using software-or at least a consistent template-to track cumulative totals?
• Do I have a change order form ready for scope changes?

If you answered yes to all five, you’re ready. Progress billing isn’t about being fancy. It’s about being smart. It turns unpredictable cash flow into a predictable rhythm. It builds trust. And it keeps your business alive.