Progress billing

A progress bill is a type of invoice which, instead of billing a client for a job completed entirely, bills them for work completed up to a certain date. You can perform progress billing by invoicing at different stages of completion of a project.

This type of invoicing is most ideal for long projects. Using a lot of time and resources will mean going for a long time without pay if you only receive it at the project’s completion. This is especially concerning if there are problems along the way which mar the course of the project, dragging it out even further. Progress billing is a way to ensure you stay paid as you work.

Ideally, you will have discussed progress billing with your client before requesting it. It’s important to clarify the payment conditions before embarking on any project, so that there’s no confusion later on.

Once you have confirmation from your client that they agree to progress billing, the next thing to do is lay out the invoicing terms. When clarifying these terms, you should confirm things like:

• Amount of payments (each and total)
• Frequency of payments
• Cost of materials/goods required to complete job

Progress billing benefits both you and your client. For you, it means you are compensated throughout the project, and for your client, it means they won’t have to fund the entire project upfront.

The specifics you include in your progress billing invoices will be individual to the contract worked out between you and your client. That being said, there are a few basic elements that should go in every progress billing report:

• Total amount due for the project
• Approved changes to the amount
• Total billed up to this point
• Current percentage of completion of project
• Remaining balance owed

Other than that, you may need to include the cost of materials, transport, and any other expenses accumulated as a result of completing the project.

Creating a progress bill essentially means creating an invoice, but at a series of steps throughout the project, causing the invoice to be broken up into a progress billing structure.

Let’s go over the steps in detail, so you can perform progress billing effectively.

This is where you outline project tasks and the costs to complete them. This provides you and your client a standardized organization of the project’s tasks, making it easier for everyone to agree on scope, milestones, and payment terms. Your values schedule is also where you can refer to to determine whether the project was finished under or over budget.

Crucial to the right progress billing structure, this is where you determine the frequency and amounts of the payments throughout the project. Use project milestones to trigger payments.

Together with your client, put together an agreement which solidifies the terms established in the previous steps. Make sure you focus on establishing clarity and understanding between you and your client.

Once all the terms are laid out and contract signed, begin working on the contract with the aim of finishing it by the agreed-upon deadines.

Once you reach your first milestone with the project, submit the first invoice to be paid for your contributions so far.

Your client will review the invoice for its accuracy and relevance to the conditions laid out prior.

You receive the payment, minus any retainage. You should receive the invoice by the agreed date, so as not to slow the project down.

Submit the final invoice once you have completed the project.

Industries embarking on long, complex, and generally expensive projects with lots of materials to purchase will use progress billing.

The following industries might use progress billing as a form of invoicing, due to the kinds of projects they take on:

• Engineering (electrical, civil)
• Tradespeople (roofers, plumbers, electricians)
• Construction (for high amounts of raw material purchasing)
• Technology (integration of new tech into other industries, e.g. defense, medicine)

For these industries which often take on lengthy projects with lots of stipulations and potential blockers to completion, progress billing is an ideal solution.

Overall, progress billing offers simplicity and transparency for both you and your client. There are a few more specific benefits to both you and your clients, which we’ll outline for you below.

Paid as you go: this makes cash flow management much easier for you as you work, without having to worry about delays causing unpaid periods or extra materials being added onto the final invoice.

Lower debt: you’re much less likely to go into debt if you have regular payments to cover materials, delays, and new additions to the project.

Payment clarity: rather than having to assess one payment for the whole project at the end, progress billing allows you to assess each step of the way, making it easier to identify if problems emerge or are consistent across payments.

Less risk: payments along the way better enforce the requirement that you do good work. The client can assess your work as it is being completed, and stop payments if the work is not as agreed in the contract.

No upfront payments: paying upfront can often be a source of trepidation for the client. Not having to do so may encourage them to take the project on more confidently.

More timely work: you are likely to finish the project according to each deadline, to collect your payments as agreed. This works well for the client because they have a clear roadmap to the projects’ completion.

Despite the above advantages, there are some challenges to progress billing. This again applies to both sides, so we’ll outline them below for you to consider when making your decision to use this invoicing method.

Increased preparation: progress billing won’t allow you to just start the project. It requires preparation of contracts, milestones, payment conditions—all before you can begin. Make sure you have the time and desire to do this first.

More admin: quite simply, more invoices means more admin. Make sure you have the capacity to deal with tracking and checking multiple invoices, or you can afford to outsource the admin to a professional.

More potential for disputes: similar to the above point, more invoices can lead to more disputes. This can all happen at the beginning stage, which stretches out the preparation and lengthens the time before you can begin the project and start getting paid.

Requires experience: working out payments as they go along requires a good understanding of how to bill correctly and accurately. This can cause some clients to avoid progress billing because they don’t feel knowledgeable enough to implement it in a way that will benefit them.

Overpaying: if the client is unsure about some details of the procedure of progress billing, they may overpay on bills. To help your client avoid this, aim for transparency and clarity about the costs, and explain your payment proposals.

Since construction is one of the most common industries in which progress billing takes place, we’ll lay out the steps of a hypothetical project to demonstrate how progress billing works.

1. You are subcontracted by your company to build a new office location for a client.
2. You purchase and pay for the required materials, labor, and equipment to complete the project.
3. You send the bill to your company, the general contractor.
4. The general contractor reviews your invoice and purchases.
5. Your company submits this invoice to the client for review, with any supporting documents.
6. Both client and general contractor review the invoice, to make sure the work done reflects the payment request.
7. After approval, the client pays the general contractor.
8. Your company pays you the agreed amount.
9. You then get paid, with revenue costs covered, and continue working on the project
10. Process repeats from step 1.