What Is Progress Invoicing? A Definitive Guide

By Indeed Editorial Team

Published November 9, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies involved in long-term projects with large budgets often seek ways they might receive payments while working to cover materials and wages. These organizations might use a progress invoicing system to prepare payment schedules at major stages of the project. Learning about this method can help you decide if you could benefit from issuing several invoices throughout an ongoing project. In this article, we discuss what progress invoicing is and its key components, along with benefits and steps you can consider when creating your own.

What is progress invoicing?

Progress invoicing is a process where businesses bill their customers intermittently while working on a program. Companies might determine that customers pay an amount at the start of a program, halfway through and at the end of the project to ensure they have the financial resources to complete the work. Organizations that provide long-term services often use this billing method. Companies in several industries use progress invoicing, including:

  • Construction: Many construction companies use progress invoicing to account for the high costs of equipment and materials. Contractors purchase these materials and pay wages throughout a project, and progress billing provides them with the needed cash flow to execute those orders.

  • Aerospace and defense: Companies in this industry often handle projects that take years to complete, like building naval systems or aircraft. Between the costs of engineering expertise and specific tools and technology, progress invoicing helps fund the areas needed to complete the projects.

  • Software development and design: Software engineers design and develop sites, systems and applications, which can take months or years to complete. Progress invoicing allows them to receive payment for their work while completing it, rather than at the end of a project.

  • Small businesses: Small businesses, especially startups, often require funding as they take on new projects. Progress invoicing can help them maintain a steady cash flow while building capital they can use for future projects.

Related: What Is an Invoice? Definition and Purpose

Components of progress invoicing

Contractors include specific information on each invoice to capture the work performed, payment progress and overall project scope. These details define a clear understanding of the project that both can review to ensure they align with the original project invoice. The main components of progress invoicing include:

Contract amount

As with standard invoices, a progress bill includes the total cost of a project. If there are any changes to the scope of a project, like updated materials needed or additional tasks to perform, you can include these here. If you determine set payment amounts, like 25% payments four times throughout the project, you can include this information so customers know what they might pay. You can include the total amount and the amount due upon invoice receipt for each progress bill.

Cumulative value

With each progress invoice, you can share a summary of the work completed. This encourages customers to make their progress payments, as they can see the results of your work, even if it will take more time to complete. If you provide multiple progress invoices, you might indicate what value you've provided since the last payment and the cumulative efforts to date.

Contract balance

Along with the amounts and the values, including the balance on a progress invoice shows customers what they've paid and what they will pay. The balance can show how many payments remain and the total amount they have left to pay. This can be especially important if there were any scope changes to share unplanned cost changes for which the customer can prepare.

Related: Bill vs. Invoice: What's the Difference?

Percent of completed work

Progress updates can show customers what you've completed so far. Different from the value you've provided, this figure can be a simple percentage that shows how close a project is to its end. This figure might align with the amount balances if you divide your invoices into equal segments. For example, if you issue four progress bills, the percentage might be 25% on the first, 50% on the second, 75% on the third and 100% on the final invoice.

Benefits of progress invoicing

Progress billing is useful to both the customer and contractor as it provides transparency for both parties to monitor the billing strategy and progress. Here are some benefits of progress billing:

  • Managing payments: By dividing the overall contract price into smaller payments, payment can feel more manageable for customers.

  • Distributing wages: With a steady cash flow throughout a project, contractors can pay laborers while they're working. This can ease financial stress of employees waiting for payments, which might improve overall productivity.

  • Evaluating effort and value: When creating progress invoices, you can evaluate the effort needed for each stage in the process and assign value to each. This can provide data you can use when budgeting and planning for future projects that might require similar efforts.

  • Improving relationships: Progress billing helps build trust between contractors and customers as they share the value, costs and progress frequently throughout a project. Rather than waiting until the end of the project to discuss completed work and billing needs, each progress bill provides an opportunity to discuss the work and any updates.

How to complete progress invoicing

There are several steps you can follow to complete progress invoicing:

1. Create an agreement

Creating an agreement means defining the project requirements, including what materials you need, estimating labor costs and determining a project timeline. With this information, you can evaluate the best way to send progress bills and receive payments. Before starting on the project, consider agreeing with your customer on:

  • Defined stages

  • Payment options

  • Billing terms

  • Invoice frequency

2. Prepare a project schedule

Once you agree on the details of your agreement, you can create a project schedule. This can include the specific dates that you plan to send invoices and the estimated completion date. With this information, you may also include the estimated time for each stage of the project, along with details of the work you plan to complete in each.

3. Review project at each milestone

As work on the project, you can evaluate progress and review if it aligns with your original plan. For example, when preparing to send your first project bill, you can identify if you've completed the percentage of the work planned and spent the amount of money budgeted. If there are any changes, you can review this with the customer and decide where you can invoice for additional costs. Consider a review stage at each milestone where the customer can review your progress and share any questions before you issue invoices.

4. Issue invoices according to schedule

Every time a contractor completes a particular stage of the project, they prepare a bill to send to the client. Review that each invoice includes the different components, including percentage complete, outstanding balance and amount paid. Consider using invoicing software that can capture this data and provide customers with easy payment options to enable quick transactions.

Related: How To Get Clients To Pay You (With Tips)

5. Issue the final invoice

When you complete the project, the client reviews it to ensure it meets their expectations. If there are any changes or adjustments, you can arrange for additional project invoices that extend beyond the agreed contract. Sometimes contractors include retainage into a contract that they might pay at project completion. Retainage is a percentage of the total cost withheld until you complete the work and the client confirms their satisfaction. The final invoice might include the retainage amount or one last payment amount that covers the outstanding balance.

Related: What Is a Statement of Accounts?

Progress invoicing example

Evro Airlines contacts Stitha Aerospace and Defense to build an airliner for long-haul flights. Here's a summary of the contract and Stitha's progress invoicing over the term of the project:

  • Project duration: Eight months

  • Overall contract price: $10 million

  • Billing frequency: every two months

Invoice #1

Invoice #2

Invoice #3

Invoice #4

Final invoice

Total contract amount

$10,000,000

$10,000,000

$10,000,000

$10,000,000

$10,000,000

Amount paid to date

$ -

$2,500,000

$5,000,000

$7,500,000

$10,000,000

Contract balance

$10,000,000

$7,500,000

$5,000,000

$2,500,000

$ -

ValueGathered materials and created blueprintsBuilt prototype and started aircraft frameCompleted building of aircraftTested functionality, safety and compliance
Percent of completed work

25%

25%

25%

25%

100%

Invoiced amount

$2,500,000

$2,500,000

$2,500,000

$2,500,000

$ -

Two months from the agreement date, both parties evaluate the progress of the project and conclude that the project is 25% complete. Stitha bills Evro $2,500,000, which is the equivalent of 25% of the contract balance, which is $10,000,000. Every two months for the next six months, they repeat this process, where Stitha sends the progress invoice and Evro pays the bill through project completion.

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