How to invoice for progress payments as a contractor

Finishing a construction project on time and within budget isn’t easy, as less than 30% of contractors actually pull it off. Cash flow issues are a big reason, but progress payments help by breaking payments into milestone-based installments, so you’re not left footing the bill until the job is done. In this guide, you’ll learn how to invoice for progress payments and keep your projects profitable.

How are progress invoices different from regular invoices?

Unlike regular invoices, which bill for the entire project upfront or after completion, progress invoices are tied to specific stages of the job. So, instead of waiting until the very end to get paid, a contractor invoice for progress payments ensures you receive fair compensation as you complete key milestones, like roofing or electrical work.

To keep your progress invoice clear and professional, include:

• Project name: Clearly state the project name or reference number so there’s no confusion.
• Milestone description: Specify the phase or task you’re billing for (e.g., “Foundation completed” or “50% of drywall installation”).
• Itemized costs: Break down the materials or services associated with that phase to ensure clarity of the construction costs.
• Total due: Summarize the amount owed for this stage, including taxes or additional fees if necessary.
• Payment terms: Outline when payment is due and accepted payment methods to avoid misunderstandings.

These details ensure that you send an easy-to-process invoice that keeps cash flow steady and handles the construction expenses.

Understanding progress payments

Getting paid in one lump sum at the start or end of a project might sound great, but for most contractors, it’s just not practical. Progress payments help by allowing you to receive payments in stages as work is completed, so you have the cash flow to cover expenses like labor and materials without waiting until the job is done.

What are payment milestones?

Think of payment milestones as checkpoints in your project that trigger a payment. So, instead of billing at once, you get paid when specific phases, like pouring the foundation or completing electrical rough-ins, are finished. These milestones align with payment schedules for contractors, creating a clear structure for when payments should be made.

Benefits of progress payments

Progress payments are good for both contractors and clients. Here’s how:

• Cash flow stability: Instead of waiting until the end of the project, you get paid as you go, keeping your finances stable.
• Reduced financial strain: By receiving payments in stages, you avoid bearing the weight of expenses due to clients delaying or defaulting on a large final payment.
• Payment flexibility: Clients don’t have to cover the full project cost upfront, making it more manageable for them.

In conclusion, progress payments ensure bills get paid on time, and both contractors and clients have a financial peace of mind.

Setting up project milestones for invoicing

Breaking your project into milestones keeps both you and your client on the same page about what’s been completed and when payments are due. Here’s an example of how you might structure construction milestones using percentage completions:

• 25%: Site preparation and foundation work – Includes site clearing, excavation, and pouring the foundation.
• 50%: Structural and framing completion – This covers the completion of framing, roofing, and installation of major systems like plumbing.
• 75%: Finishing phase – Focuses on interior work, such as drywall installation, painting, and flooring.
• 100%: Final inspection and project handover – Includes cleanup, a client walkthrough, and the official project handover.

How to assign costs to project stages

Once you’ve mapped out your milestones, the next step is having an estimate that assigns costs to each phase. This estimate ensures your contractor invoice for progress payments accurately reflects expenses. Here’s how to do it efficiently:

1. Estimate the total project cost: Get a clear breakdown of your budget, including labor, materials, and any contingency funds.
2. Allocate costs by labor and materials: Different stages require different cost allocations. For example, painting tends to have higher labor costs but lower material expenses.
3. Calculate proportional costs: Break up the budget and assign a fair share to each milestone based on how complex it is. For example:
   • Foundation work: 25% of total cost
   • Framing & roofing: 30% of total cost
   • Finishing work: 45% of total cost

Pro tips for accurate cost assignment

• Be transparent: Provide your client with a clear breakdown of how you determined the cost for each milestone.
• Include a contingency buffer: Unexpected costs come up, especially in larger projects, so factor that into your pricing.
• Review and adjust as needed: If the project scope changes, make sure your milestone costs and payment schedules for contractors reflect the updates.

Setting logical milestones and assigning costs fairly ensures your contractor invoice for progress payments is transparent and allows you to receive payments on time.

How to track expenses and progress for contractors

When you have clear records of your expenses, it allows you to stay organized and stick to payment schedules for contractors, which builds trust with your clients. Here’s how to keep track of your expenses: 

• Use dedicated expense tracking software: Invest in contractor-friendly software like Bookipi Expense to easily monitor hours you’ve worked and log expenses.
• Establish a system for recording labor hours: Use tools like TSheets to break down hours by task, so you can tie labor costs to specific milestones in your progress payment invoices.
• Document overhead expenses: Properly account for transportation and equipment expenses in your invoices with tools like MileIQ.

Actionable tips for accurate expense tracking

• Review your expenses weekly: Set aside time each week to check your records and make sure everything is accurate before invoicing.
• Automate where you can: Use tools like Clockify to handle repetitive tasks like time tracking.
• Always have backups: Store financial records in multiple locations, like Google Drive or an external hard drive, to avoid losing important data.

By using the right tools and creating a solid system for tracking your expenses, you make invoicing easier and reduce payment delays.

Client communication tips on progress and payment

A solid payment agreement outlines financial details like amount owed and payment schedules to ensure your contractor invoice for progress payments gets paid on time without any hiccups. To avoid confusion and disputes, ensure your payment agreement includes:

• Milestone descriptions: Clearly define when payments are due by tying them to specific project stages (e.g., “foundation poured” or “drywall completed”).
• Payment due dates: Set expectations on when payments should be made, whether it’s upon milestone completion or within a set number of days after invoicing.
• Payment amounts: Break down the cost of each milestone so your invoices are easy for clients to understand.
• Accepted payment methods: Specify how clients can pay (e.g., bank transfer, check, credit card) to prevent unnecessary delays.
• Late payment terms: Outline any additional fees or project delays that will occur if payments aren’t made on time.

Having all this in writing ensures that you and your clients are on the same page, which minimizes payment issues down the line.

Keeping clients updated

Clients appreciate regular updates, and staying in touch helps build trust. Here’s how to keep them informed:

• Schedule check-ins: Arrange weekly or biweekly meetings to discuss progress, answer questions, and address concerns.
• Give payment reminders: Send a polite reminder a few days before payments are due, along with details of the milestone that was completed.
• Notify about changes: If there are any changes to timelines, budgets, or materials, let your client know immediately.

By keeping your client informed every step of the way, you’ll make the invoicing process smoother and reduce the chances of disputes.

Managing payment disputes

Even with the best planning, payment issues can still come up. Here’s how to handle them:

1. Stay calm and professional: Keep a problem-solving mindset by listening to your client’s concerns and responding respectfully.
2. Refer back to the agreement: Use your written payment agreement to remind clients of their obligations and clarify any misunderstandings.
3. Negotiate when necessary: If the client has valid concerns, be flexible, for example, by adjusting future payment schedules for contractors or providing extra documentation.

By keeping clients updated and handling disputes professionally, you’ll build stronger client relationships and ensure steady cash flows.

Easily create professional progress invoices for every milestone

A well-designed and clear contractor invoice for progress payments helps your clients understand what they’re paying for. Tips to ensure your invoices are clear and easy to read include:

• Use a clean layout: Include headings, bullet points, or tables to structure your invoice neatly and avoid clutter.
• Highlight key details: Make key details, like the due amount, payment date, and accepted payment methods, easy to find by using bold fonts.
• Include your branding: Add your business logo, name, and contact details to improve client trust.
• Save time with templates and software: Instead of starting from scratch, use ready-made templates or invoicing software to create professional invoices effortlessly.

Bookipi: A simple solution for contractor invoices

Bookipi is a powerful and user-friendly tool that helps you streamline your invoicing process with:

• Free invoice templates with customizable fields for milestones, costs, and payment terms.
• Mobile and web access so you can create invoices on the go or from your office.
• Automated payment reminders to ensure clients never forget when a payment is due.

Start using Bookipi’s invoice app and web app today to simplify your progress payment process and get paid faster.