Progress Billing for Contractors: How to Bill in Phases

If you have ever finished a $40,000 remodel and waited 45 days for the final check, you already understand the problem. Billing everything at the end of a project is a cash flow disaster. You are buying materials, paying your crew, and covering overhead for weeks or months before a single dollar comes back in.

Progress billing fixes this. Instead of one big invoice at the end, you bill at milestones throughout the project. The client pays as work gets done, and you keep cash flowing from start to finish.

This guide covers how progress billing works, how to set it up, and why every contractor doing projects over $10,000 should be using it.

What Is Progress Billing?

Progress billing (sometimes called milestone billing or draw billing) is a payment structure where you invoice the client at predetermined points during the project rather than waiting until the end. Each invoice reflects the work completed since the last billing point.

Think of it this way: instead of the client owing you $50,000 at the finish line, they pay five invoices of $10,000 each as you hit specific milestones. The total stays the same. The timing changes everything.

Progress billing is standard practice on commercial construction projects and government contracts. But it works just as well on residential remodels, roofing jobs, additions, and any project that runs longer than a couple of weeks.

Why Progress Billing Matters for Cash Flow

Without progress billing, the math on a long project looks brutal. Let us walk through a kitchen remodel to see the difference.

The project: A full kitchen remodel with a total contract price of $45,000. The project takes 6 weeks.

Without Progress Billing

You are $40,000 out of pocket before the client pays anything. That means you either need a large line of credit, cash reserves from other jobs, or you are juggling payments and hoping nothing falls through.

With Progress Billing

Same project. Same profit. But your maximum out-of-pocket exposure dropped from $40,000 to under $2,000. That is the difference between sleeping well and lying awake wondering if the client will pay.

How to Set Up a Progress Billing Schedule

Setting up progress billing requires a clear schedule tied to measurable milestones. Vague triggers like "when we are about halfway done" lead to disputes. Specific triggers like "when rough plumbing passes inspection" are objective and verifiable.

Step 1: Define Your Milestones

Choose milestones that are visible, verifiable, and correspond to meaningful chunks of work. The client should be able to see that the milestone has been reached.

For our kitchen remodel example:

Step 2: Choose Your Billing Percentages

There is no single correct percentage breakdown. It depends on the project type, your material costs, and how front-loaded your expenses are. Here are common structures by trade:

General Contractors / Remodelers:

• 25% deposit
• 25% at rough-in
• 25% at midpoint (cabinets, drywall, etc.)
• 15% at substantial completion
• 10% at final walkthrough

Roofers:

• 50% deposit (materials are a large upfront cost)
• 50% at completion
• Or: 40% deposit, 40% after tear-off and underlayment, 20% at completion

Electricians (large projects):

• 20% deposit
• 30% at rough-in
• 30% at trim-out
• 20% at final inspection

Painters:

• 30% deposit
• 35% after prep and primer
• 35% at completion

The key principle: your billing schedule should roughly match your cost curve. If you spend 60% of the project cost in the first two weeks on materials and labor, you should be billing at least 50% by the end of week two.

Step 3: Put It in the Contract

Your progress billing schedule must be part of the signed contract. Include:

• Each milestone with a clear description
• The percentage or dollar amount due at each milestone
• The trigger that determines when the milestone is complete
• Payment terms for each invoice (Net 7 is standard for progress payments)
• What happens if a payment is late (work pauses until payment is received)

This is not optional. A verbal agreement on billing milestones is worthless if there is a dispute. Get it in writing before the first nail goes in.

Step 4: Invoice Immediately at Each Milestone

When you hit a milestone, send the invoice the same day. Do not wait until the end of the week. The work is fresh in the client's mind, and they are more likely to pay promptly when they can see the progress that triggered the invoice.

Tools like Linkster let you send a progress invoice with a payment link the moment a milestone is reached. The client gets a notification, clicks the link, and pays by card or ACH transfer. No check to write, no envelope to find, no trip to the mailbox. For more strategies on speeding up payments, see our guide on how to get paid faster as a contractor.

Handling Retainage

Retainage (sometimes spelled "retention") is the practice of withholding a percentage of each progress payment until the project is fully complete. It is standard on commercial projects and sometimes used on larger residential jobs.

How Retainage Works

Instead of paying 100% of each milestone invoice, the client holds back 5 to 10 percent. That retained amount is released after the final walkthrough and punch list completion.

Using our kitchen remodel example with 10% retainage:

The final payment includes the last milestone amount plus all the retained funds, totaling $10,575.

When to Use Retainage

• Commercial projects: Almost always required. Standard is 5-10%.
• Government contracts: Often mandated by law.
• Large residential projects: Sometimes requested by the homeowner or their construction attorney. Typical range is 5-10%.
• Small residential projects: Rarely necessary. A well-structured progress billing schedule with a small final payment serves the same purpose.

What to Do When Clients Miss a Progress Payment

Late progress payments are a cash flow emergency. Unlike a late final payment where the work is done, a late progress payment happens while the project is active. You have a crew on-site, materials on order, and subcontractors waiting to get paid.

The approach that works:

1. Send the invoice immediately when the milestone is hit. Include a clear due date (Net 7 is standard for progress payments).
2. Follow up on day 3 with a reminder. Automated reminders through your invoicing tool handle this without the awkward phone call.
3. Pause work on day 8 if the payment has not been received. Your contract should include language that authorizes this.
4. Send a formal notice that work is paused pending payment. Keep it professional and reference the contract terms.
5. Resume work the day payment clears. No grudges, no lectures. Just get back to building.

The critical piece is having the right to pause work written into your contract. Without that language, pausing work can put you in breach. With it, you are exercising a contractual right that protects your business.

Progress Billing and Change Orders

Change orders and progress billing work hand-in-hand. When the client approves a change order mid-project, you need to decide how it affects the billing schedule.

There are two common approaches:

Approach 1: Bill the change order separately. Create a separate invoice for the change order amount, due upon approval or at the next milestone. This keeps the original billing schedule clean.

Approach 2: Fold it into the remaining milestones. Add the change order amount to the remaining milestone invoices proportionally. This is simpler but can make the billing schedule harder to track.

For our kitchen remodel, say the homeowner upgrades from laminate to quartz countertops mid-project. That is a $4,000 change order. You could bill it as a separate invoice due when the counters are installed, or add $2,000 each to the last two milestone invoices.

Either approach works. The important thing is that the change order is documented, approved in writing, and billed, not absorbed into your profit margin because you forgot to invoice it. For a deeper guide on building professional invoices, check out how to write a construction invoice.

Progress Billing Best Practices

After years of watching contractors manage (and mismanage) progress billing, these practices separate the ones who get paid smoothly from the ones who are always chasing money:

Front-Load Your Billing

Collect a larger percentage in the early milestones when your material costs are highest. A 25% deposit plus 25% at rough-in means you have 50% of the contract in hand before you are halfway through the work. This protects you if the project stalls or the client has payment issues.

Keep Milestones Objective

"Rough-in complete" means something specific: framing, plumbing, electrical, and HVAC rough-in are installed and have passed inspection. "About halfway done" means nothing. Tie every milestone to an observable, verifiable event that both you and the client can agree on.

Invoice the Day You Hit the Milestone

Not tomorrow. Not Friday. Today. Every day between completing the milestone and sending the invoice is a day of unnecessary cash flow delay. Set up your invoicing tool so you can send a progress invoice from your phone in under two minutes.

Use Short Payment Terms

Net 30 is too long for progress payments. Use Net 7 or even due upon receipt. The client knows the billing schedule in advance. The milestone is visible proof that the work was done. There is no reason to give 30 days to pay.

Automate Your Reminders

Manually following up on progress payments takes time you do not have when you are running a job. Set up automated email and SMS reminders that go out on the due date and at intervals after. This keeps payments moving without you playing bill collector.

Stop Floating Projects Out of Pocket

Progress billing is not complicated, but it requires planning upfront. Define your milestones before the project starts, put the billing schedule in the contract, and invoice the moment each milestone is reached.

The benefits are immediate. Your cash flow stays positive throughout the project. Your exposure to nonpayment shrinks. And your clients know exactly what to expect and when to pay, which means fewer surprises and fewer disputes.

If you are a contractor doing projects over $10,000, progress billing is not optional. It is how you protect your business and keep the work moving forward.