Progress billing: how to invoice a project in instalments as the work moves

Progress billing means invoicing a project in parts as the work advances, rather than in one bill at the end. You agree the stages and amounts before work starts, invoice each one when it is reached, and show a running total, so the customer can always see what has been billed and what remains.

What is progress billing?

Progress billing is a way of charging for a long job in instalments, each tied to a stage reached or to work measured. It brings cash in closer to when your costs go out, and it limits what you stand to lose if a customer stops paying halfway.

There are four common ways to set it up. They differ in what triggers each invoice.

A deposit isn't progress billing, though it often sits in front of it as the first instalment. The guide to deposit and final payment invoices covers jobs that only need those two. Retainage is different again: it's money the customer holds back from each progress payment, and retainage on an invoice has its own guide.

When should you use progress billing?

Use progress billing when a job runs long enough, or costs enough, that you would otherwise pay wages and suppliers for weeks before seeing any money. Here's a simple test: add up what you will spend before the job finishes. If losing that sum to one bad debt would hurt, bill in stages.

In some places the law has something to say about stage payments as well as the contract.

• England, Wales and Scotland: section 109 of the Housing Grants, Construction and Regeneration Act 1996 entitles a party to a construction contract to instalment, stage or periodic payments, unless the work is specified or estimated to last less than 45 days. Contracts with residential occupiers are excluded.
• EU: Article 5 of the Late Payment Directive leaves businesses free to agree instalment schedules, subject to national law. If one instalment is late, interest and compensation are worked out only on the overdue amount.

For most work outside those rules, your contract is the only thing that gives you the right, so write the stages down.

How to set up progress billing, step by step

1. Put the stages on the quote. Each stage gets a name and an amount or percentage, and the customer accepts them along with the price. Stages invented later are a renegotiation.
2. Define each stage by something both sides can see. "Second fix complete and inspected" works. "Halfway through" doesn't.
3. Say who confirms a stage, and how. An email from the customer or a signed site note is enough, as long as you agreed which.
4. Compare the stages with your costs. Set each stage's cumulative amount against what you expect to have spent by then. If you are out of pocket until the last invoice, the stages aren't doing their job.
5. Leave something to pay at completion. The customer wants a sum held back until the job is finished, which is a fair request. Expect pushback if almost nothing is left.
6. Invoice the week the stage is reached, on the agreed payment terms. A late invoice hands back the cash advantage you negotiated.
7. Show the running total on every invoice, and give any change to the job its own line.
8. Reconcile on the last invoice. The invoices together should equal the contract plus the agreed variations.

A worked example: four invoices and one variation

Here's an invented example. A fit-out firm agrees a €48,000 contract plus 20% VAT, billed 20% on signing, 30% at first fix, 30% at second fix and 20% on completion. During the job the customer agrees a €3,200 variation by email, and the firm bills it with the third stage.

The percentages stay on the original €48,000, so they still add up to 100%. The variation is billed once, in full, on its own line. Recalculate the percentages on the new total and you will either bill the variation twice or spend an afternoon explaining why you haven't.

Check the last row every time. €48,000 plus €3,200 is €51,200, and so is the net column.

Put a short running total on each invoice. Invoice 3 could carry this:

Stage payment 3 of 4: second fix complete, quote QUO-2026-0042. Original contract €48,000, agreed variation €3,200, revised contract €51,200. Billed before this invoice €24,000. This invoice €17,600. Left to bill €9,600. All figures exclude VAT.

That note answers the first question from the customer's accounts team, who have to match your invoice to a contract they didn't write.

How do you bill by percentage complete?

Percentage-complete billing works out each invoice by multiplying the contract value by the share of work finished, then subtracting everything already billed.

This invoice = (revised contract × % complete) − billed to date

Take the same contract and suppose you measure the job at 70% complete after two invoices. €51,200 × 70% is €35,840. Subtract the €24,000 already billed and this invoice is €11,840 net, or €14,208 with 20% VAT.

Always subtract billed to date rather than billing the month's increase. That way a generous estimate last month corrects itself this month, and the total can't drift away from the contract.

Agree how progress is measured before the first invoice: quantities installed, cost incurred or an inspector's valuation. US commercial work often formalises this in a schedule of values, which the guide to AIA G702 and G703 walks through. Work you have done but not yet billed is what a WIP report tracks.

How does VAT work on progress invoices?

VAT on a progress invoice is normally charged on that invoice's own amount, not on the whole contract at the start. When the VAT becomes due is the part that varies by country.

• EU: Article 64 of the VAT Directive treats a supply that gives rise to successive payments or statements of account as completed at the end of the periods they relate to. A payment taken before the work is done makes VAT chargeable on receipt, on the amount received (Article 65). Member states can tie the date to the invoice or the payment instead (Article 66).
• UK: for construction contracts with periodic payments, the tax point is the earlier of receiving payment or issuing a VAT invoice (VAT Notice 708, paragraph 23.1.3).

The practical consequence is that where issuing the invoice sets the date, you can owe VAT on a stage before the customer has paid for it. If cash is tight, ask your accountant whether a payment application that isn't a VAT invoice is allowed where you are, with the VAT invoice following on payment.

A rate change part-way through can also split one contract across two VAT rates, because each stage has its own date.

What goes wrong with progress billing?

Progress billing usually goes wrong in the paperwork rather than the work.

• Billing a stage that isn't finished. One disputed invoice can hold up everything after it.
• Folding a variation into the next stage's amount. The customer sees a stage that doesn't match the contract and stops the payment.
• No running total. The customer's accounts team has to reconstruct the history, and that takes longer than your payment terms.
• A final invoice that restates the contract. Bill what's left. If you need to show the whole contract, show it in the running total.
• Treating billed as collected. The running total shows what you have invoiced. What has actually been paid needs tracking stage by stage.
• Carrying on after a stage goes unpaid. Each further stage adds to what you have at risk, so raise it the week it falls overdue.

Billing a project in stages in ERPFlow

ERPFlow has no progress-billing module. It doesn't calculate percentage complete, hold a schedule of values, produce valuations or handle retention. A job in ERPFlow is a quote plus the invoices you raise against it, which covers milestone billing on fixed-price work. Contracts with staged valuations will find that too thin, and the page for construction firms says so too.

• Bill each stage from the quote. Open the quote and choose Convert to invoice once per stage. Every conversion makes a fresh draft of the whole quote, which you edit down to that stage's share before issuing the invoice. The quote stays as accepted, and each invoice appears under Linked documents.
• Keep the running total yourself. Linked documents lists the invoices but doesn't work out what's left to bill. Type the running total into the invoice's Notes, which print on the PDF.
• Don't look for a negative line. ERPFlow refuses a negative price or quantity, so a "less billed to date" row can't go in the line table. Bill the stage's amount as a normal line and state the deduction in Notes.
• If you fulfil before you bill, convert the quote to an order and invoice from that. Each invoice from an order also starts from the full order. Orders aren't on the Free plan.
• Run the job on a board. A project linked to the customer can also link to the quote and its invoices. It holds no budgets or job costs.

Payments go in by hand, any number per invoice, and Partially paid appears by itself. A reminder on an overdue stage goes out only when you choose to send it.