Progress Billing for Contractors: How It Works and How to Track It

Few contractors can wait until job end to get paid. Progress billing spreads the contract over the life of the job: you bill monthly for the work in place, the owner or GC reviews the application, and payment follows on the contract terms. The bookkeeping challenge is that billing, earning and collecting are three different events.

The schedule of values

Most progress billing starts with a schedule of values: the contract broken into line items such as site work, framing, electrical and finishes, each with a dollar value. Each billing period you report the percent complete on every line. The total of billed lines becomes the current application amount, minus retainage. On larger commercial jobs this is the G702 and G703 format; the logic is the same on smaller jobs with a simpler form.

What each application includes

• Work completed from prior applications. The running total already billed.
• Work completed this period. New progress on each line.
• Materials stored on site. Materials delivered but not yet installed, when the contract allows billing them.
• Retainage. The percentage withheld from each payment until closeout.
• Change orders. Approved changes, added to the contract sum before billing against them.

Retainage and cash flow

Retainage, often 5 to 10 percent, is earned but not collected until the job closes out. It sits on your books as retainage receivable, separate from ordinary AR, because it follows different rules and dates. The [retainage glossary entry](/glossary/retainage) covers how to record and release it. What matters for billing: never count retainage as cash available for payroll, and track its release conditions from day one.

Where progress billing goes wrong in the books

Three patterns cause most trouble. First, invoices entered without job tags, so billings cannot be compared with job costs. Second, change orders worked before approval and billed informally, creating disputes and unbilled work. Third, overbilling treated as profit: billing ahead of progress feels like good cash flow until the end of the job, when billings stop but costs continue. The [WIP schedule](/blog/wip-schedule-contractors) is the report that catches all three.

How Mispar helps

Mispar records every application, payment and retainage balance against the right job in your own QuickBooks Online or Xero file, reconciles payments received, and flags open and disputed billings on a monthly open-items list. [Bookkeeping for contractors](/industries/contractors) starts at $229/mo with no long-term contract.

Frequently asked questions

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