What is progress billing and how do I track it?
Progress billing is how contractors and project-based businesses invoice customers incrementally as work gets completed rather than waiting until the end. For a $150,000 commercial build-out that takes four months, billing monthly based on completion keeps cash flowing instead of financing the entire project yourself.
Two main methods exist. Percentage of completion bills based on how much of the total project is done. Complete 30% of the work, bill 30% of the contract. Milestone billing ties invoices to specific project phases like foundation complete, framing done, or final inspection passed. Most commercial contracts use percentage of completion while residential work often uses milestones.
Tracking progress billing in your accounting software starts with setting up each contract as a job with the total contract value. In QuickBooks, you create an estimate for the full contract amount, then generate progress invoices from that estimate as work progresses. Each invoice pulls from the original estimate so you can see how much has been billed and how much remains. This estimate-to-invoice workflow keeps everything connected to the original contract.
The accounting gets complicated because revenue recognition and billing don’t always line up. You might bill 40% of a contract but only have 35% of costs incurred. For financial statements and taxes, the difference matters. Proper job costing tracks costs against each contract so you can compare actual progress to what you’ve billed.
Construction businesses also deal with retainage. Many commercial contracts hold back 5-10% of each payment until the project is complete. You’ve earned the money but won’t collect it for months. Your books need to track retainage receivable separately from regular accounts receivable so you know what’s collectible now versus what’s tied up until final completion.
Common mistakes include overbilling early in a project without recognizing you’ve created an obligation to finish work you’ve already been paid for. Underbilling hurts cash flow and means you’re essentially financing the customer’s project. Regular comparison of billing percentage to actual completion percentage catches these problems before they snowball.
Weekly job cost reviews make tracking manageable. Compare costs incurred against your original estimate and compare billing to those same projections. If costs are running ahead of billing, you’re floating the project. If billing is ahead of costs, you have cash now but owe performance later. Neither situation is inherently wrong, but you need to know where you stand.
If your current system involves spreadsheets and guesswork, working with Nampa bookkeepers who understand construction accounting can help you set up proper job tracking. Progress billing only works when your books actually reflect what’s happening on your projects, and that requires systems built for how contractors operate.
The Treasure Valley's Tax and Accounting Team
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