Construction Invoicing Guide: Progress Billing and Retention

Construction cash flow depends on how and when you invoice. Unlike a simple service business that bills after delivery, contractors often bill against the schedule of values, hold retention, process change orders, and exchange lien waivers for payment. Owners and lenders scrutinize these documents because they tie directly to project risk. This guide explains progress billing, retainage mechanics, change orders, AIA-style forms, waivers, and milestone strategies. Start from our construction invoice template, see a fully worked bill in the construction invoice example, and align operational detail with the broader contractor invoicing guide. For a step-by-step treatment of percent-complete billing, read the progress billing guide.

Progress Billing Fundamentals

Progress billing (also called periodic billing or draw requests) invoices for work completed to date rather than waiting until project end. Each application for payment summarizes:

• Work completed this period and cumulative work completed
• Materials stored on site (if allowed by contract)
• Retainage held and released per terms
• Less payments previously received

Key takeaway: Your invoice should mirror the contract’s payment application format. Surprises trigger rejections from owner payables.

Aligning With Schedules of Values

The schedule of values breaks the contract into billable lines (by trade, phase, or CSI division). When you invoice, each line should move forward in a way someone can audit: prior period, this period, materials stored, retainage, and balance. If your accounting system cannot represent this structure, supplement with a continuation sheet PDF even if the "invoice" itself is simpler. The progress invoice template shows the columns.

Retention and Retainage

Retainage protects owners from incomplete or defective work. The percentage is set by the contract and, in many places, limited by law. On US federal construction contracts, FAR 32.103 says retainage should be held only when progress is unsatisfactory and should not exceed 10%; many states set their own limits for public and private work, so check your state's prompt payment or retainage statute. Release follows the triggers in the contract (substantial completion, punch list, warranty period).

Subs and GCs: If you are a subcontractor, your subcontract specifies retainage flow-down from the prime contract. Invoice gross amounts, then show retainage as a deduction so downstream accounting matches upstream expectations.

Cash-flow planning: Model retainage as delayed receivables: it is money you have earned but will not see until closeout, so a profitable job can still strain cash. Some contracts allow reduced retainage after halfway completion; track those release events in your billing calendar.

Change Orders and Contract Adjustments

Change orders modify scope, price, or schedule. Each approved change should produce:

• A written CO number and description
• Price impact (lump sum, unit price, or T&M not-to-exceed)
• Schedule impact if any

Invoice change order work separately or as distinct lines on the pay application so auditors can trace original contract vs changes. Unapproved work belongs in RFI / pending buckets. Billing it prematurely damages trust, and some rules forbid billing ahead of the work: on California home improvement contracts, the Contractors State License Board says payments may not run ahead of the work performed or materials delivered, and the down payment may not exceed $1,000 or 10% of the contract price, whichever is less.

Key takeaway: If it is not documented, assume it is not billable. Construction disputes are won on paper trails.

T&M Tags and Burden Rates

When change work is time and materials, invoices should show labor classes, hours, rates, materials with receipts, and agreed markups. Hidden burden or vague “misc” lines invite audit cuts.

AIA-Style Forms and Industry Standards

Many commercial projects use AIA Document G702/G703 style applications. According to AIA Contract Documents, the G702 lets the contractor apply for payment and the architect certify that payment is due, and the G703 continuation sheet breaks the contract sum into a schedule of values. Even if you do not use branded forms, many owners expect the same data fields:

• Original contract sum and net change by change orders
• Value of work completed to date
• Materials on site
• Retainage by line and in total

Understanding these structures helps you speak the same language as project managers and lenders.

Lien Waivers: Conditional vs Unconditional

Lien waivers trade rights to file a mechanics lien for proof of payment. They come in two major flavors:

Never sign an unconditional waiver unless funds have cleared. Align waiver language with state statutes: some states prescribe the exact form. In California, for example, waivers and releases must follow the statutory forms in Civil Code sections 8132 to 8138, as the CSLB explains. Using a non-statutory form can delay payment or leave rights unclear.

Notarization and Timing

Some owners and lenders ask for notarized waivers on final draws. Build lead time into your closeout plan so lien releases do not stall retainage.

Worked Example: One Pay Application

Illustrative figures. A subcontractor has a $120,000 contract with 5% retainage and $8,000 of approved change orders, so the adjusted contract sum is $128,000. Earlier applications covered $80,000 of work and were paid at $76,000 after retainage.

Check: this period's work is $96,000 - $80,000 = $16,000, less 5% retainage of $800, which is $15,200. Balance to finish is $128,000 - $96,000 = $32,000, plus the $4,800 retainage held, which is released on the final invoice when the contract's release conditions are met. An interim invoice suits jobs billed in stages without a full schedule of values.

Sales Tax on Materials and Labor

Whether a construction invoice carries sales tax depends on the state, the type of property and how the contract is priced:

• Tennessee: the Department of Revenue's contractors manual treats contractors as the end users of materials that become part of real property. The contractor pays tax when buying the materials and should not charge sales tax to the customer on them.
• Texas: the Comptroller treats residential repair and remodeling differently from nonresidential work, where the total charge is generally taxable.

Check your own state's revenue department for each kind of job. The construction invoice example walks through a Tennessee bill with no sales tax line and explains why. This is general information, not tax or legal advice. Last reviewed: October 2026.

Milestone Payments vs Percent Complete

Milestone billing fits design-build phases, equipment procurement, or turnkey modules: invoice when defined deliverables occur (e.g., “foundation complete,” “rough-in signed off”).

Percent complete fits ongoing field work where schedules of values roll forward. Pick the model that matches how you prove completion to the owner. Hybrid jobs may use milestones for long-lead equipment and percent-complete for field labor.

GC, Sub, and Supplier Coordination

Suppliers billing materials-only should reference purchase order numbers and ship-to / job name explicitly. Subs should mirror upstream coding so the GC can roll your pay app into theirs without re-keying. When everyone uses different descriptions for the same scope, reconciliation breaks and pay cycles slip.

Documentation Checklist

Field-to-Office Handoff: Keeping Data Consistent

Superintendents and PMs generate the truth about percent complete; accounting generates the invoice. When those systems diverge, you either under-bill (starving cash) or over-bill (inviting clawbacks). Establish a weekly billing meeting where field leads sign off on quantities before finance submits the pay app. If you use mobile time tracking, map cost codes to schedule of values lines so labor dollars flow into the same structure owners expect.

Key takeaway: The best construction invoice is the one the field team would defend in a job-site meeting, because they already agreed to the numbers.

Disputes and Partial Approvals

Owners sometimes approve less than you applied for. Track rejected amounts with reasons (incomplete backup, coding mismatch). Resubmit next period with corrections rather than burying variances; lenders notice cumulative drift.

Lender Draws and Observability

On financed projects, draw inspectors may verify percent complete before funds release. Your invoice pack should make verification easy: clear photos, inspector-friendly summaries, and references to architect sign-offs where required.

Construction Invoicing in InvoiceQuickly

InvoiceQuickly is general invoicing software, not a construction pay-application tool. It has no schedule-of-values, progress-billing, retainage or lien-waiver feature, and line prices cannot be negative. You can still send a clear progress invoice:

• Bill each line at its net amount, for example "Framing, 75% complete to date, gross $16,000 less 5% retainage $800", 1 × $15,200.00, and put the contract sum, completed to date and retainage held in the notes, or attach your own continuation sheet when you email it.
• Record full or partial payments against each invoice to track the remaining balance, on every plan.
• On Pro ($9/month), send estimates the client can accept in the client portal and convert to an invoice, issue credit notes for corrections, and add a Stripe or PayPal payment link through your own account.
• Each invoice applies one tax percentage to the whole invoice, so a job with taxable and non-taxable lines needs separate invoices. Your license number is not printed automatically; add it to your business address block or the notes.

There is no deposit or retainer feature, so bill an allowed down payment as its own invoice. More on how trades use it on the contractors page.

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Construction invoicing is contract administration expressed as math. Match your applications to the agreed schedule, treat retainage and change orders as first-class line items, and treat waivers as legal instruments, not paperwork afterthoughts. Use the construction invoice template to standardize layout, and keep field reality aligned with the policies in our contractor invoicing guide.