Contractor Invoicing Guide: How to Bill for Construction & Trade Work

Contractor invoicing follows different rules than typical service or freelance billing. A general contractor managing a large build, an electrician billing for a commercial fit-out and a plumber invoicing a residential repair all face the same issue: invoices may need to handle progress billing, retainage, change orders, and materials, along with licensing and payment rules that depend on your state.

This guide covers what contractors and tradespeople need to know about invoicing, from residential service calls to large commercial projects. For the pay-application side of large jobs in more depth, see the construction invoicing guide.

How Contractor Invoicing Differs from Standard Invoicing

Contractor invoicing has requirements that set it apart:

Types of Contractor Invoicing

Progress Billing (Application for Payment)

Common on larger jobs. You bill periodically (usually monthly) based on the percentage of work completed. Each invoice, often called an "application for payment", shows:

• Original contract amount
• Work completed to date (by line item)
• Materials stored on site (not yet installed)
• Retainage withheld
• Previous payments received
• Current amount due

Example progress billing breakdown (illustrative figures, 10% retainage set by the contract):

The progress billing guide walks through the same method month by month.

AIA-Style Invoicing

Many commercial projects use the American Institute of Architects (AIA) G702/G703 forms. 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. Some general contractors and owners require this format.

Even if you don't use official AIA forms, modeling your invoices on this structure helps on larger jobs because it is the layout reviewers expect.

Time and Materials (T&M)

Bill for actual labor hours at agreed rates plus materials at cost or with an agreed markup. T&M works when the scope is undefined or constantly evolving:

• Labor: Hours × agreed rate per trade (for example, a journeyman rate and a lower apprentice rate)
• Materials: Actual cost, plus the markup your contract allows
• Equipment rental: Actual cost passed through, sometimes with markup

Always agree on T&M rates before work starts, and include them in your contract.

Unit Pricing

Bill based on measured quantities of installed work: per linear foot of pipe, per square foot of flooring, per fixture installed. Unit pricing is common in:

• Landscaping (per square yard of sod, per tree planted)
• Flooring (per square foot installed)
• Plumbing (per fixture)
• Concrete (per cubic yard)

Fixed-Price (Lump Sum)

A single agreed price for the entire scope. Common for smaller residential projects where the scope is well-defined: bathroom renovation, kitchen remodel, deck build. Bill in installments tied to milestones, and check your state's limits on deposits and on billing ahead of the work (see payment terms below).

Essential Elements of a Contractor Invoice

Every contractor invoice should include these elements:

Standard Invoice Fields

• Your business name, address, license number, and contact info
• Client name and project address (project address may differ from billing address)
• Invoice number (unique, in sequence)
• Invoice date and payment due date
• Payment terms

For a detailed walkthrough of basic invoice elements, see our how to write an invoice guide.

Contractor-Specific Fields

• Project name and number, especially for commercial work
• Contract number: reference to the executed contract
• Purchase order number, if the client issued a PO
• Period covered: the billing period (e.g., "Work performed Feb 1-28, 2026")
• Schedule of values: the line-item breakdown of contract amounts
• Change order reference: any approved change orders billed in this period
• Retainage amount: the percentage withheld (shown separately)
• Materials stored: materials purchased and stored but not yet installed
• Insurance/bond information: certificate numbers if required

Supporting Documentation

Attach or reference these with your invoice:

• Lien waiver: commonly a conditional waiver for the current payment and an unconditional waiver for a payment already received. Some states prescribe the form; California requires the statutory forms in Civil Code sections 8132 to 8138, as the Contractors State License Board explains.
• Proof of insurance: current COI (Certificate of Insurance)
• Change order approvals: signed change orders for any additional work billed
• Daily logs or time sheets for T&M work
• Material receipts for cost-plus or T&M billing
• Photos: progress photos documenting completed work

Handling Retention (Retainage)

Retainage is a percentage withheld from each progress payment as security until the project is substantially complete, if the contract provides for it. The percentage is set by the contract and often 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%.

During the project: if the contract sets 10% retainage, 10% is withheld from each payment application. On a $50,000 payment, you receive $45,000 and $5,000 is held.

At substantial completion: You submit a request for release of retainage. The owner or GC inspects the work, creates a punch list, and releases retainage under the contract's terms, often once punch list items are complete.

Retainage rules vary by state. Many US states limit retainage percentages or set release deadlines, with different rules for public and private work. Check your state's prompt payment or retainage statute before you sign.

Tips for Managing Retention

• Track retainage on every invoice so there's no dispute about the total owed
• Submit your release request promptly at substantial completion
• Complete punch list items quickly, because retainage is usually held until they are done
• Include release terms in your contract (e.g., "Retainage released within 30 days of substantial completion")

Change Orders and How to Bill Them

Scope changes are common in construction. A change order is a formal amendment to the contract that documents additional, deleted, or modified work along with the cost and schedule impact.

Change Order Invoicing Process

1. Document the change: written description of the work change and reason
2. Price the change: labor, materials, equipment, markup, and schedule impact
3. Get written approval: don't proceed without a signed change order
4. Bill the change: reference the change order number on your invoice as a separate line item

Avoid performing extra work on a verbal "go ahead" without a signed change order. Undocumented extras are hard to prove and easy for the client to dispute.

Materials Markup and Pass-Through Costs

Many contractors mark up materials above cost, at a rate set in their contract or price list. The markup covers:

• Time spent sourcing and procuring materials
• Delivery coordination
• Waste and breakage allowance
• Warranty administration

On your invoice, show materials either as a lump sum per line item or itemized with cost and markup shown separately, depending on your contract requirements.

For equipment rentals, fuel, permits, and other pass-through costs, bill at actual cost unless your contract specifies otherwise.

Sales tax on materials and labor depends on the state and the type of property. In Tennessee, for example, contractors pay tax when they buy materials that become part of real property and should not charge customers sales tax on them; in Texas, residential repair labor is treated differently from nonresidential work. The construction invoice example and the handyman invoice template show both cases with sources.

Payment Terms for Contractors

Construction payment terms are set by the contract and, in some cases, by law. Common arrangements:

On California home improvement contracts, the Contractors State License Board says the down payment may not exceed $1,000 or 10% of the contract price, whichever is less, and payments may not run ahead of the work performed or materials delivered. For a comprehensive breakdown of other payment term options, see our payment terms guide.

"Pay-When-Paid" vs. "Pay-If-Paid"

Many subcontract agreements include clauses that link your payment to the GC being paid by the owner. How courts treat them varies by state:

• Pay-when-paid: usually read as setting the timing of payment, so the GC still owes you within a reasonable time even if the owner is slow.
• Pay-if-paid: tries to make the owner's payment a condition of yours, shifting the risk of owner non-payment to the subcontractor. Some states limit or refuse to enforce these clauses.

Review your subcontract carefully, check your state's rules or ask a construction attorney, and negotiate these terms before signing.

Protecting Your Right to Payment

Preliminary Notices

In many states, subcontractors and suppliers must give a preliminary notice early in the job to keep their lien rights. In California, for example, Civil Code section 8204 requires it within 20 days after first furnishing work; a late notice only protects work done from 20 days before it was served. Give preliminary notices on every project where they apply, even if you trust the GC.

Mechanic's Lien Rights

If you're not paid, a mechanic's lien allows you to place a claim against the property you improved. Requirements vary by state, but generally:

1. You must have a direct contract, or have given any required preliminary notice
2. You must record the lien within a short statutory deadline, which varies by state and is often counted from completion of the work or of the project
3. You must enforce the lien through legal action within a further deadline

Check your state's lien statutes or a construction attorney for the exact deadlines.

Bonds and Prompt Payment Laws on Public Work

You usually cannot lien public property, so public projects use other protections:

• Federal payment bonds: the law formerly known as the Miller Act requires performance and payment bonds on federal construction contracts exceeding $150,000, according to FAR 28.102-1. Unpaid subcontractors and suppliers claim against the payment bond.
• Federal prompt payment: progress payments on federal construction contracts are due 14 days after a proper payment request (FAR 32.904).
• State acts: many states have prompt payment laws for public and private construction, with their own deadlines and interest. Check your state's rules.

This is general information, not legal or tax advice. Last reviewed: October 2026.

Licensing and Tax Forms

Licensing limits on small jobs. Some states let unlicensed handymen do only small jobs. In California, work under $1,000 in combined labor and materials is exempt from the contractor license requirement from 1 January 2025 (up from $500), as long as the work needs no building permit, the job is not split into smaller contracts to stay under the limit, and the other conditions in section 7048 are met (for example, not advertising as a licensed contractor) (CSLB bulletin on AB 2622; Business and Professions Code section 7048). The handyman invoice template covers this in more detail.

Form W-9 and Form 1099-NEC. GCs and business clients usually ask subcontractors for Form W-9 before the first payment. A business that pays you $2,000 or more for services in 2026 generally reports it on Form 1099-NEC; the threshold was $600 for payments made before 2026. Payments to corporations are generally exempt, and homeowners paying for personal work do not file one.

Common Contractor Invoicing Mistakes

Not billing regularly. Submit invoices on a consistent schedule, as the contract allows. Irregular billing creates cash flow gaps and makes it easier for clients to deprioritize your payments.

Missing change order documentation. Extra work without a signed change order is work you may never get paid for.

Incorrect retainage calculations. Track retainage meticulously on every invoice. Discrepancies lead to disputes at project close-out.

Vague descriptions. Especially on T&M invoices, log hours by task, not just "labor." Show what was done, by whom, and for how long.

Late notices and lien filings. Deadlines for preliminary notices and lien filings are strict. Miss them and you can lose your strongest collection tool.

Not keeping copies of everything. Every invoice, change order, lien waiver, daily log, and communication should be saved. Construction disputes can surface years after project completion.

Digital Tools for Contractor Invoicing

Paper invoices and spreadsheets work for a sole operator doing residential service calls. Beyond that, digital tools save time:

For creating invoices: InvoiceQuickly drafts an invoice from a plain-English description. Type or say the project, billing period and amounts, and it fills in the client, line items and terms for you to review before saving and downloading the PDF. It has no schedule-of-values, progress-billing or retainage feature, and line prices cannot be negative, so bill each line at its net amount and put the contract sum, completed to date and retainage held in the notes. Your license number is not printed automatically; add it to your business address or the notes.

For templates: The construction invoice template, progress invoice template and handyman invoice template are free, editable layouts you fill in your browser and print or save as PDF.

For payment tracking and follow-up: Record full or partial payments against each invoice on any plan. On Pro ($9/month, see pricing), InvoiceQuickly can send scheduled reminders before and after the due date, and you can add a Stripe or PayPal payment link through your own account. Our free payment reminder tool gives you three ready-to-edit email templates.

For late fee calculations: The late fee calculator works out simple interest on an overdue amount at the rate you enter. Use the rate in your contract, and check that it is allowed where you work.

Get Paid Faster on Every Project

Contractor invoicing doesn't have to be complicated. Set up your schedule of values, bill consistently on schedule, document every change order, track retainage carefully, and follow up on late payments systematically.

Start with InvoiceQuickly for contractors. Describe the project and billing details in plain English, review the draft, and send it. Create your first contractor invoice.