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What is Progress invoicing?

Updated: Nov 8, 2023



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What is Progress invoicing?

Let’s take the scenario at the beginning of the blog. The contractor sent over the estimate and started working. The customer (building’s owner) chose to split the total amount into multiple payments. So, whenever the contractor completed a stage, they would send an invoice to the customer for the price. It is called Progress Invoicing or Progress Billings.

Progress Invoicing are invoices requesting payment for work completed to date. Progress Invoicing is prepared and submitted for payment at different project stages. It is common in projects lasting a long time.

The Progress Invoice usually includes the completed work up to date based on the original contract. However, it could also comprise other items or change orders that the owner and contractor agree to charge.


Purpose of Progress Invoicing - Empowering Construction business


Maintaining Transparency and Trust with Clients Transparency is the key to building strong client relationships. With progress invoicing, you provide your clients with a clear breakdown of project costs based on completed milestones. They can see exactly what they're paying for at each stage of the project. This level of openness fosters trust and credibility between contractors and clients, leading to happier and more satisfied clients.

Enhancing Cash Flow Management is the lifeblood of any construction business. Traditional billing methods often lead to uneven cash flow, as contractors have to wait for lump-sum payments at project completion. Progress invoicing changes the game by allowing you to receive incremental payments as you hit project milestones. This steady cash flow empowers you to manage expenses more effectively, pay subcontractors on time, and maintain smooth operations throughout the project.

Improving Financial Planning Predictability is a financial planner's best friend. With progress invoicing, you gain better control over your finances. You can analyze the timing of incoming payments and allocate resources accordingly. This level of financial predictability enables you to budget more efficiently and minimizes the risk of financial setbacks during the project.


Benefits of Progress Invoicing for Construction Businesses and Contractors


Progress invoicing is a game-changer for construction businesses and contractors, offering a plethora of benefits that elevate their operations to new heights. Let's explore the advantages of implementing progress invoicing:


1. Improved Cash Flow and Financial Stability Gone are the days of uneven cash flow and financial uncertainty. With progress invoicing, contractors receive incremental payments as they hit project milestones. This steady cash flow empowers them to manage expenses, pay subcontractors promptly, and ensure smooth project operations. Improved financial stability sets the stage for business growth and success.


2. Strengthening Client Relationships through Transparency Transparency is the cornerstone of strong client relationships. Progress invoicing allows contractors to showcase the work completed and the corresponding costs at each milestone. Clients appreciate the openness and clarity, leading to trust and satisfaction in the construction process. Stronger client relationships pave the way for repeat business and referrals.


3. Effective Financial Tracking and Project Management Progress invoicing provides a clear picture of project progress and financial performance. Contractors can track payments received, monitor expenses, and analyze the profitability of each project phase. This financial insight enables effective project management, allowing contractors to make informed decisions and ensure projects stay on track and within budget.


How Progress Invoicing Works


Progress invoicing is a systematic and effective way of billing in the construction industry. It simplifies payment processes and ensures a steady cash flow throughout the project's duration. Let's dive into the step-by-step process of implementing progress invoicing:


Step 1: Creating a Payment Schedule At the outset of the project, contractors and clients collaborate to establish a payment schedule based on project milestones. These milestones typically correspond to significant phases or completion stages of the project. By breaking down the project into milestones, both parties gain clarity on the work progression and corresponding payments.

Step 2: Tracking Work Completion As the project moves forward, contractors closely monitor the completion of each milestone. This involves meticulous record-keeping and progress assessment to accurately determine the percentage of work completed at any given point.

Step 3: Calculating Invoice Amount Once the percentage of work completed for a specific milestone is determined, the contractor calculates the corresponding invoice amount. This amount is a percentage of the total project cost, reflecting the work accomplished up to that point.

Step 4: Issuing Progress Invoices With the invoice amount calculated, the contractor issues a progress invoice to the client. This invoice details the work completed, the percentage invoiced, and the corresponding payment due.

Step 5: Client Review and Payment Upon receiving the progress invoice, the client reviews the details and processes the payment according to the agreed-upon terms. The cycle repeats for each subsequent milestone until the project reaches completion.


What is included in the Progress Invoice?

Progress invoices are a vital part of construction projects, and getting them right is crucial. Let's break down what these invoices include and how they benefit both the contractor and the client.

A well-crafted progress invoice includes:

  1. Project Details: Name, location, and contract reference number.

  2. Client Information: Name, address, and contact details.

  3. Invoice Date: Clearly stated for reference.

  4. Billing Period: Specify the covered time frame.

  5. Description of Work Completed: Detailed breakdown of completed milestones and percentage of project progress.

  6. Invoice Amount: Line items showing the cost of each milestone.

  7. Retention (if applicable): Clearly state the retention amount and terms.

  8. Payment Terms: Due date and preferred payment method.

  9. Additional Documentation: Attach any necessary supporting documents.

Now, let's see progress invoicing in action with an example:


Imagine you're working on a large-scale construction project – building a magnificent hotel. As you complete each milestone, you issue a progress invoice to your client.

For instance, at the completion of the foundation work, you send a progress invoice totaling $50,000, representing 20% of the total project cost. The client can see the transparency and is thrilled to know exactly where their investment is going.


Throughout the project, you continue this process, issuing progress invoices for each significant phase – from framing to plumbing to electrical work. At the framing stage, you send an invoice for $100,000, reflecting 40% completion. The client is delighted to witness the project's progress and confidently pays for the completed work.


Manage Progress Invoicing with Invoicing Software

Streamlining progress invoicing is a breeze with invoicing software like Sage. Say goodbye to manual invoicing and embrace the wonders of technology. Sage makes creating and managing invoices a breeze, ensuring accuracy and professionalism that impresses clients and improves cash flow management.


Choose the right invoicing software that aligns with your bookkeeping services. Look for features like progress tracking, customizable templates, and seamless integration with your accounting software.


Create templates for progress invoices, input project details, milestones, and costs, and let the software handle the rest. The invoicing process becomes faster and more efficient.


Integrate with your bookkeeping services seamlessly. With Sage, progress invoicing flows effortlessly into your financial records, saving time and minimizing errors.


Stay organized and informed with invoicing software. Keep track of paid, overdue, and pending invoices all in one place. Sage provides valuable insights into your business's financial health, empowering informed decisions.


Managing progress invoicing with Sage and other invoicing software enhances your bookkeeping services, making you the go-to expert in financial management. Embrace technology and watch your construction projects and financial records thrive!



Looking for an expert construction bookkeeping who knows the construction business? Contact the Irvine Bookkeeping team for the best help. Schedule a FREE consultation to find out how we can help reduce your financial stress by improving your construction cash flow management and invoicing process.



If you need advice or services on any aspect of bookkeeping, accounting and tax, our specialists are ready to help. Get intouch with us for free quote.

 

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