How progress billing works
A project's total contract value is broken into stages or percentage milestones, and an invoice is sent each time a stage is completed, such as 25 percent at foundation, 50 percent at framing, and so on. This gives the business steady cash flow throughout a long project instead of waiting until the entire job is finished.
Progress billing requires tracking how much of the project has actually been completed and how much has already been billed, so the business does not overbill or underbill at any stage. Many contracts include a retainage clause, holding back a small percentage of each invoice until the full project is finished and approved.
Example
A contractor has a $200,000 project and bills in three stages: 30 percent at start, $60,000, 40 percent at midpoint, $80,000, and 30 percent at completion, $60,000. After the first two stages, the contractor has billed $140,000 total, with $60,000 remaining to invoice once the project is finished and the client signs off.
Progress billing in QuickBooks Online vs Xero
QuickBooks Online supports progress invoicing directly from an estimate, letting you bill a percentage or specific amount at each stage. Xero does not have a built-in progress billing feature, so businesses typically create a series of manual invoices tied back to the original quote or contract.
Common mistakes
- A contractor bills ahead of the work actually completed to bring in cash sooner, which can trigger a dispute with the client once the mismatch is noticed.
- Retainage held back on each invoice is not tracked separately, so the business loses sight of how much cash is still owed until the project fully closes.
- Percentage-of-completion estimates are not updated consistently, so the business either overbills or underbills a stage without realizing it until the project nears the end.
Why it matters
Progress billing keeps cash flowing into a long project instead of forcing a business to wait until the very end to get paid. Billing inaccurately, ahead of or behind actual progress, can trigger client disputes, understate revenue earned to date, or leave a business short of cash mid-project. For contractors and project-based firms, accurate progress billing is central to staying solvent on long engagements and reporting revenue correctly.
Related terms
How LedgerBPO handles progress billing
We manage progress billing schedules for long-running projects, tracking what has been billed against what has been completed so nothing gets missed. A dedicated accountant coordinates with your project team to time invoices with actual milestones. You get steady cash flow throughout the project instead of one large invoice at the very end.