What is Progress Invoicing and How It Works: A Definitive Guide

Let’s face it—getting paid for long-term projects is challenging. Opt for progress invoice to save your business from a financial crunch.

Think of it as splitting payments for long term projects into smaller and more manageable parts based on milestones. Also known as progress billing, it keeps your cash flow steady and ensures clear communication at every stage of the project.

Progress invoicing surely makes large expenses more manageable for any small to medium-sized businesses across the construction, contracting, or service industries with lengthy timelines.

Curious how it works and why it’s a must-have strategic move for your company?

Stick around—we’ll provide you with the necessary details (mechanics, key components, and best practices), which can transform your business for the better.

What is Progress Invoicing?

A progress invoice is an approach that involves billing clients incrementally for the project until completion. This process offers business owners a pay-as-you-go setup and thus, ensures a steady revenue stream by keeping clients informed and aligned with the ongoing project.

Progress invoicing is an alternative choice to up-front billing, where you can invoice customers for partial payments instead of lump sum amounts. As solopreneurs, you don’t have to wait until the entire project is finished. It is a widely used progress payment phenomenon in industries like construction, SaaS, and manufacturing, where such progress billing aligns with project milestones.

How Does Progress Invoicing Work?

Progress invoicing is not just about sending bills—it’s about managing and improving cash flow.

Understanding how progress invoicing works is key for U.S. business owners who are handling long-term projects. Here’s a step-by-step breakdown to see why it’s a smart decision to make.

Step 1: Establish the contract

At the beginning of the project, both parties must discuss and agree on the total cost, payment terms, and a breakdown of milestones. Thus, for partial payments, the said contract includes:

• The total project value
• The schedule of values (SOV), which itemizes costs for each phase
• A timeline for each milestone
• Payment percentages for each phase

Step 2: Break down the milestones

Dividing the project into clear, manageable phases is important to prepare for multiple partial payments. The given examples show how such an arrangement can add value to the project in various United States’ small business settings.

For example:

• Construction: Phases like demolition, framing, plumbing, and finishing.
• Landscaping services: Stages like site preparation, planting, and final detailing.

Step 3: Calculate work completed

As the project progress, you need to calculate the percentage of work completed. After that, issue an invoice based on that percentage. For instance, if 25% of the project is complete and the total value is $100,000, the client is billed $25,000. Thus, you as well as your client, are aware of the remaining balance.

Step 4: Issue invoices

While issuing the invoice, keep update on the important pointers, depending on the project agreement for progress billing. Each upfront billing includes details such as:

• The total project cost
• The percentage completed
• The amount being billed
• The remaining balance

Step 5: Track payments and progress

Both parties monitor invoicing bills and project timelines to ensure the project stays on track.

What to Include in Progress Invoicing?

To create progress invoices, keep a few pertinent things clear, get a flexible billing and invoicing software for seamless project management, especially if you are one of the U.S. businesses, which are juggling long-term projects.

Let’s be clear now—progress invoicing isn’t your average bill.

Here’s what you need to include:

• Project summary: Briefly outline the project or task. For example, “Website Design for Greenfield Tech Solutions” with invoice date.
• Phase or milestone details: Identify the specific portion of the work covered. For instance, “Phase 1: Initial Design Concepts.”
• Work completion percentage: State the portion of the total project completed. For example, “40% of project completed” for a custom furniture order billed incrementally.
• Amount payable for this phase: Clearly specify the amount due for the current stage, such as “$7,500 for Phase 1 completion.”
• Prior payments made: List payments already received, helping customers track what’s been paid. Example: “Previously paid: $10,000.”
• Outstanding Balance: Show the remaining amount after the current invoice is paid, for example, “Balance due: $20,000.”
• Payment terms and deadlines: Include payment expectations, such as “Due within 15 days of invoice issuance.”
• Issuer and recipient contact info: Provide full and accurate contact details for both the business and clients.
• Additional notes/ instructions/ conditions: Add details like “Work on Phase 2 will begin upon payment” or “Final delivery scheduled for March 2025” for more specific deliverable milestones.

When Would You Use Progress Invoicing?

Already, we have explored how industries like construction and landscaping use progress invoicing to manage payments efficiently. However, this billing method is just as crucial for other small businesses managing long-term projects.

The table below highlights various small business sectors and freelancers where progress invoicing plays an important role.

Industry	Example Milestones	Timeline
Custom furniture making	Design approval → Material procurement → Assembly → Finishing	1–6 months
Home renovation	Demolition → Structural work → Installations → Final walkthrough	2–8 months
Freelance digital marketing	Strategy development → Content creation → Campaign launch → Reporting	3–9 months
HVAC installation	System design → Installation → Testing → Final handover	1–6 months
Software development	Initial design → Coding → Testing → Deployment	3–18 months
Photography services	Pre-shoot planning → Shoot → Editing → Final delivery	1 week–3 months

Progress invoice example

The above image is just an example to show how a progress invoice looks, complete with terms and conditions, milestones, and other key elements that ensure clarity.

Now, let’s take a landscaping project with multiple tasks, as a instance to understand how progress invoicing works. Suppose you’re transforming a backyard with a total project cost of $50,000. Payments are divided into milestones, each tied to a significant operation cost of the project.

Here’s how it could look:

Payment Breakout	Milestone	Invoice Amount
10% first payment	Deposit	$5,000
20% second payment	Design approval	$10,000
20% third payment	Hardscaping (patio and walkways)	$10,000
20% fourth payment	Irrigation system installed	$10,000
20% fifth payment	Planting (trees and shrubs)	$10,000
10% sixth payment	Final cleanup & walkthrough	$5,000
100%	–	$50,000

But why should you care about the benefits for both businesses and clients? Simple—when everyone’s happy, projects run like a dream. That’s why understanding the benefits of progress invoicing is essential for businesses and clients alike.

How Does Progress Invoicing Benefit Your Company?

Progress billing offers significant advantages for both the company offering service and customers. Of course, when business supports its customers, automatically other benefits follow. In fact, advantages are coming as direct and immediate, but some are meant to add value directly to your growth.

The following 7 benefits are categorized based on business and client perspectives, for the readers to learn why they hold such importance:

For businesses

• Improved cash flow: Regular payments help cover ongoing costs, such as labor, materials, and subcontractors. This helps the company or the contractor to receive fund-in-house to manage operations and upcoming project stages.
• Reduced financial risk: Billing incrementally minimizes the risk of non-payment by clients. Thus, both the provider, partners, and subcontractors feel motivated to work, thereby keeping the projects on schedule.
• Better project management: Tying payments to milestones ensures projects stay on schedule. In addition, progress billing keeps the regular communication between both parties. Where SOVs are involved, several project stakeholders analyze the percentage completion of each dedicated task.
• Professionalism: Detailed progress invoices demonstrate build trust with clients. It also acts as a customer retention strategy through transparent invoicing. Documentation of each deliverable offers clarity; hence, the customer or clients know what they are supposed to pay, accordingly.

For clients

• Flexible payments: Clients don’t have to pay the full project cost upfront. The budget-friendly option for the client’s long term project is more financially manageable and prevents clients from hefty lump-sum amounts of the total contract price to pay during project completion.
• Transparency: Clients can see exactly when you create a progress invoice, and what they’re paying for at each stage of the project. The project scope and clarity for a clear breakdown of costs at each stage of the project are indispensable.
• Increased confidence: This invoicing approach perfectly aligns with the needs of U.S. businesses and individuals who value clarity, efficiency, and control. The progress invoicing supports operations and helps professionals like web developers with high value projects.

Manage Progress Invoicing With Invoicing Software

Progress invoicing is undoubtedly a powerful tool for organizations handling long-term projects, enabling efficient billing and steady cash flow. By dispersing large estimates into smaller invoices, it becomes easy to ensure clients pay for completed work in stages. This billing frequency results in reduced financial strain and enhances project transparency.

Whether you’re a contractor, freelancer, or service provider, opting for process invoicing streamlines your billing process and maintains financial stability. By choosing the best practices and using an automated invoice maker tool like InvoiceOwl, optimize your invoicing system, achieve clarity for progress invoicing bills, and satisfy clients throughout the project lifecycle.