Early in my career, I watched a drywall contractor nearly go bankrupt despite having great work and satisfied customers.
His problem? He billed 30% of his contract on the first pay application when his actual work was only 15% complete. When the GC caught the discrepancy, they rejected the application, questioned every subsequent billing, and delayed his payments by 60+ days while they verified each line item.
Progress billing seems simple: bill for the work you've completed. In practice, it's one of the most critical skills for subcontractor success.
What Is Progress Billing?
Progress billing (also called progress payment billing or percentage-complete billing) is the practice of billing periodically for work completed during a construction project, rather than waiting until the end.
On commercial construction projects, this typically means monthly pay applications showing:
The result: you receive payments throughout the project rather than fronting all costs until completion.
Why Progress Billing Matters
Cash Flow
Without progress billing, you're financing the entire project from your own resources. On a $500,000 contract over 6 months, that could mean $300,000+ in unbilled labor and materials.
Risk Reduction
Getting paid as you work reduces your exposure if the project goes sideways.
Financial Health
Regular cash inflow lets you pay your own bills, take on new work, and maintain healthy operations.
Relationship Building
Accurate, consistent progress billing builds trust with GCs and owners.
The Schedule of Values: Your Billing Foundation
Your schedule of values (SOV) determines how you bill for the entire project. Getting it right at the start is crucial.
Break Down Your Scope
Divide your contract into meaningful line items. For an electrical contractor, this might include:
Balance Front-Loading and Reality
Some front-loading is normal and appropriate. Mobilization, submittals, and material procurement happen early and can carry reasonable value.
But excessive front-loading creates problems:
Align with Payment Milestones
If the project has specific payment milestones, structure your SOV to have billable completion at each milestone.
Get Approval Early
Submit your SOV during project kickoff and get it approved before your first pay application.
Calculating Percentage Complete
The core of progress billing is determining how complete each line item is.
Methods of Calculation
**Physical observation:** Walk the work and estimate percentage complete visually. ("About 60% of conduit is installed.")
**Quantity tracking:** Compare installed quantities to total. ("45 of 75 fixtures installed = 60% complete.")
**Labor-based:** Compare hours worked to estimated hours. ("180 of 300 estimated hours = 60% complete.")
**Cost-based:** Compare costs incurred to budget. ("$45,000 of $75,000 budgeted = 60% complete.")
Tips for Accuracy
**Be conservative but fair:** Billing for 50% when you're 60% complete leaves money on the table. Billing for 70% when you're 60% complete creates credibility problems.
**Account for stored materials:** Materials on site but not yet installed can typically be billed at 50-80% of value, depending on contract terms.
**Track multiple metrics:** If physical observation says 50% but labor says 70%, investigate the discrepancy.
**Compare to budget:** If you've spent 60% of your budget but are only 40% complete, you have a margin problem — but your billing should reflect actual completion.
The Billing Cycle
Most commercial projects have monthly billing cycles:
Know Your Deadline
Payment applications are typically due on a specific date — the 25th of the month is common. Mark it on your calendar.
Prepare Throughout the Month
Don't wait until the deadline. Track progress daily, and update your calculations weekly.
Submit Early
Submit your application 2-3 days before the deadline. Last-minute submissions get rushed reviews and more rejections.
Follow Up
After submitting, confirm receipt and ask if anything needs clarification.
What to Include in Your Pay Application
A complete pay application typically includes:
Cover Sheet (AIA G702 or equivalent)
Summary of amounts: original contract, approved changes, total contract, completed this period, stored materials, total earned, retainage, current due, balance to finish.
Schedule of Values (AIA G703 or equivalent)
Detailed breakdown showing each line item's value, previous completion, this period's completion, and totals.
Supporting Documentation
Depending on project requirements:
Lien Waivers
Usually: conditional waiver for current payment, unconditional waiver for previous payment.
Common Progress Billing Mistakes
Overbilling
Billing ahead of actual completion. This creates audit problems and damages credibility.
Underbilling
Leaving earned money unbilled. This hurts cash flow and can create end-of-project problems.
Inconsistent Line Items
If your SOV says "rough-in" but your billing detail says "conduit installation," you create confusion.
Missing Backup
No documentation for stored materials, completed work, or cost substantiation.
Math Errors
Nothing destroys credibility faster than pay apps where the numbers don't add up.
Late Submissions
Miss the deadline, miss the payment cycle.
Handling Billing Disputes
When the GC questions your billing:
Respond Promptly
Don't let disputes linger. Address questions within 24-48 hours.
Provide Documentation
Photos, labor records, and material tickets support your billing.
Be Professional
Even if you disagree, maintain a professional tone. Escalating emotionally doesn't help.
Negotiate if Needed
Sometimes you have to accept reduced billing for disputed items and fight it later.
Document Everything
Keep records of all disputes and resolutions.
Technology and Progress Billing
Digital tools like SubPaid transform progress billing:
**Real-time tracking:** Progress updates throughout the month, not just at billing time.
**Photo documentation:** Date-stamped photos supporting every billing claim.
**Automated calculations:** No more spreadsheet errors.
**Electronic submission:** Submit pay apps instantly with all backup attached.
**Approval tracking:** See where your pay app is in the approval process.
Subcontractors using digital progress billing tools report 30-40% less time spent on billing administration.
Frequently Asked Questions
What if the GC reduces my percentage complete?
Discuss the specific disagreement. If they're wrong, provide evidence. If there's genuine ambiguity, negotiate.
Can I bill for materials not yet installed?
Usually yes, if stored properly on site. Some contracts allow billing for materials stored off-site with additional documentation and insurance.
How do I handle change orders in progress billing?
Add approved change orders as new line items in your SOV. Bill for progress on change order work the same as original scope.
What's a reasonable amount of front-loading?
5-15% of contract value in the first billing is typical for mobilization and procurement. More than that raises red flags.
What if I'm behind schedule but billing on time?
Schedule and billing are separate. Bill for work actually completed. But if you're behind, expect questions about when remaining work will be done.