What Is Progress Invoicing? A Definitive Guide

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If you’re using QuickBooks Online for your small-business accounting needs, you’ve likely successfully created invoices for your clients. However, sometimes one invoice at the end of a project isn’t the best way for you to be compensated for your work. In that case, QuickBooks progress invoicing may be the solution. This guide will explain the process and provide step-by-step instructions for how to turn on — and successfully manage — progress invoicing in QuickBooks Online.

Typically used for large-scale construction projects, progress billing is a type of invoice that bills for work completed along the way. Instead of invoicing at the end of a project, progress billing occurs incrementally as the project advances.

QuickBooks Online Progress Invoicing Tutorial | CAN

Components of progress invoicing

Contractors include specific information on each invoice to capture the work performed, payment progress and overall project scope. These details define a clear understanding of the project that both can review to ensure they align with the original project invoice. The main components of progress invoicing include:

Contract amount

As with standard invoices, a progress bill includes the total cost of a project. If there are any changes to the scope of a project, like updated materials needed or additional tasks to perform, you can include these here. If you determine set payment amounts, like 25% payments four times throughout the project, you can include this information so customers know what they might pay. You can include the total amount and the amount due upon invoice receipt for each progress bill.

Cumulative value

With each progress invoice, you can share a summary of the work completed. This encourages customers to make their progress payments, as they can see the results of your work, even if it will take more time to complete. If you provide multiple progress invoices, you might indicate what value youve provided since the last payment and the cumulative efforts to date.

Contract balance

Along with the amounts and the values, including the balance on a progress invoice shows customers what theyve paid and what they will pay. The balance can show how many payments remain and the total amount they have left to pay. This can be especially important if there were any scope changes to share unplanned cost changes for which the customer can prepare.

Percent of completed work

Progress updates can show customers what youve completed so far. Different from the value youve provided, this figure can be a simple percentage that shows how close a project is to its end. This figure might align with the amount balances if you divide your invoices into equal segments. For example, if you issue four progress bills, the percentage might be 25% on the first, 50% on the second, 75% on the third and 100% on the final invoice.

What is progress invoicing?

Progress invoicing is a process where businesses bill their customers intermittently while working on a program. Companies might determine that customers pay an amount at the start of a program, halfway through and at the end of the project to ensure they have the financial resources to complete the work. Organizations that provide long-term services often use this billing method. Companies in several industries use progress invoicing, including:

Benefits of progress invoicing

Progress billing is useful to both the customer and contractor as it provides transparency for both parties to monitor the billing strategy and progress. Here are some benefits of progress billing:

How to complete progress invoicing

There are several steps you can follow to complete progress invoicing:

1. Create an agreement

Creating an agreement means defining the project requirements, including what materials you need, estimating labor costs and determining a project timeline. With this information, you can evaluate the best way to send progress bills and receive payments. Before starting on the project, consider agreeing with your customer on:

2. Prepare a project schedule

Once you agree on the details of your agreement, you can create a project schedule. This can include the specific dates that you plan to send invoices and the estimated completion date. With this information, you may also include the estimated time for each stage of the project, along with details of the work you plan to complete in each.

3. Review project at each milestone

As work on the project, you can evaluate progress and review if it aligns with your original plan. For example, when preparing to send your first project bill, you can identify if youve completed the percentage of the work planned and spent the amount of money budgeted. If there are any changes, you can review this with the customer and decide where you can invoice for additional costs. Consider a review stage at each milestone where the customer can review your progress and share any questions before you issue invoices.

4. Issue invoices according to schedule

Every time a contractor completes a particular stage of the project, they prepare a bill to send to the client. Review that each invoice includes the different components, including percentage complete, outstanding balance and amount paid. Consider using invoicing software that can capture this data and provide customers with easy payment options to enable quick transactions.

5. Issue the final invoice

When you complete the project, the client reviews it to ensure it meets their expectations. If there are any changes or adjustments, you can arrange for additional project invoices that extend beyond the agreed contract. Sometimes contractors include retainage into a contract that they might pay at project completion. Retainage is a percentage of the total cost withheld until you complete the work and the client confirms their satisfaction. The final invoice might include the retainage amount or one last payment amount that covers the outstanding balance.

Progress invoicing example

Evro Airlines contacts Stitha Aerospace and Defense to build an airliner for long-haul flights. Heres a summary of the contract and Stithas progress invoicing over the term of the project:

Invoice #1

Invoice #2

Invoice #3

Invoice #4

Final invoice

Total contract amount

$10,000,000

$10,000,000

$10,000,000

$10,000,000

$10,000,000

Amount paid to date

$ –

$2,500,000

$5,000,000

$7,500,000

$10,000,000

Contract balance

$10,000,000

$7,500,000

$5,000,000

$2,500,000

$ –

ValueGathered materials and created blueprintsBuilt prototype and started aircraft frameCompleted building of aircraftTested functionality, safety and compliance
Percent of completed work

25%

25%

25%

25%

100%

Invoiced amount

$2,500,000

$2,500,000

$2,500,000

$2,500,000

$ –

Two months from the agreement date, both parties evaluate the progress of the project and conclude that the project is 25% complete. Stitha bills Evro $2,500,000, which is the equivalent of 25% of the contract balance, which is $10,000,000. Every two months for the next six months, they repeat this process, where Stitha sends the progress invoice and Evro pays the bill through project completion.

FAQ

What is progressing invoice?

What is a progress invoice? A progress invoice requests partial payment for a project based on its percentage of completion or more specific deliverable milestones. It is a common method of billing for long-term projects in many industries, especially construction, aerospace and defense.

Why would you use progress invoicing?

Progress invoicing lets you split an estimate into as many invoices as you need. Instead of asking for full payment at the beginning of a project, you can invoice customers for partial payments. As you complete work, add items from the initial estimate to progress invoices.

Can you turn off progress invoicing?

Progress invoices are useful for long-term projects since they often come up with large budgets and need to be funded incrementally. This invoicing system prevents the client from having to fund the project upfront. In turn, the contractor will also benefit by getting paid at regular intervals.

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