On a $15,000 heat pump and duct replacement, a contractor might spend $7,000 on equipment and pay a crew for three days before the job is finished. Billing it all at the end means carrying that cost for a week or more, and longer if the customer pays slowly. Progress billing spreads the invoice across the job so cash comes in closer to when it goes out.
Progress billing in plain English
Instead of one invoice at completion, the job is split into stages, each tied to something both sides can see: the contract signed, equipment delivered, rough-in inspected, system started up. When a stage is reached, you invoice that stage's amount. The schedule is agreed up front, in writing, so nobody is surprised.
There are two common ways to set the stages:
- Milestone billing. Fixed amounts at named events. Simple and easy for homeowners to follow. Most residential trade work uses this.
- Percent-complete billing. Each invoice covers the share of the job finished since the last one. Common on commercial and construction projects with a general contractor reviewing each pay application.
A worked example: a milestone schedule
Made-up numbers for a $15,000 residential heat pump and duct replacement in a state with a California-style deposit cap:
| Stage | Trigger | Amount | Running total billed |
|---|---|---|---|
| Down payment | Contract signed | $1,000 | $1,000 |
| Equipment delivered | Equipment on site | $6,000 | $7,000 |
| Rough-in complete | Ductwork and line set installed, inspection passed | $4,500 | $11,500 |
| Final | System started, commissioned, final inspection passed | $3,500 | $15,000 |
The down payment is capped at $1,000 because 10% of $15,000 would be $1,500 and the California rule takes the lesser of the two.1 The equipment payment is triggered by delivery to the site rather than by ordering, which keeps payments from running ahead of the work. The final payment is large enough that the customer has a reason to see the job through inspection with you, and small enough that you aren't carrying most of the cost.
What do the rules say about deposits and progress payments?
Deposit and payment rules for home improvement work are set by states, and they vary. California is a widely cited example. Its Contractors State License Board tells consumers that "by law, a down payment cannot exceed 10 percent of the project price or $1,000, whichever is less," and advises them not to let payments get ahead of the work.1
Progress billing and revenue
A progress invoice is a bill, not necessarily revenue. For accrual-basis financial statements, revenue follows ASC 606, which recognizes revenue as promised goods or services are transferred to the customer.2 If you bill $7,000 when equipment is delivered but have done only $5,000 of work, the extra $2,000 is closer to deferred revenue than to income. Construction accountants call that gap over-billing; the opposite is under-billing.
| Over-billed | Under-billed | |
|---|---|---|
| Means | Invoiced more than the work completed | Completed more work than invoiced |
| Cash effect | Customer is financing you | You are financing the customer |
| On the balance sheet | A liability: work still owed | An asset: work not yet billed |
| Risk | Spending cash you'll need to finish the job | Running short of cash mid-project |
Taxes have their own timing rules. IRS Publication 538 points contractors using long-term contract methods to section 460 of the Internal Revenue Code and its regulations,3 and the exceptions that apply to smaller contractors and home construction contracts are a conversation for your tax preparer.
Common progress billing mistakes
- No schedule in the signed estimate. If the stages aren't in writing before work starts, every invoice becomes a negotiation.
- Vague triggers. "Halfway" is an argument. "Rough-in inspection passed" is a fact.
- Billing ahead of the work. It can breach state rules and leaves you owing work you've already been paid for.
- Waiting to invoice. A stage reached on Tuesday and billed the following Monday adds six days to your receivables.
- Folding change orders into stages. Price and sign each change order separately, then bill it clearly.
- A tiny final payment. If 95% is collected before the last inspection, there's little reason for anyone to hurry back for punch-list items.
Before you send a progress-billed contract
- Deposit amount checked against your state's rule
- Each stage tied to an event you can document with a photo or inspection
- Amounts that track cost: equipment payment no larger than equipment delivered
- A meaningful final payment tied to commissioning and final inspection
- Change order process and pricing described
- How each stage will be paid: card, bank transfer or check
Collecting each stage
Payment method matters on large stages. Stripe's published US pricing is 2.9% + 30¢ for online card payments and 0.8% capped at $5 for ACH bank debits.4 On a $6,000 equipment payment, that's about $174.30 by card online versus $5 by bank debit, worked from the published rates. Bank debits take longer to confirm, so ask for them early enough that the payment clears before you need the cash.
Progress billing in TradesWork
Be clear on this one: TradesWork doesn't do progress billing today. The job costing feature lists no project budget, WIP schedule or progress billing for construction-style jobs among its limits, and payments take no deposits on proposals or invoices yet. If most of your revenue is staged construction work, that's a real gap to weigh.
What TradesWork does cover around large jobs: estimated vs actual job costing on installs sold from an estimate, so you can see where a job ran over, and payment by card, Tap to Pay on a supported phone or bank account through a Stripe account your company owns, with bank payments shown as processing until they clear.
Footnotes
-
Contractors State License Board (California), "What You Should Know Before You Hire a Contractor," sections on illegally large down payments and payments. https://www.cslb.ca.gov/seniors ↩ ↩2
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IFRS Foundation, IFRS 15 Revenue from Contracts with Customers (issued in May 2014 together with Topic 606 in the FASB Accounting Standards Codification). https://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/ ↩
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Internal Revenue Service, Publication 538, Accounting Periods and Methods. https://www.irs.gov/publications/p538 ↩
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Stripe, "Pricing," standard US rates, checked October 2026. https://stripe.com/pricing ↩
