What is progress billing?

Definition

Progress billing is sending a customer bill in stages as a job moves forward, rather than waiting until the last day. On the books, each stage typically raises accounts receivable and records billings for that slice of the contract.

It is a billing habit, not a measure of how finished the job is. The amount you bill at a stage can be a percent of the contract, a milestone price, or a scheduled draw.

The receivable is a current asset until that stage is paid. Revenue for the job may be earned on a different clock than this bill.

On the accrual basis, the stage bill creates a receivable even if the homeowner has not paid yet. Cash still waits for the check.

Where it shows up

Balance Sheet: Located in the current assets section.

P&L: Related to revenue only as the job is earned, which may not match this bill.

Cash flow: Related to nothing until that stage collects.

See also: Percentage Of Completion · Invoice · Work In Progress Schedule

When you look at your Balance Sheet, you will not see a line named for staged billing. You will see the receivable that stage created, sitting in current assets.

When that receivable is high, one or more stages are still unpaid. When it is low, the homeowner has paid the draws you already sent.

The Income Statement does not automatically rise by this bill. Earned revenue can lag or lead the amount you invoiced at this stage.

On the Statement of Cash Flows, sending the stage bill does nothing to cash. Cash from operations rises only when that stage is collected.

A remodeler can look busy on billings and still have little cash if the last draw is sitting unpaid. The stage document is the ask, not the deposit.

How it works

A typical path starts with a contract that names the draws. You and the customer agree when a bill may go out, such as when cabinets land or when rough-in is done.

Work reaches that milestone. You then issue a bill for that stage's amount.

Entering it in the books raises the receivable and records billings for the stage. The customer now owes that draw until they pay.

The stage amount is often a percent of the contract price. Thirty percent of a $50,000 kitchen is $15,000, billed because cabinets landed, not because the books measured cost-to-date.

Later stages follow the same path. Each draw is its own document and its own receivable.

If the contract holds back a slice until punch list, that holdback is not this page. This page is the stage bill you are allowed to send now.

When the customer pays the stage, cash goes up and that stage's receivable goes to zero. Collecting does not, by itself, decide how much of the job is earned.

If they pay only part of the draw, the rest stays open. The unpaid remainder remains on the aging report until it is cleared.

This page stays on the staged bill. How you later compare earned revenue to amounts billed belongs on other pages.

Example

A kitchen remodeler has a $50,000 contract. The agreement lets the shop bill 30 percent when cabinets land.

Cabinets arrive, and the shop emails a $15,000 stage bill.

The shop records:

Debit: Accounts receivable $15,000

Credit: Billings $15,000

Accounts receivable, an asset, goes up by $15,000, and billings go up by the same amount. Cash has not moved.

The Balance Sheet now holds a $15,000 receivable for this draw. The Income Statement does not automatically show $15,000 of earned kitchen revenue just because this bill went out.

When the homeowner pays the $15,000, cash rises and this stage's receivable falls to zero. Later draws, such as a bill at install or at final, are separate documents.

If cabinets land but the shop forgets to send the draw, the work is still on site and no receivable exists yet. The stage bill is what puts the ask on the books.

Common mix-ups

Staged billing is not the same thing as percentage of completion. Percentage of completion is how much of the job is earned; this page is the bill you send at a milestone.

Staged billing is not the same thing as a deposit taken before work starts. A deposit is cash up front; this page is a bill for a stage that has been reached.

Staged billing is not one invoice for the whole job. Each draw is its own document, and paying the cabinet stage does not close the final bill.

Related terms

• Percentage Of Completion: Recognizing revenue in proportion to how much of a job is finished.
• Work In Progress Schedule: The job-by-job schedule comparing cost incurred, revenue earned, and amounts billed.
• Retainage: A portion of a contract payment held back until the job is accepted.
• Invoice: The document that bills a customer and creates a receivable.
• Unbilled Receivables: Revenue earned but not yet invoiced to the customer.
• Customer Deposits: Money taken up front against a specific future order or job.
• Change Order: A signed amendment adding or altering scope and price on a job.
• Billings: The amount actually invoiced to customers in a period.