Construction & Contractor Invoices: Progress Billing, Retainage and Materials
How contractors and tradespeople should invoice: deposits, progress payments, retainage, materials and labour lines, change orders and final invoices.
Why construction invoicing is different
Construction and trade jobs often run for weeks or months, involve large material costs up front, and change as work progresses. A single invoice at the end would leave the contractor financing the whole job. Instead, the industry uses deposits, progress billing and, on larger projects, retainage. Clear invoices protect your cash flow and reduce disputes with clients and main contractors.
Common invoice types on a job
| Invoice | When | Purpose |
|---|---|---|
| Deposit | Before work starts | Secure the booking; fund materials |
| Progress invoice | At milestones or monthly | Bill for work completed to date |
| Change order invoice | When scope changes | Bill for agreed extra work |
| Final invoice | At practical completion | Bill the remaining balance |
| Retainage release | After the retention period | Collect amounts held back |
Separating labour and materials
Show labour and materials as separate lines. Clients understand the job better, tax treatment can differ between them in some places, and it is much easier to justify price changes if material costs rise. For example:
- "Labour: kitchen tiling, 2 tilers × 3 days"
- "Materials: porcelain tiles 24 m², adhesive and grout (receipts attached)"
- "Skip hire: 1 week"
If you add a markup to materials, be consistent and make sure your contract allows it.
Progress billing
Progress billing means invoicing for the portion of work completed so far. There are two common methods:
- Milestone billing: a fixed amount when each stage is complete, for example 30% at foundations, 30% at roof, 30% at first fix, 10% at completion.
- Percentage of completion: each month you bill the percentage of each contract item completed, minus what was billed before.
Each progress invoice should show the contract value, amount completed to date, amounts previously invoiced, and the amount due now. This "running total" format lets the client check the maths instantly.
Retainage (retention)
On many commercial projects, the client holds back a percentage of each payment (often around 5% to 10%) until the job is finished and any defects are fixed. This is called retainage in the US and retention in the UK. Show it clearly on every progress invoice:
| Line | Amount |
|---|---|
| Work completed this period | 20,000.00 |
| Less retainage (5%) | −1,000.00 |
| Amount due this invoice | 19,000.00 |
Keep a running total of retainage held, and invoice for its release when the contract allows. Rules on retention and payment timing vary by country and state, so check the contract and local law.
Change orders
Never start extra work on a verbal request alone. Get a written change order with a description and price, then invoice it as a separate, referenced line: "Change order #3: additional socket outlets ×6, approved 12 Sep". Unapproved extras are the most common source of construction payment disputes.
What every contractor invoice should include
- Your business name, address, licence or registration number where applicable
- Client name and the site address (not just the billing address)
- Job or contract reference and PO number if provided (see PO numbers)
- Invoice number, date and due date
- Itemised labour, materials and other costs
- Tax as required in your jurisdiction
- Retainage, previous payments and balance due
- Payment terms and bank details
For trade-specific layouts, see the roofing invoice template and the painting invoice template.
Tips for getting paid on site work
- Take a deposit before ordering custom materials.
- Invoice the same day each milestone is reached.
- Attach photos of completed work for remote clients.
- Keep signed change orders with each invoice.
- Use reminder templates as soon as a payment is late.
Our invoice generator handles deposits through the "amount paid" field and supports shipping or other extra charges, so the balance due is always calculated for you. For a structured, formal look, try the Corporate or Classic templates.
Frequently asked questions
What is an AIA G702 pay application?
The AIA G702 is a standard Application and Certificate for Payment form used on many US commercial construction projects, usually paired with the G703 continuation sheet. Together they show the contract sum, work completed to date, stored materials, retainage and the amount due. If your contract calls for AIA forms, a simple invoice may not be accepted on its own.
What is a lien waiver and when do I need one?
In the US, a lien waiver is a document in which a contractor or supplier gives up some or all of their right to file a mechanics lien, usually in exchange for payment. Conditional waivers take effect only once payment clears, while unconditional waivers take effect immediately. Some states require specific statutory forms, so check your state's rules before signing.
What is a schedule of values?
A schedule of values breaks the total contract price into line items, such as site work, foundations, framing and electrical, each with its own value. It is agreed at the start of the job and used to calculate progress billing, because each invoice claims the percentage completed on each line. A clear schedule makes progress invoices faster to approve.
Can I invoice for materials stored on site but not yet installed?
Sometimes. Many commercial contracts allow you to bill for materials delivered and stored on site, or in an approved off-site location, before installation. The client usually asks for supplier invoices, proof of delivery and insurance. Check your contract before billing, and list stored materials on their own line so they are not confused with completed work.
How does the Construction Industry Scheme affect my invoices in the UK?
Under CIS, contractors deduct money from subcontractors' payments and pass it to HMRC: 20% for registered subcontractors, 30% for unregistered ones, or nothing if you hold gross payment status. Deductions apply to labour, not to materials, so show labour and materials separately on your invoice. The contractor should give you a statement showing what was deducted.
What is the UK VAT domestic reverse charge for construction?
Since 1 March 2021, many supplies of construction services between VAT and CIS registered businesses use the domestic reverse charge. The subcontractor's invoice shows the VAT rate and amount that would apply but does not add it to the total, and states that the customer must account for the VAT to HMRC. It does not apply to end users, so check HMRC guidance.
Is there a limit on how much deposit a contractor can take?
In some places, yes. Several US states limit deposits on home improvement contracts. California, for example, generally caps the down payment at 10% of the contract price or $1,000, whichever is less. Commercial work and other countries often have no fixed cap, so the contract governs. Check your state or local licensing rules before setting deposit terms.
What is the difference between retainage and a deposit?
A deposit is money the client pays you before work starts, while retainage is money the client holds back from your progress payments until the job is finished. A deposit improves your cash flow, and retainage delays part of it. Show them differently: deduct the deposit from later invoices as a payment received, and show retainage as a held amount you will invoice for release.
How do I invoice a time and materials job compared with a fixed-price job?
On a time and materials job, bill labour hours at the agreed rates plus materials at cost or with an agreed markup, ideally with timesheets and receipts. On a fixed-price job, bill agreed milestones or percentages of the contract value, regardless of hours spent. Some contracts set a not-to-exceed cap on time and materials work, so track costs against it.
How long can a client hold retainage?
It depends on the contract and local law. Retainage is usually released at substantial completion or after a defects period, often in two stages. Many US states have prompt payment laws that limit the retainage percentage on some projects or require release within a set time. In the UK, retention terms are mainly set by the contract, so read the release conditions before signing.
Invoice Creator Editorial Team
Guides on invoicing, cash flow and small-business finance from Invoice Creator, operated by Next Software Development Company. Content is reviewed for accuracy against the fields our own invoice generator produces.
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