What is a Progress Invoice?
A progress invoice, also known as progress billing, is a type of invoice that requests payment for work completed to date. It’s commonly prepared and submitted for payment at different stages when processing a big project.
Progress invoicing is standard for long-term projects. Since these types of projects last a long time, it requires constant funding. This type of billing enables that to happen.
Progress invoicing includes the amount agreed upon in the original contract, the amount client has paid to date, as well as an update on what percentage of the project has been completed. Progress voices also include other items that both contractors and owners would understand and work out before the project even begins.
Understanding Progress Invoice
Progress invoice, or progress invoicing, lets contractors bill their clients in increments while the project is in progress. For it to work, both contractor and client should agree to terms on a payment schedule when invoices will be submitted for payment. If you plan to create a document that details your progress invoicing, you need to determine some factors such as company preferences and the jobs estimate. The customer also needs to be aware of all the conditions that are on the document. That way, you can make sure that you’re following the right guidelines and best practices when you create a progress invoice.
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. They can also pay for expenses such as raw materials by invoicing payment at various stages throughout the entire project. So when you create a project invoice, make sure that the jobs estimates are always in consideration. Any line items when you create an invoice should also be outlined. Also, keep in mind that progress invoicing is meant to be sent per milestone reached on the project.
When you create progress invoices, you need to make sure that the progress invoicing document is detailed and well-written. That way, you can outline the right estimates and pricing for that phase of the project. Your customer will also appreciate these details as it will give them an idea of where you’re at with the project and when you’ll be able to complete it. Basically, it allows them to make estimates and set expectations on the project.
Payments will depend on the verified report on the project’s completion. In other words, payment will be divided up as the project progresses based on specific reports and milestones set by one or both parties. The last or final balance will be remitted to the contractor once the project is a hundred percent complete, and the client is satisfied with the work done.
What’s Included in a Progress Invoice?
A progress invoice is different from the typical invoicing practices done by many companies. Some of the information and details in a progress bill document include the following:
- The total value of the contract that’s due to the project.
- Approved changes and the adjusted amount.
- Total value billed up to the current progress of the project.
- Current completion percentage of the project.
- The remaining balance owed upon completion of the project.
Keep in mind that progress invoicing is a simple yet tedious process. You need to include every bit of detail for it to become valid and accepted. When you create a progress report detailing the invoice that is owed to the customer, you need to outline everything. That includes all rights reserved, the status of the project, and any hindrances that are getting in the way.
Schedule of Values
A prominent technique that’s used alongside progress bill is called schedule of values. This strategy outlines the different costs or values for each of the tasks involved in the project. It’s common in the construction industry for a schedule of values to be executed, whereby owners and the contractors will work together to determine how much money will be spent for each stage of the project. During the entire process of the project billing, a value will be assigned to each phase as part of the schedule. At the same time, the milestone completed will be established for each phase as the project progresses.
The schedule of values will also identify if whether or not there were any exceeds in cost or the project came under the allotted funds.
For example, the schedule of values would outline what was paid for each task, as well as the initial estimate of the overall cost. That way, it can determine what point during the construction phases did the project exceed the estimated project cost or when did it go under the budget.
Having a schedule of values in place for your progress bill will help develop a transparent process where all of the financial information is known and disclosed upfront. At the same time, it also protects companies both legally and financially by having the estimates in writing. That way, there won’t be any surprise costs or spending after the project. Progress invoicing helps keep track of the ongoing costs so that both parties will be able to adjust to any potential changes. Through this type of billing, contractors and owners won’t get caught off-guard once an issue arises in the budgeting or a project.
In some projects, a percentage or specific value may also be withheld by the owner until the completion of the project. The retention amount, also known as retainage, can be five to ten percent of the total project cost or for each value per progress. What that means is that the money is held as reserved funds if there are any issues during the project.
At the same time, a retainage also helps protect the owner in case the project isn’t completed, the contract isn’t followed, or if there are issues with the contractor and the subcontractors. The retainage amount can create cash flow issues for the construction company. This process will result in both the contractor and owner having to come up with an agreement upon the retainage amount earlier in the process.
Is Progress Invoice Suitable For You?
Right now, progress invoicing is a common invoicing structure ion a number of different industries, with a special mention to construction projects. Many plumbers, roofers, painters, general contractors, and painters us progress invoicing as part of their business framework. The overall cost of raw materials, labor, and delays in construction are the major reasons why a huge chunk of the industry uses progress invoice.
In addition, progress invoicing is also used in aerospace and defense since these types of projects typically have a tremendous budget and can take a long time to complete. That’s why progress invoices fit with different situations involving a huge project. If you’re wondering if progress invoicing is right for you, consider the project that you’re currently managing. If it’s a large project that requires long-term use and a lot of resources to spend, progress invoicing is a go-to invoicing option that you should use.
Considerations for Cost Changes
It’s pretty common for a project’s cost to alter and change as time goes by. There are different factors, with the total dollars involved and the complexity of the project being common culprits. The contract will state how the client will approve any cost changes. A customer must also sign or initial a document that indicates the specific changes. However, keep in mind that some costs that exceed the budget are unavoidable while others are due to a lack of planning. Some common cost overruns include the following:
- Unexpected damages
- Owner changes the scope of the project tasks or requests additional work
- The price fluctuates to labor or materials needed for the project to continue
- Poor project planning
Many contractors will factor in a price allowance like a small percentage that provides the ability to increase the price of the project. Both parties should also discuss the extend of any price allowances.
How Can ReliaBills Help You with Progress Billing?
With ReliaBills, you can create an invoice the right way. At the same time, you can also streamline the entire process of your progress billing. ReliaBills doesn’t have the feature that allows you to create a progress invoice framework. However, it can compensate that by creating individual invoices for each milestone done. That means you can create invoices for every milestone that you reach in the project. That way, you can create progress invoices without having to make compromises. Create invoice of different purposes with ReliaBills now. You can list down the tasks that you’ve accomplished during a particular period, as well as other details like the following:
- Pricing for each task done.
- Any cost changes.
- Progress report.
- Percentage of the project done.
- And much more!
You can schedule your invoices and receiver notifications once it has been sent, received, opened, and when the client has sent their payment to your account. That way, you can focus more on other areas in your business that are also important. Create invoice of different purposes with ReliaBills now.