Progress Billing for Subcontractors: Maximizing Cash Flow#

Executive Summary#

Progress billing—invoicing based on work completed rather than time elapsed—is fundamental to construction cash flow. Yet many ICI subcontractors systematically under-bill, delaying cash inflow and financing work that should be funded by clients. This guide explains progress billing mechanics, common mistakes, and how to optimize billing practices for healthy cash flow.

Progress Billing Fundamentals#

How It Works#

Progress billing calculates what to bill based on percentage of work completed:

Basic Formula:
(Percent Complete × Contract Value) - Previous Billings = Current Billing

With Retention:
Current Billing × (1 - Retention Rate) = Net Billable

Example#

A $500,000 mechanical insulation contract with 10% retention:

Period	% Complete	Gross Earned	Less Previous	Gross Billing	Less 10% Retention	Net Billing
Month 1	20%	$100,000	$0	$100,000	$10,000	$90,000
Month 2	45%	$225,000	$100,000	$125,000	$12,500	$112,500
Month 3	75%	$375,000	$225,000	$150,000	$15,000	$135,000
Month 4	100%	$500,000	$375,000	$125,000	$12,500	$112,500

Total retention held: $50,000 (released upon contract completion)

Schedule of Values#

The schedule of values (SOV) breaks down the contract into billable components:

Structure Options:

• By work area (Level 1, Level 2, Mechanical Room)
• By phase (Rough-in, Finish, Startup)
• By system (Hot Water, Chilled Water, Steam)
• By specification section

Importance:
The SOV becomes the basis for all progress claims. Thoughtful SOV structure enables accurate completion measurement and supports favorable billing progression.

Why Subcontractors Under-Bill#

Conservative Completion Estimates#

Estimating work at 70% complete when it's actually 85% complete leaves money unbilled:

Why It Happens:

• Fear of billing ahead and having to credit later
• Uncertainty about what counts as "complete"
• Lack of systematic completion tracking

Impact:
A $500,000 contract with completion consistently underestimated by 10% has $50,000 unbilled that could be working capital.

Late Billing Submission#

Missing billing deadlines pushes payment to the next cycle:

Why It Happens:

• Billing treated as afterthought to field work
• Field data not available for billing preparation
• Insufficient time allocated for billing process

Impact:
Missing a billing cut-off by one day can delay payment by 30+ days.

Incomplete Change Order Capture#

Work performed outside original scope not captured in billings:

Why It Happens:

• Change orders not formalized before work
• Verbal authorizations without documentation
• Change orders approved but not added to billing

Impact:
Revenue earned but never collected.

Retention Accumulation#

Retention amounts growing larger than necessary:

Why It Happens:

• Not tracking when retention release triggers occur
• Not submitting retention release invoices
• Accepting retention on change orders when original retention is sufficient

Impact:
Cash tied up indefinitely.

Optimizing Progress Billing#

Schedule of Values Strategy#

Front-Load Where Legitimate:
Structure SOV so that work completed early in project represents appropriate value. Mobilization, shop drawings, material procurement—these represent real effort and cost.

Avoid Unrealistic Loading:
Audited SOVs get scrutinized. Obvious front-loading damages credibility and may be rejected.

Match Work Sequence:
SOV items should correspond to how work actually progresses, enabling straightforward completion measurement.

Completion Measurement#

Physical Measurement:
Actual quantities installed compared to total contract quantities. Most accurate but requires field measurement capability.

Rule of Thumb:
Percentage estimates based on work observation. Common but prone to conservatism and inconsistency.

Earned Value:
Predefined milestones with assigned values. Work reaching milestone earns the value regardless of actual cost. Requires upfront milestone definition.

Billing Process Discipline#

Know the Cut-Off:
Every GC has billing submission deadlines. Know them. Calendar them. Hit them.

Start Early:
Don't wait until the deadline to begin billing preparation. Start several days before to allow for issues.

Field Data Flow:
Completion information must flow from field to billing function systematically—not through informal conversations.

Review Before Submission:
Verify quantities, check math, ensure proper format. Returned billings mean delayed payment.

Change Order Management#

Document Immediately:
When scope changes occur, document. T&M tickets for time and material work. Written confirmation of scope additions.

Bill Incrementally:
Don't wait for final change order resolution to bill undisputed portions. If $50,000 of work is confirmed and $10,000 is disputed, bill the $50,000.

Track Outstanding:
Maintain list of change orders pending approval with estimated value. This becomes accounts receivable visibility.

Retention Management#

Know the Terms:
Understand contract retention provisions:

• Rate (5%, 10%, other)
• Release trigger (substantial completion, final completion, warranty period)
• Reduction provisions (may reduce at certain completion percentage)

Track and Invoice:
When retention release triggers occur, invoice immediately. Retention that could be billed but isn't is free financing for the GC.

Negotiate on Change Orders:
If contract is substantially complete with retention already held, additional retention on change orders may not be necessary. Negotiate.

Billing Formats and Requirements#

AIA Documents (US)#

American Institute of Architects billing formats are standard:

G702 - Application and Certificate for Payment:
Summary document showing contract value, completion percentage, previous billings, current billing, and retention.

G703 - Continuation Sheet:
Line-by-line breakdown by schedule of values item showing percentage complete for each line.

CCDC Documents (Canada)#

Canadian Construction Documents Committee provides standard forms:

CCDC 9A - Statutory Declaration of Progress Payment Distribution:
Payment certification

Certificate of Payment formats vary by contract type

GC-Specific Requirements#

Many GCs have proprietary billing formats or portals:

• Textura (Oracle Construction Intelligence Cloud)
• Procore
• Various GC-developed systems

Understand requirements early. Format errors cause delays.

Cash Flow Implications#

The Billing Cycle#

Typical Timeline:

1. Work performed: Month 1
2. Billing submitted: End of Month 1
3. GC processes: 2-4 weeks
4. Payment issued: Per contract terms (typically Net 30)
5. Payment received: Month 3

This 45-60 day cycle means today's work becomes cash 6-8 weeks later—assuming perfect billing and payment.

Under-Billing Impact#

Under-billing by $50,000 monthly:

• Year-end: $600,000 in unbilled work
• At 8% cost of capital: $48,000 annual carrying cost

This is money earned but not collected—pure financing cost.

Billing Optimization Impact#

Reducing billing lag by 15 days:

• $100,000 monthly billing improves by $50,000 in receivables
• Across a year: meaningful cash flow improvement

How Appello Supports Progress Billing#

Appello's Progress Billing module connects field operations to the billing process. Completion tracking from field data provides accurate percentage-complete calculations. Schedule of values management supports structured billing preparation.

Integration with accounting systems means approved billings flow to invoicing without re-entry. Retention tracking alerts when release triggers occur. For ICI subcontractors managing multiple active projects, Appello provides the billing visibility and discipline that manual processes struggle to maintain.

Conclusion#

Progress billing is how ICI subcontractors convert completed work into cash. Under-billing—through conservative completion estimates, late submissions, or missed change orders—finances work that should be client-funded.

Optimizing progress billing requires process discipline: systematic completion measurement, deadline adherence, change order capture, and retention management. The payoff is improved cash flow and reduced financing cost for the work you've already performed.

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Related Reading:

• How Progress Billing Works for ICI Subcontractors
• Understanding Retainage for ICI Subcontractors
• Cash Flow Management for Construction Subcontractors