Progress billings are used when a contractor sends invoices to a client multiple times dirung the course of a project instead of sending a single bill. This is often the process used in a lengthy construction project, since various situations can arise during the course of such projects that can change billing estimates from their original starting point. It is common for progress billings to be done monthly or even weekly depending upon the circumstances of the project. Costs are divided according to percentages established at the start of the project for each aspect of the project.
Construction companies that do big jobs that take a long period of time are aware of all of the unforeseen circumstances and problems that change the costs for a project. They know that it is unrealistic to make an estimate at the start of a project that can last months or years and have the actual costs match that original estimate. For that reason, a more practical method of charging clients is necessary, and progress billings achieves this goal.
To undertake progress billings, a contractor will send invoices to a client at periodic intervals throughout a construction project. These intervals might be regularly scheduled or they can be adjusted depending upon project realities. For example, a project that must be put on hiatus during cold winter months might not require any billing to be done during this time off.
Both clients and contractors can benefit from progress billings. For the client, it is beneficial to not have to pay a lump sum at the beginning of the project that might not end up covering all the costs anyway. Contractors, on the other hand, may prefer that the payments are spread out to reflect the fact that they have to pay their workers along the way.
When progress billings are used for a construction project, the contractor and client must decide upon how costs will be doled out for each aspect of the project. For example, the contractor might decide that a certain percentage of overall costs will be delegated to materials. That percentage should hold up throughout the project, no matter how much total costs turn out to be. Contractors must make sure that they bill clients based on how much work is already completed and how much still needs to be done. Clients also often have the right to keep a retainage, which is a small percentage of the amount on each billing, to ensure that the project is completed.