Progress payment basics for contractors: what a construction payment schedule includes, milestone and pay app examples, retainage, and how to get paid on time.
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A progress payment is money a contractor collects as the work moves forward, instead of waiting for the whole job to be done. On anything bigger than a service call, progress payments are what keep payroll, subs and suppliers paid while the project is still open. The construction payment schedule in your contract decides when each progress payment is due, how much it is, and what you have to hand over to get it.
Most payment fights on a job come back to a schedule that was vague, missing, or ignored. I ran three restoration companies for more than 14 years, and the jobs that stayed on time financially had a payment schedule everyone understood before the first day of work. This guide explains how progress payments work, the common types of construction payment schedules, two filled-in examples (a residential remodel and a commercial pay app with retainage), the rules that apply to prompt payment, the methods of payment in construction, and how to keep each progress payment from sliding past its due date.
KEY TAKEAWAYS
A progress payment is a partial payment on a construction contract, made as the work progresses. Instead of one payment at the end, the contract price is split into pieces, and each piece is billed when a set condition is met: a stage of work is finished, a percentage of the work is complete, or a billing period (usually a month) ends.
Progress payments exist because construction is expensive to carry. A contractor might pay for labor, materials, equipment and subs for weeks before the owner sees a finished product. Progress billing spreads that cost so neither side carries all the risk. The owner pays only for work in place, and the contractor does not finance the whole project out of pocket.
You will also hear progress payments called progress billing, interim payments, draws (common on bank-financed jobs) or pay apps (short for payment applications on commercial work).
A payment schedule is the part of the contract that says when each payment is due and how much it will be. In construction, a good payment schedule answers five questions:
If your contract cannot answer all five, the customer will fill in the blanks for you, and their version will usually be slower than yours. For wording on terms and due dates, see our guide to contractor payment terms.
There is no single right schedule. The type of job, the customer and how the job is financed decide which one fits.
| Schedule type | How progress payments are triggered | Common on |
|---|---|---|
| Deposit plus milestones | A deposit at signing, then fixed amounts when named stages are finished (demo, rough-in, drywall, final) | Residential remodels, additions, roofing, smaller commercial jobs |
| Percent complete (schedule of values) | The contract is broken into line items, and each period you bill the percentage of each line that is complete | Commercial and public work, larger residential builds |
| Monthly pay application | A pay app is submitted each month for work completed and materials stored that period, usually on AIA G702 and G703 or similar forms | Commercial work for owners and GCs |
| Bank draw schedule | The lender releases funds after an inspector confirms each stage | New homes and renovations financed by a construction loan |
| Time and materials | Billed weekly or every two weeks for actual hours and materials, often with a not-to-exceed cap | Service work, repairs, emergency and restoration jobs |
| Unit price | Billed by measured quantities installed (linear feet, cubic yards, squares) | Site work, paving, utilities, some roofing |
Tip: Front-loading (pricing early line items high so you collect more up front) is a common temptation on a schedule of values. Owners, GCs and lenders look for it, and it can get a pay app rejected. Price each line at its real value.
Here is a progress payment schedule for an $80,000 kitchen and bath remodel. The company, numbers and stages are made up for illustration.
| Payment | Trigger | % | Amount |
|---|---|---|---|
| Deposit | Contract signed | 10% | $8,000 |
| Progress payment 1 | Demo complete and framing changes done | 20% | $16,000 |
| Progress payment 2 | Rough plumbing and electrical inspections passed | 25% | $20,000 |
| Progress payment 3 | Drywall finished and cabinets set | 25% | $20,000 |
| Progress payment 4 | Substantial completion (counters, fixtures, trim) | 15% | $12,000 |
| Final payment | Punch list complete and final walkthrough signed | 5% | $4,000 |
| Total | 100% | $80,000 |
Two things make this schedule work. Each trigger is something both sides can see (an inspection card, a signed walkthrough), and the last payment is small enough that the homeowner does not hold the whole job hostage over a punch list item. Deposit rules vary by state. California, for example, limits the down payment on home improvement contracts under Business and Professions Code section 7159, so check your own state before you set a deposit percentage.
On commercial work, progress payments usually run through a monthly pay app. Here is the math for the third monthly pay app on a $600,000 contract with 10% retainage. Again, the numbers are made up.
| Line (as on a G702-style summary) | Amount |
|---|---|
| Original contract sum | $600,000 |
| Net change by approved change orders | $0 |
| Work completed to date (from the schedule of values) | $270,000 |
| Materials presently stored | $15,000 |
| Total completed and stored to date | $285,000 |
| Retainage (10%) | ($28,500) |
| Total earned less retainage | $256,500 |
| Less previous certificates for payment | ($171,000) |
| Current payment due | $85,500 |
| Balance to finish, including retainage | $343,500 |
If the forms and line items are new to you, our pay application guide to AIA G702 and G703 walks through each line and the schedule of values behind it.
Bring one overdue invoice.
We will show you how that progress bill would be followed up, and what your customer would see when they pay.
Commercial progress payments add a few moving parts that residential jobs usually skip:
Construction billing goes wrong in small ways that add up: a missing waiver, a math error, a change order nobody signed. Use the same checklist for every progress bill:
| 1 | Bill the day the trigger is met. Not at the end of the week. Every day between the milestone and the invoice is a day added to how long you wait. |
| 2 | Reference the contract. Name the milestone or billing period, the contract date and the payment schedule section it comes from. |
| 3 | Show the contract math. Original contract, approved changes, completed to date, retainage, previous payments and amount due now. Our contractor invoice template has a contract summary block you can copy. |
| 4 | Bill change orders separately. Only signed change orders, each on its own line, on the next progress bill after approval. |
| 5 | Attach what the payer needs. Photos, inspection cards, lien waivers, stored materials invoices, certificates of insurance. |
| 6 | Send it to the person who pays. The PM who approves your percentages is often not the AP clerk who releases the money. Send it to both. |
| 7 | Put a payment link and exact due date on it. "Due November 20, 2026" gets paid sooner than "Net 15." |
If you are still building pay apps and progress invoices in spreadsheets, our roundup of construction billing software covers tools that handle schedules of values, retainage and AIA forms. For setting up progress invoicing in QuickBooks Online, see our QuickBooks for contractors guide.
Prompt payment laws set deadlines for paying contractors and subcontractors and may add interest when payments are late. They exist at the federal level and in many states, but the details are very different from place to place. A few facts to know:
Rules vary by state and change over time. Check your state's statute, read your contract, and talk to a construction attorney before you rely on a prompt payment deadline or interest claim. This is general information, not legal advice.
Once a progress payment is approved, how the money moves matters too. Here are the common methods of payment in construction and where each one fits.
| Method | How it works | Watch out for |
|---|---|---|
| Check | Still common for owners, GCs and insurance carriers | Mail time, deposit holds and "it's in the mail" delays |
| ACH bank transfer | Direct bank-to-bank payment, usually settling in one to two business days | Confirm any change to bank details by phone to avoid fraud |
| Credit or debit card | Fast and easy for homeowners, often through a payment link | Processing fees, and state and card network rules on surcharges |
| Wire transfer | Same-day, used for large commercial payments and closings | Hard to reverse; verify instructions by phone every time |
| Joint check | Made out to both a sub or supplier and the contractor above them, so both must endorse | Read any joint check agreement carefully; it can affect lien rights in some states |
| Construction loan draw | Lender releases funds after an inspection confirms the stage | Inspection scheduling and title updates add days |
| Payment plan | A homeowner pays a balance over set installments, by card or ACH | Put it in writing with dates and amounts |
For homeowner progress payments, a payment link with card and ACH options gets money in faster than waiting for a check. See how card, ACH and payment plans for contractors work. On insurance jobs, carriers pay through their own claim process: send adjusters documentation, never a payment link.
A clean schedule and a clean bill solve most problems. The rest is follow-up. Put every progress bill on the same schedule:
| Day 0 | Send the progress bill with backup and a payment link; confirm the right person received it |
| Due - 3 | Friendly reminder with the due date and the amount |
| Due + 3 | Polite past-due email and text; ask if anything is holding it up |
| Due + 7 | Phone call or voicemail to the payer, and to the PM on commercial jobs |
| Due + 15 | Firm notice with a pay-by date; on residential jobs, offer a payment plan |
| Due + 30 | Owner-to-owner call. Check your state's lien and notice deadlines now, not later |
If you need wording for each step, copy our construction collection email templates, which include follow-ups for late pay apps and retainage release. For the bigger picture, see how to reduce late payments in construction.
Keeping that schedule going on every open progress bill is the part most contractors drop. AR Workflow is receivables follow-up that runs on top of QuickBooks Online. It syncs your open invoices, puts each one on a follow-up schedule, and sends emails, two-way texts and ringless voicemails from a dedicated number with a card or ACH payment link. Customers can pay in full or on a payment plan, payments post back to QuickBooks, and follow-up stops when the invoice is paid. It is not accounting or pay app software; it is the follow-up that gets your progress payments collected.
A progress payment is a partial payment made during a construction project as work is completed. It is triggered by a milestone, a percentage of completion or the end of a billing period, as set out in the contract's payment schedule.
A payment schedule is the section of a contract that lists each payment, when it is due, how much it is and what triggers it. In construction it usually includes a deposit, progress payments and a final payment, plus any retainage and when it is released.
On milestone schedules, each payment is a set amount or percentage of the contract. On percent-complete schedules, you bill the value of work completed and materials stored to date, subtract retainage and subtract what has already been paid. The difference is the progress payment due now.
Progress payments are made during the job for work completed so far. The final payment is made when the job is complete and accepted, and on commercial work it usually includes the release of retainage, along with final lien waivers and closeout documents.
Retainage is a portion of each progress payment that the owner or GC holds back until the job is substantially or fully complete. It is still owed to you, but it is paid later. The rate and release terms are set by the contract, and some states limit them.
Related reading
Your invoice, not a feature tour.
Bring one overdue invoice to a demo and see what AR Workflow would send, when, and how your customer would pay.
This article is general information, not legal advice. Prompt payment, deposit, retainage, lien waiver and pay-when-paid rules vary by state; talk to a construction attorney about your situation.
Sam owned and ran three restoration companies for more than 14 years and collected over $100 million in receivables. He built AR Workflow in 2020 to give contractors the collections system he wished he'd had.
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