How a pay application works, with AIA billing explained: build a schedule of values, fill out the G702 and G703 line by line, and get progress billing paid.
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A pay application is the monthly bill on a commercial construction job. Instead of sending one invoice for the whole contract, you bill for the percentage of each part of the work you finished that month, the general contractor or owner holds back retainage, and you get paid the difference. Most of the time it goes out on the AIA G702 and G703 forms, which is why people call the whole process AIA billing.
I ran restoration companies for more than 14 years, and commercial jobs taught me one thing fast: on a pay app job, the paperwork is the payment. A late or incomplete pay app waits for next month's cycle.
This guide walks through how a pay application works, how to build a schedule of values that gets approved, how to fill out the G702 and G703 line by line (with a fully worked example), and how to follow up so the check actually shows up.
KEY TAKEAWAYS
A pay application (pay app for short) is a contractor's formal request for a progress payment on a construction contract. It shows the full contract value, what has been completed and stored to date, how much retainage is being held, what has already been paid, and the amount due for this period. It is usually signed by the contractor, reviewed by the GC, architect or owner's rep, and approved (sometimes after edits) before it is paid.
A regular invoice says "here is what you owe." A pay app says "here is how far along each piece of the job is, please certify it." The reviewer checks your percentages against what they saw on site, which is why the format is so rigid.
| Standard invoice | Pay application | |
|---|---|---|
| Used for | Service calls, small jobs, residential work | Commercial and larger contracts billed monthly |
| Bills for | A fixed price or the work done | Percentage complete on each line of the schedule of values |
| Retainage | Rarely | Usually 5 to 10 percent held back each period |
| Approval | Customer pays it | GC, architect or owner reviews and certifies it first |
| Backup | Sometimes photos | Lien waivers, change orders, stored material proof, certified payroll on some jobs |
| Timing | Whenever the work is done | On a fixed monthly cycle with a cutoff date |
AIA billing refers to the pay application forms published by the American Institute of Architects as part of its contract documents. The two you will see on almost every commercial project are:
The rule that trips people up: the G703 totals must match the G702 exactly. Total completed and stored to date on the G702 equals the sum of that column on the G703. Total retainage on the G702 equals the retainage column on the G703. If they are off by a dollar, expect the pay app to come back.
Subs often bill the GC on the same forms, and the GC rolls every sub's numbers into its own pay app to the owner. If the GC bills the owner on the 25th and yours arrives on the 26th, your work waits a month.
Tip: The AIA forms are licensed through AIA Contract Documents, and many GCs use their own look-alike versions. Ask for a sample of an approved pay app before your first billing.
The schedule of values (SOV) is the list of every part of the job with a dollar value assigned to each, adding up to the full contract sum. It is submitted at the start of the project, approved by the GC or architect, and becomes the backbone of every pay application after that. You cannot bill against a line that is not on it.
A good schedule of values makes progress easy to verify on site and matches how you track job costs, so you can see whether each line is making money.
| 1 | Start from your estimate. Use the divisions you bid with so the numbers trace back to the proposal. |
| 2 | Split labor and material where it helps. Separate material lines make stored material billing cleaner. |
| 3 | Break big lines down. A single $120,000 "electrical" line is hard to measure. Rough-in, trim, gear and fixtures are each easy to see in the field. |
| 4 | Include general conditions and closeout. Mobilization, supervision, permits and closeout are real costs. Give them lines. |
| 5 | Keep change orders as separate lines. Never change the original values. Add each approved change order as its own line. |
| 6 | Get it approved in writing before the first billing. An unapproved SOV is the most common reason a first pay app sits for weeks. |
Tip: Reviewers watch for front-loading: extra value on early lines so you get paid ahead of the work. An obviously inflated early line invites a fight on every pay app after it.
Progress billing means billing for work as it is completed instead of at the end. On a pay application, each month you report how much of each SOV line is done. You can bill by percentage complete (framing is 70 percent done), by units installed (42 of 60 windows), or by milestones the contract defines. Whatever method you use, it has to be something the reviewer can check on site or on paper.
The math is cumulative. You report total completed to date, subtract what was billed before, and the difference is this period. The G703 columns for previous and this period keep that running total honest.
Many contracts let you bill for materials delivered but not yet installed. Expect to provide supplier invoices, delivery tickets and photos, plus insurance or a bill of sale for off-site storage. Some owners do not pay for stored materials at all, so check the contract.
Fill out the G703 first, then carry its totals to the G702. Here is what each column on the continuation sheet means. Column letters follow the common 1992 edition; check the version your project uses, since newer forms may label them differently.
| Column | What goes in it |
|---|---|
| A: Item no. | The SOV line number |
| B: Description of work | The SOV line name, exactly as approved |
| C: Scheduled value | The approved dollar value for that line |
| D: From previous application | Total work completed on that line on all earlier pay apps (D plus E from last month) |
| E: This period | Work completed on that line since the last pay app |
| F: Materials presently stored | Materials delivered and stored but not yet installed (not already in D or E) |
| G: Total completed and stored to date | D plus E plus F |
| G / C: Percent complete | Column G divided by column C |
| H: Balance to finish | C minus G |
| I: Retainage | Retainage on that line, if the rate varies by line or the form requires it |
Then the G702 summary lines:
| Line | What it is |
|---|---|
| 1. Original contract sum | The signed contract value |
| 2. Net change by change orders | The total of approved change orders, added or deducted |
| 3. Contract sum to date | Line 1 plus line 2 |
| 4. Total completed and stored to date | The total of column G on the G703 |
| 5. Retainage | 5a: percent of completed work, 5b: percent of stored material, plus the total |
| 6. Total earned less retainage | Line 4 minus total retainage |
| 7. Less previous certificates for payment | Line 6 from the prior approved pay app |
| 8. Current payment due | Line 6 minus line 7. This is what you are asking to be paid now. |
| 9. Balance to finish, including retainage | Line 3 minus line 6 |
The G702 also has a change order summary, a contractor signature block and often a notary block. Some owners require notarization every month, so find out early.
Here is a full example using a made-up company. Hillcrest Builders is the general contractor on a $480,000 retail tenant buildout. One change order for an added storefront ($22,000) has been approved. Retainage is 10 percent on completed work and stored materials. This is pay app #3.
EXAMPLE G703 CONTINUATION SHEET
| A | B: Description | C: Scheduled | D: Previous | E: This period | F: Stored | G: To date | % | H: Balance | I: Retainage |
|---|---|---|---|---|---|---|---|---|---|
| 1 | General conditions | $36,000 | $12,000 | $6,000 | $0 | $18,000 | 50% | $18,000 | $1,800 |
| 2 | Sitework | $42,000 | $42,000 | $0 | $0 | $42,000 | 100% | $0 | $4,200 |
| 3 | Concrete | $68,000 | $54,400 | $13,600 | $0 | $68,000 | 100% | $0 | $6,800 |
| 4 | Framing | $96,000 | $28,800 | $38,400 | $0 | $67,200 | 70% | $28,800 | $6,720 |
| 5 | Roofing | $48,000 | $0 | $9,600 | $14,400 | $24,000 | 50% | $24,000 | $2,400 |
| 6 | MEP rough-in | $120,000 | $0 | $24,000 | $0 | $24,000 | 20% | $96,000 | $2,400 |
| 7 | Drywall and finishes | $70,000 | $0 | $0 | $0 | $0 | 0% | $70,000 | $0 |
| 8 | CO #1: storefront | $22,000 | $0 | $4,400 | $0 | $4,400 | 20% | $17,600 | $440 |
| Totals | $502,000 | $137,200 | $96,000 | $14,400 | $247,600 | 49% | $254,400 | $24,760 |
EXAMPLE G702 SUMMARY
| Line | Amount |
|---|---|
| 1. Original contract sum | $480,000 |
| 2. Net change by change orders | $22,000 |
| 3. Contract sum to date | $502,000 |
| 4. Total completed and stored to date | $247,600 |
| 5a. Retainage, 10% of completed work ($233,200) | $23,320 |
| 5b. Retainage, 10% of stored material ($14,400) | $1,440 |
| Total retainage | $24,760 |
| 6. Total earned less retainage | $222,840 |
| 7. Less previous certificates for payment | $123,480 |
| 8. Current payment due | $99,360 |
| 9. Balance to finish, including retainage | $279,160 |
Column G adds up to $247,600, about 49 percent of the $502,000 contract sum to date. Ten percent of that is held as retainage ($24,760), so Hillcrest has earned $222,840 net. On pay apps #1 and #2 it was certified for $137,200 of work less 10 percent retainage, or $123,480. The difference, $99,360, is what this pay application asks for.
Notice the roofing line: $9,600 installed plus $14,400 of stored material. That stored amount needs its own backup (supplier invoice, delivery ticket, photos) or the reviewer will strike it and the current payment due drops by $12,960.
Example company, project and amounts are made up for illustration.
Retainage is the percentage held back from each progress payment until the job is finished, commonly 5 to 10 percent. It sits on line 5 of the G702 and column I of the G703, carries into line 9, and gets billed for release at completion, usually with a final lien waiver.
Maximum rates and release deadlines come from the contract and often state law; see the retainage guide in the related reading box below. For pay apps, track retainage per job so it never becomes money you forget to bill. Our guide to QuickBooks setup and job costing for contractors covers one way to keep it on its own account.
The G702 and G703 are the core, but the package around them is what gets a pay app approved on the first pass. Requirements vary by contract, so treat this as a checklist to confirm with the GC at the start of the job.
| Document | Why they want it |
|---|---|
| Conditional lien waiver for this period | Shows you will release lien rights for this amount once paid |
| Unconditional lien waiver for the previous period | Proves last month's payment was received |
| Sub and supplier lien waivers | If you have lower-tier subs or big suppliers, the GC often wants theirs too |
| Approved change orders | Only signed, approved change orders can be billed. Pending ones get struck. |
| Stored material backup | Invoices, delivery tickets, photos, insurance or bill of sale |
| Certified payroll | Required on many public and prevailing wage jobs |
Keep a dated record of what you sent and when. Our article on bulletproof documentation has more on building that habit.
Bring one overdue invoice.
Show us an approved pay app that still has not been paid, and we will show you exactly how it would be followed up.
| 1 | Missing the cutoff. Find the GC's pay app due date (often around the 20th to 25th of the month) and put it on the calendar for the whole job. |
| 2 | G702 and G703 do not tie. A rounding error or a forgotten line means the pay app comes back. Use a spreadsheet or software that calculates both from the same data. |
| 3 | Billing unapproved change orders. Bill pending changes as soon as they are signed, not before. Keep a change order log so nothing approved goes unbilled either. |
| 4 | Over-billing percentages. If the reviewer disagrees on site, they cut the line and trust the rest less. |
| 5 | Wrong lien waiver. Sending an unconditional waiver for money you have not received gives away rights. Sending the wrong form or the wrong amount sends the package back. |
| 6 | Nobody follows up after approval. Approved is not paid. Plenty of certified pay apps sit in an AP queue because nobody asked when the check run is. |
Payment timing comes from three places: your contract, any pay-when-paid or pay-if-paid clause flowing down from the GC's contract with the owner, and prompt payment laws. On federal construction contracts, the Prompt Payment clause in FAR 52.232-27 generally makes progress payments due 14 days after the designated billing office receives a proper payment request, with a longer window for final payment. Most states have their own prompt payment acts for public work, and many cover private work too, with different deadlines and interest rates.
Those rules vary a lot by state and by type of project, so check your state's statute and your contract before you rely on a deadline or demand interest. This article is general information, not legal advice. Talk to a construction attorney about a specific job.
What you control is the "proper" part. A complete, on-time pay app starts the clock. An incomplete one lets everyone say it never started.
On a pay app job, follow-up starts before the money is late. A simple rhythm that worked for me:
| When | What to do |
|---|---|
| 3 to 5 days before cutoff | Confirm the GC has your SOV, waivers and change orders. Ask if anything changed in the format. |
| Cutoff day | Submit the full package. Get a confirmation it was received. |
| About a week after | Ask the PM whether it was approved as submitted or adjusted, and get the approved amount in writing. |
| When the owner pays the GC | Ask AP when the next check run is and whether your payment is on it. |
| Due date per contract | Send a short, specific reminder with the pay app number, period and approved amount. |
| Past due | Escalate to the PM and the GC's controller. Check your lien deadlines in parallel. |
For the reminders themselves, our construction invoice collection email templates and past due invoice letter templates give you wording you can adapt to a pay app. If a job does go bad, how to collect unpaid construction invoices covers the next steps, and how to reduce late payments in construction covers how to set the next job up better.
The part that falls apart is follow-up once the invoice is in QuickBooks: nobody tracks which approved pay apps are past due. AR Workflow for construction syncs with QuickBooks, shows every open invoice on an aging dashboard, and runs automated payment reminders by email, text and ringless voicemail from a dedicated number. It stops when the invoice is paid and logs every touch, so when a GC says "we never heard from you," you have the record.
An invoice bills a set amount. A pay application requests a progress payment based on percent complete on each schedule of values line, less retainage and previous payments, and must be certified before it is paid.
They are the AIA pay application forms. The G702 (Application and Certificate for Payment) is the one-page summary of the contract sum, work completed, retainage, previous payments and current payment due. The G703 (Continuation Sheet) lists every schedule of values line with its progress. The G703 totals must match the G702.
Only if your contract requires them. Many projects do, and many GCs use their own versions with the same layout. Check the payment section of your contract.
Usually once a month, on a cutoff date set by the GC or owner. Some contracts bill on milestones. Miss the cutoff and payment usually slips a full cycle.
Find out exactly which lines or documents were the problem, fix only those, and resubmit before the GC bills the owner if you can. Get the revised approved amount in writing.
Related reading
Your invoice, not a feature tour.
Bring one overdue invoice to a demo and see what AR Workflow would send, when, and to whom.
Photo: Unsplash. AIA, G702 and G703 are trademarks of the American Institute of Architects. This article is general information, not legal advice.
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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