Progress Billing Sample: Definition, Considerations, and Template

Progress billing sample invoices can be confusing and hard to track. As projects advance, contractors often face challenges with keeping clients informed and ensuring that payments are made on time.

Imagine the chaos when billing is disorganized: delayed payments, misunderstandings, and potential cash flow issues for contractors. Kung hindi tama ang progress billing sample, it can create a ripple effect that affects the entire project’s financial stability.

However, even though the concept sounds straightforward, there are nuances that businesses and clients must consider to avoid potential pitfalls. This article will discuss how progress billing works and why it’s a smart solution for project-based industries.

What is a Progress Billing Sample?

Progress billing sample is a payment method where regular invoices are issued throughout a long-term, large-scale project. Payments are based on the completion of specific milestones, as agreed upon in advance by the contractor and the customer or lender.

This approach is commonly used in the construction industry. Both parties agree on a series of milestones with associated payment percentages before work begins. The billing is calculated by multiplying the percentage of work completed by the total project cost.

As each milestone is reached, the contractor submits an invoice for the completed work. The customer then reviews the quality of the work, and, if satisfied, makes the payment. This allows the contractor to fund the purchase of materials and labor for the next phase of the project.

Once the project is fully completed to the customer’s satisfaction, the final payment is made after the customer signs off.

What’s Included in a Progress Billing Sample?

Progress billing sample invoices contain specific details not typically found on regular invoices to ensure payment accuracy.

• Total project amount: This represents the estimated cost of the project upon completion, which may include incentives for the contractor to complete the project early or cost-effectively.
• Total paid to date: This is the total amount the customer has already paid toward the project so far.
• Project completion percentage: This indicates the percentage of the project that has been completed and billed.
• Approved changes and adjusted price: This includes any approved change orders that affect the project cost, along with the resulting price adjustment.
• Remaining balance: This is the amount the customer still owes for the project, covering the current invoice balance, the remaining work, and any overdue payments.

In some projects, the owner may withhold a certain amount or percentage until the project is completed. The retainage, typically between 5% to 10% of the total project cost or each progress payment, is kept in reserve to cover potential issues that may arise during the project.

The purpose of retainage is to protect the owner in case the project is not finished, the contract terms are not met, or there are problems with the contractor or subcontractors. However, retainage can lead to cash flow challenges for the construction company.

Therefore, both the owner and contractor should agree on the retainage amount early in the project.

Benefits of Progress Billing Sample

Progress billing sample offers simplicity and transparency, benefiting both vendors and customers. Additionally, it provides specific advantages for vendors, customers, and industries.

Vendor Advantages

• Paid as they go: Receiving payments in scheduled increments makes it easier for contractors to manage finances, which leads to a budget for expenses and ensures enough funds are available for materials, workers, and subcontractors.
• Keeps debt low: With steady payments throughout the project, contractors are less likely to incur debt for materials and labor, preventing interest payments from impacting profits.
• Payment issues are easier to identify: Vendors can track expected payments and amounts, reducing the chances of missed or incorrect payments and making it easier to resolve any discrepancies.
• Can stop work if not paid: With payment linked to project progress, contractors are less at risk of completing work without receiving compensation. This encourages customers to make regular payments to keep the project on track.

Customer Advantages

• Low risk: Progress billing reduces the risk for project owners by ensuring that contractors are only paid for work that meets the agreed-upon standards.
• No upfront payment: Customers are not required to make large upfront payments. They can pay a deposit to begin the work and then make payments as the project progresses.
• Faster work: Contractors are motivated to complete projects on time to secure timely payments and potential incentives. At the same time, progress billing samples discourage rushing, as contractors only get paid when the customer approves the work as satisfactory.

Which Industries Use Progress Billing Sample?

Progress billings are commonly used across various industries, particularly in construction. Many professionals, such as roofers, plumbers, general contractors, painters, and electricians, rely on progress billings as part of their business operations.

The high costs of raw materials, labor, and potential construction delays are some of the factors driving the use of progress billings in this sector.

Progress billings are also prevalent in aerospace and defense projects, which often involve large budgets and extended timelines. In these cases, progress billing serves as an effective solution to manage the accounting system of long-term, high-cost projects.

Considerations in Cost Changes of Progress Billing Sample

In long-term projects, the cost may fluctuate over time, especially when large sums are involved and the work is complex. The contract between both parties will outline how the project owner can approve changes to the project costs.

Typically, the client signs a change order, which confirms their agreement to the price adjustment, and this change will be included in the final project cost.

While some cost increases are inevitable, many can be avoided with proper planning. Here are some common causes of cost overruns:

• Changes in the project’s scope requested by the client.
• Unforeseen damage to the project.
• Poor planning or design errors.
• Requests for additional work from the client.
• Increases in the cost of materials due to market price changes.

Using accounting system software can help prevent cost overruns by giving you a clear view of your finances in real-time. It lets you easily track changes in costs and adjustments as the project progresses, so you’re always up to date.

Progress Billing Sample Examples

Here’s a simple example of a progress billing sample, so that you can have a clearer image of the processes:

After a client selects a contractor, both parties negotiate the contract terms, including the payment schedule, which is based on specific milestones agreed upon in advance. Once the work starts and milestones are met, the contractor can begin submitting invoices to the client.

For example, Makati Builders signs a contract to build an office building for ₱80,000,000 over two years, with a total profit of ₱30,000,000.

The project costs and profits are broken down as follows:

• ₱50,000,000 in costs
• ₱30,000,000 in profit

Year One:
In the first year, 40% of the project is completed.
The company invoices the client ₱32,000,000 (40% of ₱80,000,000).
Makati Builders records a profit of ₱12,000,000 in year one (40% of ₱30,000,000).

Year Two:
In the second year, 100% of the project is completed.
The company invoices the client the remaining 60%, or ₱48,000,000 (60% of ₱80,000,000).
Makati Builders records a profit of ₱18,000,000 in year two (60% of ₱30,000,000).

Note that the government of the Philippines mandates that companies submit their financial reports according to the Bureau of Internal Revenues standards. As a result, many companies have started to use BIR-authorized accounting software to standardize their reports.

Template of Progress Billing Sample

Service providers or contractors use the Progress Billing Sample Template to request payments as a project progresses. Here’s a simple breakdown:

1. VAT Registration & Date: Shows the company’s VAT registration number and the date of the invoice.
2. Client Details: Contains the client’s name, address, phone number, and VAT number.
3. Contract Details: Lists key contract information, including the contract number, project duration, total contract value, any advance payment, total payments made, and remaining balance.
4. Progress Billing Details: Includes the invoice number, the taxable value (amount being billed), any additional costs, VAT (calculated on the taxable value), and the total amount due, including VAT and extra charges.
5. Amount in Words: The total amount due is written out for easy reference.
6. Milestone Details: Explains which part of the project has been completed, and what portion of the payment corresponds to that completion.
7. Additional Comments: Offers any additional information like payment terms or notes.
8. Company Seal & Auth. Signatory: Includes the company seal and authorized signatory to validate the invoice.

This template simplifies the invoicing process by breaking down the cost according to the project’s progress.

Progress Billing Sample Template

Click Here to Download the Template!

Create and Adjust Progress Billing Sample Easily with HashMicro

HashMicro Accounting Software offers powerful solutions to ease your progress billing sample progress and project management. One of the key benefits of HashMicro is its automation capabilities, which reduce the need for manual data entry.

With integrated data from accounting, operations, and project management, HashMicro ensures that you never miss any crucial financial information. Sa pamamagitan ng seamless integration, you can track milestones, project costs, and payments in one place.

Additionally, HashMicro Accounting Software is already accredited with BIR requirements, so you can be assured that your invoices and financial records are in line with the latest tax regulations.

This software also offers a free demo to experience how the system works and consult with the expert team, who are ready to assist with whatever questions and concerns the companies might have.

Here are HashMicro’s top features to make your progress billing processes easy:

• Custom Printout for Invoices: Generate custom invoices that contain the necessary details like progress percentages, VAT, and costs, which can be easily adjusted as needed.
• Multi-Level Analytical: This feature allows you to gain real-time insights into the financial performance of each project, branch, or department. It also allows you to track and compare progress billing across multiple projects.
• Profit & Loss vs Budget & Forecast: Monitor actual profits and losses against your budget and forecasts.
• Budget S Curve: Visualize the project’s financial progress through the S Curve, which shows how project costs are distributed over time. As a result, businesses can compare the actual expenditures to the planned budget.
• Cash Flow Reports: Track the cash movement in and out of the business. It helps you monitor whether payments are coming in as scheduled, which can directly affect your ability to fund the next stages of construction.
• Forecast Budget:
  This feature helps you predict the future budget and expenses for your projects based on historical data and current trends. Thus, this forecast can guide your billing strategy.

Conclusion

Progress billing sample is a simple but effective way to manage payments for long-term projects. It ensures contractors get paid as they hit milestones. This method is especially useful in industries like construction, where the project timeline and costs can change.

However, imagine automating the process, wala nang abala and lahat na ay mas madali. HashMicro Accounting Software keeps you on top of invoices, milestones, and payments, all while being fully BIR-accredited.

HashMicro also has powerful features, like custom invoice generation, financial forecasting, and cash flow monitoring, you’ll have everything you need in one platform. Mas pinadali pa ang pag-manage ng invoices at payments.

Don’t miss out on improving your billing processes; experience the difference with a free demo today!

FAQ on Progress Billing Sample

• How often should I send progress billing invoices?

  The frequency of progress billing invoices depends on the specific project and the agreed-upon payment schedule. Typically, invoices are sent at regular intervals, such as monthly or bi-weekly, when significant milestones are achieved.

• What documents should I include with my progress billing invoice?

  To support your progress billing invoice, you should include relevant documentation such as:

  1. Photographs: Visual evidence of completed work.
  2. Time sheets: Records of labor hours spent on the project.
  3. Material receipts: Proof of purchased materials used in the project.
  4. Change orders: Any approved modifications to the original contract.

• What is retainage, and how does it affect progress billing?

  Retainage is a portion of the payment withheld by the client until the project is fully completed. It’s typically a percentage of the total contract value. Retainage can impact cash flow for contractors, so it’s important to negotiate its terms and timing of release with the client.

• How do I calculate the percentage of completion for progress billing?

  The method for calculating the percentage of completion varies depending on the nature of the project. Common methods include:

  1. Units-of-work method: Based on the completion of specific units or tasks.
  2. Cost-to-cost method: Calculated by dividing the costs incurred to date by the total estimated project cost.
  3. Percentage-of-completion method: Assessed based on a subjective evaluation of the overall project progress.