Construction billing is more complex than standard freelance invoicing. From progress billing and AIA forms to retainage and lien rights, this guide covers everything a contractor needs to get paid correctly and on time.
Construction projects involve long timelines, large dollar amounts, multiple subcontractors and suppliers, and complex legal protections built into state statutes. Unlike a freelance project where you invoice once and collect payment, a construction contractor may send 6–12 invoices over 18 months on a single project — each one tracking a different stage of completion and carrying legal implications for lien rights.
Getting construction billing right protects your cash flow, preserves your legal rights, maintains your relationship with the general contractor or owner, and documents your work for any future disputes. Getting it wrong can mean delayed payments, disputes over scope, loss of lien rights, and in the worst cases, performing work you are never paid for.
Large projects require billing in stages tied to completion milestones or monthly cycles.
Owners withhold 5–10% of each payment until completion, requiring careful tracking.
Many commercial projects require standardized AIA G702/G703 billing applications.
Strict state-specific deadlines for preserving mechanic's lien rights must be tracked.
The billing method you use depends on project size, contract type, client preference, and industry norms. Here is a detailed breakdown of the four most common construction billing approaches used by US contractors in 2026.
Progress billing invoices for the percentage of work completed during each billing period. This is the most common method for residential and commercial construction projects. At the end of each month (or stage), the contractor calculates what percentage of the total contract value has been completed and invoices that amount, minus any retainage.
How It Works:
Best For: Long-duration projects, cost-plus contracts, commercial construction
Example: $500,000 renovation: Invoice 1 — foundation 100% complete = $80,000 (less 10% retainage = $72,000 net). Invoice 2 — framing 75% complete = additional $52,500.
Milestone billing ties payment to the completion of specific project phases rather than a percentage of overall work. Each payment is triggered by completing a defined deliverable: site preparation, foundation, framing, rough-in, drywall, finishes, and final completion. This method is common in residential construction and renovation work.
How It Works:
Best For: Residential construction, renovation projects, design-build contracts
Example: Kitchen remodel for $45,000: Deposit $9,000, Demo + rough-in $18,000, Cabinets + counters $13,500, Final completion $4,500.
AIA billing uses standardized forms published by the American Institute of Architects. The G702 Application and Certificate for Payment summarizes the billing, while the G703 Continuation Sheet shows line-by-line schedule of values. AIA forms are required by many general contractors and owners on commercial projects because they provide a standardized, auditable record of all billing.
How It Works:
Best For: Commercial construction, GC-required billing, projects with architect oversight
Example: A $2M office buildout requires AIA billing because the GC uses it for all subcontractors. The plumbing sub submits G702/G703 forms monthly.
Time and materials (T&M) billing invoices for actual labor hours plus the cost of materials used, typically with a markup. T&M is common for service work, emergency repairs, and projects where scope cannot be defined in advance. Each invoice shows hours worked, hourly rate, materials purchased, and markup percentages.
How It Works:
Best For: Service and repair work, HVAC, plumbing, electrical, undefined-scope projects
Example: HVAC contractor billed $2,400 for 16 hours at $90/hour for labor + $960 in parts at 20% markup ($1,152) = $3,552 invoice.
Retainage is one of the most misunderstood aspects of construction billing for new contractors. Here is everything you need to know about how retainage works and how to manage it.
Retainage is a percentage (typically 5% or 10%) of each progress payment that the owner or general contractor withholds until the project reaches substantial completion. If your total contract value is $400,000 with 10% retainage, you will bill $400,000 over the course of the project but only collect $360,000 until the project is complete — at which point the retained $40,000 is released. Many states have laws regulating how long retainage can be held and when it must be released.
| Invoice # | Work Completed | Amount Billed | 10% Retainage | Net Payment | |---|---|---|---|---| | 001 | Foundation complete | $60,000 | $6,000 | $54,000 | | 002 | Framing complete | $80,000 | $8,000 | $72,000 | | 003 | Rough-in complete | $50,000 | $5,000 | $45,000 | | 004 | Finishes (75%) | $90,000 | $9,000 | $81,000 | | 005 | Final Completion | $120,000 | $12,000 | $108,000 | | FINAL | Retainage Release | $40,000 | $0 | $40,000 |
Many states have laws requiring retainage to be reduced or eliminated once a project reaches a certain percentage of completion (often 50%). California, New York, Texas, and Florida all have specific retainage statutes. Review your state's prompt payment act and retainage laws, or consult a construction attorney.
Change orders are modifications to the original contract scope that add, reduce, or alter work. They are one of the most common sources of disputes in construction — and almost all disputes are caused by performing change order work without proper written documentation.
This is the single most important rule of change order management. Performing additional work based on a verbal approval is extremely risky — the owner may later claim the work was included in the original scope. Document everything in writing before work begins.
A proper change order should include: description of the scope change, reason for the change, price impact (additional cost or credit), schedule impact (days added or reduced), and signature lines for both parties. Number change orders sequentially (CO-001, CO-002) for easy tracking.
Use the same labor rates and markup percentages from your original contract when pricing change orders. If your contract specifies how change orders will be priced (cost-plus, unit price, lump sum), follow that formula. Document your cost backup (quotes, time sheets) in case of dispute.
Either create a separate invoice for each change order or add it as a clearly labeled line item on your next progress invoice. Never bundle change order costs into the base contract billing without clear identification — this creates confusion and payment delays.