Construction Invoice Guide: How Contractors Bill for Progress, Retainage, and Change Orders

Construction invoicing is nothing like sending a bill for consulting hours or a graphic design project. You are dealing with multi-phase projects that run for months, costs that shift as work progresses, retainage holdbacks, change orders that appear mid-project, and lien rights that depend on proper documentation. Get your invoicing wrong and you do not just wait longer for payment — you can lose your legal right to collect.

This guide covers the specific invoicing practices construction contractors and subcontractors need to know, with real examples you can apply to your next project.

Why Construction Invoicing Is Different

Most service businesses invoice after work is complete. Construction rarely works that way. Here is what makes it different:

• Progress billing: You bill as work progresses, not at the end. A six-month project might generate monthly invoices based on percentage of completion.
• Retainage: The owner or GC holds back a percentage (usually 5-10%) of each payment until the project is substantially complete.
• Change orders: Scope changes during construction are normal, and each one needs to be invoiced separately from the original contract amount.
• Lien rights: Your invoicing documentation directly affects your ability to file a mechanic's lien if payment goes sideways.
• Multiple cost categories: A single invoice may include labor, materials, equipment rental, subcontractor costs, and overhead markup — each tracked separately.

If you are using a generic invoice template that just lists hours and a rate, you are creating problems for yourself.

Progress Invoicing: Billing by Percentage of Completion

Progress billing is the standard in construction. Instead of waiting until the project wraps up, you submit invoices at regular intervals — usually monthly — that reflect the percentage of work completed.

Here is how it works in practice:

1. Start with the contract amount: Your signed contract establishes the total price for each scope item or division of work.
2. Estimate completion percentage: At each billing period, you assess how much of each line item is complete. If the contract includes $40,000 for framing and you have completed roughly 75% of the framing work, you bill $30,000 for that line item.
3. Subtract previous billings: Your current invoice only requests the difference between the total earned to date and what has already been billed. If you billed $20,000 for framing last month and it is now 75% complete ($30,000 earned), this month's invoice requests $10,000 for framing.
4. Apply retainage: Subtract the retainage percentage from the amount due this period.

The math for a single line item looks like this:

Current amount due = (Contract amount x % complete) - Previous billings - Retainage

Do this for every line item and sum it up. That total is your invoice amount.

Breaking Down a Construction Invoice

A proper construction invoice separates costs into categories. This is not optional — GCs, property owners, and lenders all expect to see where the money goes.

Labor

List labor by trade or task, not as one lump number. Include the number of hours or days, the rate, and the total. If you have different crew members at different rates, break that out.

Materials

Itemize materials with quantities and unit costs. Keep receipts. If the contract is cost-plus, you will need to attach backup documentation. Even on fixed-price contracts, having material breakdowns prevents arguments about scope.

Equipment

Equipment rental and owned-equipment usage charges get their own line items. Include the equipment type, rental period or hours used, and the rate.

Subcontractors

If you are a GC billing the owner, include subcontractor costs as separate line items. Attach the sub's invoice as backup. If you are a sub billing a GC, this section does not apply — but you still need the other categories.

Overhead and Markup

Your contract likely includes an agreed-upon markup percentage for overhead and profit. Apply this to the appropriate cost categories as specified in your contract. Common markups range from 10% to 20% on top of direct costs.

Change Orders: Invoicing Scope Changes

Every construction project has changes. A client wants to upgrade the countertops. The engineer requires additional structural work. The architect modifies the layout. Each of these is a change order, and each needs to be invoiced correctly.

The key rule: never mix change order costs with original contract billing. They should appear as separate line items or on a separate section of your invoice, clearly referencing the approved change order number.

A change order line item should include:

• The change order number and approval date
• A description of the additional or modified work
• The agreed-upon price for the change
• The percentage of the change order work that is complete (if billing in progress)

If a change order has not been formally approved and signed, do not invoice it. You can note it as pending, but billing unapproved changes is a fast way to create a payment dispute.

Retainage: Handling the Holdback

Retainage (also called retention) is the percentage of each progress payment that the owner or GC withholds until the project reaches substantial completion. Standard retainage is 5% or 10%, depending on the contract and jurisdiction.

How retainage affects your invoices

On every progress invoice, you calculate the full amount earned but only request payment for the amount minus retainage. For example, if you earned $50,000 this billing period and retainage is 10%, you request $45,000 and $5,000 goes into the retainage bucket.

When to invoice retainage

You submit a separate retainage invoice (or a final invoice that includes accumulated retainage) after the project reaches substantial completion and any punch list items are resolved. Some contracts release retainage in two stages — half at substantial completion and the rest after final completion.

Track retainage carefully

Your schedule of values should have a retainage column that shows the running total held back. By the end of the project, this number can be significant. On a $500,000 contract with 10% retainage, that is $50,000 sitting in someone else's account until the project wraps up.

Know your state's retainage laws. Many states cap retainage percentages and require timely release after completion. Some prohibit retainage on certain project types entirely.

AIA-Style Billing vs Simple Invoicing

The American Institute of Architects (AIA) publishes standardized billing forms that are widely used in commercial construction. The two most common are:

• AIA G702 (Application and Certificate for Payment): The summary cover sheet showing total contract, changes, completed work, retainage, and amount due.
• AIA G703 (Continuation Sheet): The detailed schedule of values with line-by-line progress.

When you need AIA forms

If you are working on commercial projects, government contracts, or any job where the contract specifies AIA billing, you must use these forms. Submitting a regular invoice will get rejected.

When simple invoicing works

For residential work, small commercial jobs, and projects where the contract does not require AIA forms, a well-structured progress invoice covers everything you need. It should still include a schedule of values, previous billings, current billing, and retainage — just in your own format rather than on AIA forms.

Most residential contractors and smaller subs will never need AIA forms. But if you are moving into commercial work, learn them. Using invoice software for construction that supports progress billing and retainage tracking makes the transition easier regardless of which format you use.

Lien Waivers and Their Connection to Invoicing

A mechanic's lien is your legal right to place a claim on the property if you do not get paid. Lien waivers are documents you sign to waive that right — typically exchanged for payment.

There are four types of lien waivers:

• Conditional waiver on progress payment: You waive lien rights for a specific amount, but only once that payment actually clears.
• Unconditional waiver on progress payment: You waive lien rights for a specific amount immediately, regardless of whether payment clears.
• Conditional waiver on final payment: Same as above but for the final payment.
• Unconditional waiver on final payment: Waives all remaining lien rights.

The invoicing connection: GCs and owners will often require a lien waiver with each progress invoice. You submit your invoice, and along with it you provide a conditional waiver for the current amount requested and an unconditional waiver for the previous payment that has already cleared.

Never sign an unconditional waiver until you have confirmed the corresponding payment has been deposited and cleared your bank. This is non-negotiable.

Payment Terms for Construction

Standard payment terms in construction differ from other industries:

• Net 30: The most common term for commercial work. The GC or owner has 30 days from invoice receipt to pay.
• Progress payments: Monthly billing cycles tied to the project schedule, typically with Net 30 from invoice submission.
• Milestone-based: Payment triggers at specific project milestones (foundation complete, framing complete, dried in, etc.) rather than on a calendar schedule.
• Pay-when-paid vs pay-if-paid: Some subcontracts tie your payment to when the GC gets paid by the owner. Know the difference — "pay-when-paid" means the GC must pay you within a reasonable time regardless. "Pay-if-paid" means if the owner stiffs the GC, the GC might not owe you. Many states have restricted or banned pay-if-paid clauses.

Real Examples

Example 1: Residential Remodel Progress Invoice

Project: Kitchen and bathroom remodel, $85,000 fixed-price contract, 10% retainage

Description	Contract Amount	% Complete	Earned to Date	Previous Billed	This Invoice	Retainage (10%)
Demo and disposal	$4,500	100%	$4,500	$4,500	$0	$450
Rough plumbing	$8,000	100%	$8,000	$5,600	$2,400	$800
Electrical rough-in	$6,500	80%	$5,200	$3,900	$1,300	$520
Framing and drywall	$12,000	60%	$7,200	$0	$7,200	$720
Tile and flooring	$14,000	0%	$0	$0	$0	$0
Cabinets and counters	$22,000	0%	$0	$0	$0	$0
Finish plumbing	$5,000	0%	$0	$0	$0	$0
Finish electrical	$4,000	0%	$0	$0	$0	$0
Painting and trim	$6,000	0%	$0	$0	$0	$0
Cleanup and punch list	$3,000	0%	$0	$0	$0	$0
Totals	$85,000		$24,900	$14,000	$10,900	$2,490

Amount due this period: $10,900 - $1,090 (retainage on this period) = $9,810

This gives the homeowner a clear picture of where the project stands and exactly what they owe.

Example 2: Commercial Subcontractor Invoice

Project: HVAC installation for office buildout, $220,000 subcontract, 5% retainage, one approved change order

Description	Contract Amount	% Complete	Earned to Date	Previous Billed	This Invoice	Retainage (5%)
Ductwork fabrication and install	$95,000	70%	$66,500	$47,500	$19,000	$3,325
Equipment (RTUs, VAVs)	$72,000	50%	$36,000	$36,000	$0	$1,800
Controls and thermostats	$28,000	20%	$5,600	$0	$5,600	$280
Insulation	$15,000	65%	$9,750	$7,500	$2,250	$487.50
Testing and balancing	$10,000	0%	$0	$0	$0	$0
Original contract total	$220,000		$117,850	$91,000	$26,850	$5,892.50
CO-001: Additional exhaust fan	$4,200	100%	$4,200	$0	$4,200	$210
Grand total	$224,200		$122,050	$91,000	$31,050	$6,102.50

Amount due this period: $31,050 - $1,552.50 (retainage on this period) = $29,497.50

Notice the change order is listed separately with its own CO number. The GC can match it to the approved change order documentation without any confusion.

Getting Your Construction Invoicing Right

Construction invoicing does not need to be complicated, but it does need to be precise. Track your schedule of values, keep change orders separate, understand your retainage terms, and always tie your lien waivers to confirmed payments.

The contractors who get paid consistently are not necessarily the ones doing the best work — they are the ones sending clear, complete invoices on schedule with proper documentation. Whether you use KipBill, AIA forms, or a spreadsheet you built yourself, the principles are the same: be detailed, be accurate, and be consistent.

Start with the examples above, adapt them to your contract terms, and submit your invoices on time every billing cycle. Your cash flow depends on it.