In this Article…

• Learn more about construction progress payments and progress invoicing.
• Explore best practices for progress payments and project management billing.
• Find strategies and tips for using QuickBooks invoicing for construction progress payments.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered legal or financial advice. For any financial concerns or questions regarding construction, please consult a qualified legal or accounting professional.

For such a fast-paced industry, there’s a lot of waiting in construction. If you’re a contractor who usually waits 30 days or more to get paid by your clients, you are not alone, as 82% of contractors report similar delays.

These slow payments can be detrimental to your business’ cash flow and can even delay project completion or the start of your next project. Thankfully, construction progress payments and progress invoicing are an effective way to improve your business’ efficiency and cash flow.

However, managing this staggered billing and the administrative tasks that come with it can be a headache. Enter QuickBooks invoicing, which reduces the administrative burdens of billing and streamlines the invoicing process. And, when QuickBooks is combined with construction billing software, the handling of progress payments becomes truly seamless and efficient.

This article will explain construction progress payments further, provide an overview of the best practices for progress payments, and then delve into the strategies and tips for using QuickBooks progress invoicing for your business’ progress payments.

Understanding Progress Payments in Construction

Progress payments can be a huge benefit  for your business: imaging if you could receive progress payments instantly, instead of waiting days or weeks? With Truss Payments, you get paid the moment an invoice is sent, keeping your projects moving and your cash flow steady.  Also, consider the positive effect these structured payments can have on your clients.

The benefits for your clients include:

• Clarity on the progress of their build and when each milestone is achieved.
• Transparency and detail into where their money is going.
• The convenience of smaller, more-manageable payments, instead of being overwhelmed by one, large invoice and payment.

First, the basics: What exactly are construction progress payments?

Construction progress payments are partial payments sent from a client to a contractor usually as the contractor reaches certain milestones in their project. This concept is also known as progressive billing, and understanding its meaning is crucial for contractors.

For instance, say you’re building a new home from scratch. There are many steps to such an involved project, and to keep cash flowing into your business, you want each milestone to trigger a payment. You might structure your client’s payments like this:

• Progress Payment #1: Completion of the foundation.
• Progress Payment #2: Completion of the framing.
• Progress Payment #3: Completion of the roof and exterior.
• Progress Payment #4: Completion of the interior.
• Progress Payment #5: Completion of the project; final payment.

Progress payments are designed so that instead of your business having to wait until the entire project is completed, you can receive funds in increments as you move forward. This progress billing example illustrates how contractors can maintain a steady cash flow throughout the project lifecycle.

This provides your business with numerous advantages, including:

1. Improved Cash Flow: Having payments sent to you on a more-frequent basis provides your business with the funds necessary for expenses like materials, labor, and equipment rentals. 
2. Reduced Financial Risks: By not having to wait until the very end of a project’s completion for payment, you won’t have to finance an entire project yourself or be forced to take on debt that you don’t want to.
3. Increased Transparency: Progress payments and invoicing provide your clients with clearer transparency into what work your team has completed and any of their outstanding or paid invoices.
4. Improved Client Relationships: With that increased transparency, and creating smaller, staggered payments, your clients will benefit and this will improve your relationship with them.

While project milestones are a very common way in which to base progress payments on, there are other formats that you can use. These include:

• Time-based Payments: These are payments timed to weekly, bi-weekly, monthly, or quarterly intervals.
• Percentage-complete Payments: Such payments are based on the percentage of work your team has completed on a project, say 25%, 50%, 75%, and 100%.
• Cost-plus Arrangements: These payments are designed to cover the actual costs incurred during construction, plus a profit margin predetermined by you.

Three Best Practices for Construction Progress Payments

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During negotiations on a new home build, use your team’s past work examples and cost projections to set progress payments and a payment schedule. Learn more about this tip and others in the Truss article “How to Implement Progress Payments for Your Construction Business.”

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Whether you’re using QuickBooks for your invoicing or not, there are best practices you can follow to get the most out of your construction progress payments. These three best practices include:

1. Clear Contract Language

Clarity and transparency are of utmost importance, especially when trying to avoid customer disputes and payment delays. And the most important place to establish clarity is in your contracts.

While drafting your a contract for a client, include:

• Defined payment milestones and their amounts.
• Specify what documentation is required to approve payment.
• Outline your process for change orders.
  
  • How will change orders impact the client’s payment schedule and the amounts owed?
• Detail your retention terms and your final payment conditions.
• Safeguard your business with penalties, like added interest, for clients who are late with payment. Or reward your clients for timely payments with incentives.

2. Documentation and Communication

After creating a clear and detailed contract, use other forms of documentation and communication for progress payments throughout your project.

Some ways for comprehensive documentation include:

• Taking photos of completed work and including time stamps on the photos.
• Keeping daily logs of the work your team has performed, whether completed or a work-in-progress.
• Obtain signatures from clients at each payment milestone.
• Maintain copies of all communications regarding any changes or issues with the clients’ project.
• Write inspection reports that are aligned with each billing milestone.

3. Regular Reviews

Conducting regular reviews provides you with insights into where your client’s project stands, how your company’s finances are performing due to the project, and whether your progress billing is aligned with payment milestones for the project.

Essential review actions that you should take include:

• Comparing the progress your team is making with the projected timelines and budgets you set with your client.
• Identifying any potential cost overruns and addressing potential profitability issues as quickly as possible.
• Ensuring that you are capturing all of your billable work in your progress invoices.
• Monitoring accounts receivable to ensure there are no outstanding payments that you need to address.
• Using future milestone completions to analyze cash flow projections.

Preparing QuickBooks for Your Construction Progress Billing

While QuickBooks is great for keeping track of your accounting, it may not be the best choice for processing credit card payments from your customers. 

Take happy Truss customer Daylight Concepts, the Solatube installation team from Tampa Bay, Florida, who found that most of their customers preferred paying via credit card. However, accepting payments with QuickBooks led to high, percentage-based fees.

When Daylight Concepts made the switch to Truss Payments, they were able to eliminate their processing fees while still allowing customers to pay by credit card, if they chose to. If a customer does choose to pay with a credit card, the customer pays a small processing fee.

Even better, Truss integrates seamlessly with QuickBooks, streamlining invoicing and payments for Daylight Concepts.

To learn more about how Daylight Concepts uses Truss to process their payments, read their customer story here.

QuickBooks is the perfect companion for contractors navigating construction progress payments. It has robust accounting features that track your project costs, invoices, and payments.

As one of the most popular accounting platforms available, QuickBooks also integrates with other systems like Truss Payments and provides versions designed just for construction.

If your business is not already using QuickBooks, there are three versions to consider:

1. QuickBooks Online: The most popular choice for businesses of all types, QuickBooks Online offers basic progress invoicing. However, when integrated with other construction platforms like Procore, Buildertrend, and Truss, the invoicing functionalities can be expanded.
2. QuickBooks Premier: This version is more robust than QuickBooks Online and offers features specific to contractors, such as progress billing.
3. QuickBooks Enterprise: The most comprehensive version of QuickBooks offers the most advanced progress billing features.

Creating a Solid Chart of Accounts in QuickBooks

After you’ve decided which QuickBooks edition to use for your construction business, the first step to using the software platform is establishing your chart of accounts.

The chart of accounts for a construction business using QuickBooks should include the following:

• Project-specific income accounts.
• Direct costs, such as materials, labor, and subcontractors.
• Indirect costs, such as equipment and overhead.
• Work-in-progress accounts.
• Retention accounts, when applicable.

Setting Up Items and Job Costing in QuickBooks

Next, after establishing your chart of accounts, your QuickBooks will need to include an item list and job costing, both essential for effective construction progress billing.

QuickBooks will generate a basic item list and job costing, but you may want to customize these in the following ways:

• Set up service items for every billable component of your projects.
  
  • This can include excavation, foundation, framing, and more.
• Add sub-items within your main categories for even greater tracking.
  
  • Sub-items for a “Foundation” list item might include “Concrete Footings” and “Reinforcement.”
• Assign the relevant income and expense accounts to each of these items.
• Create a customer and jobs hierarchy.
  
  • Add customer projects under the related customer accounts as sub-jobs.

Organizing your business’ chart of accounts, items lists, and job lists within QuickBooks provides the detail necessary for accurate and timely construction progress payments.

Tips for Implementing Progress Invoicing in QuickBooks

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Embrace automated invoices and payment reminders. They save your team from administrative tasks and provide your clients with non-invasive notices to make a payment.

Both QuickBooks and Truss Payments offer automated invoices and payment reminders.

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Now that you’ve customized and prepared your QuickBooks account for progress billing, it’s time to start using it.

Estimate-Based Progress Invoices

The most common method for progress billing in QuickBooks is estimate-based progress billing. It follows this workflow:

1. Create an estimate in your QuickBooks account.
   
   • Break down the client’s project into billable components.
   • Add quantities and rates to these billable components.

2. Save the estimate.

3. Send the estimate to your client for approval.

4. After client approval, and as your team completes work, generate progress invoices using the original estimate. To do so, follow these steps:

• Go to the client’s approved estimate.
• Choose “Create Invoice” from that estimate.
• Then choose “Create progress invoice based on estimate.”
• Customize the invoice, specifying the percentage of completion and the quantities to bill for each line item.
• Finally, review and send the invoice to your client.

Manage Retainage

Since many construction contracts include retention provisions, it’s important to know how to include retainage in your QuickBooks billing.

For QuickBooks Enterprise, there is a retainage functionality as a built-in feature. To enable this feature, follow these steps:

1. Navigate to your QuickBooks preferences.
2. Mark the retainage percentages you wish to have when you create estimates.
3. Ensure that the automatically calculated and tracked retained amounts are accurate.
4. At project completion, create a final invoice for releasing retainage.

If your business isn’t using QuickBooks Enterprise, retainage can still be set, just manually. Follow these steps to do so:

1. Create line items with negative amounts that will represent retained portions.
2. Track the retainage in a separate liability account.
3. Create a final invoice for the retained amount that was accumulated.

Change Orders and Progress Billing

You’re well aware that no construction project goes as planned. That’s why managing change orders in your progress billing is so important.

In QuickBooks, to update a project and your invoices, take these simple steps:

1. Generate a new estimate for each of the project’s approved change orders.
2. Connect the change order total estimate to the original project.
3. Invoice the change orders separately or incorporate the change orders into your regular progress invoices.
4. Ensure that you keep detailed documentation of all modifications and approvals.

Use QuickBooks Reports for Progress Payment Tracking

The more insights you have into your business’ financials, the better equipped you will be for maximizing efficiency and your cash flow. 

One of the best features of QuickBooks is its detailed reports. For progress payment tracking, the most-useful reports to use are:

• Job Progress Reports: These reports allow you to compare your project’s estimated costs and actual costs with revenue.

• Unbilled Costs by Job: These reports allow you to identify costs that your business has incurred, but has not invoiced.

• Estimates vs. Actuals: These reports allow you to track any discrepancy between estimated costs and actual costs.

• Open Invoices: These reports enable you to monitor any of your business’ outstanding progress invoices.

• Job Profitability: Assess project profitability as work progresses forward.

Automating Progress Payment Reminders

To reduce administrative work, improve accuracy, and accelerate the progress billing process, use QuickBooks automation features. The automation can help your team with:

• Sending payment reminders for outstanding invoices.
• Establishing standardized payment terms that align with your progress billing schedule.
• Creating templates to use for similar projects and progress billing scenarios.

Key Takeaways

Combining construction progress payments with QuickBooks invoicing offers a streamlined, efficient, and transparent approach to managing project finances. 

This article has covered:

• The basics of construction progress payments and why they’re so beneficial to improving cash flow.
• The best practices for using progress payments in your construction business.
• The strategies and tips for using QuickBooks invoicing for construction progress payments.

In addition to QuickBooks, integrating it with a payment platform like Truss Payments further enhances your business’ progress billing and payments. Want to get paid even faster? Book a demo today and see how Truss Payments integrates with QuickBooks to streamline progress payments and eliminate costly fees while offering instant access to your funds.