Progress billing is the practice of invoicing a customer at intervals over a long project, based on work completed, rather than sending one bill at the end. It is common in construction, engineering, manufacturing of custom equipment and some professional services.
How it works in factoring
Progress bills are often calculated as a percentage of completion or by milestones. In construction, they are usually submitted as pay applications with a schedule of values showing what portion of each task is done.
Factors approach progress billings carefully because:
- Completion is a judgment call. The customer may disagree about how much work is actually done.
- Offsets are common. Back charges, change order disputes and retainage can reduce what the customer pays.
- Performance risk remains. If the contractor fails to finish, the customer may refuse to pay earlier progress bills or claim damages.
For these reasons, some factors avoid progress billings, while others specialize in them and set lower advance rates, stricter verification and tighter concentration limits.
Illustrative example: On a $400,000 contract, a contractor completes an assumed 25% in month one and bills $100,000, less retainage. A factor might fund part of the current amount after the general contractor approves the pay application.
What to check
- Whether your customer signs off on each progress bill before payment
- How retainage and change orders are shown on each invoice
- Whether your factor accepts progress billings at all
- Any lien waiver requirements tied to payment
Invoices backed by signed approvals from the customer are much easier to finance.