Deposit and progress payment invoices for contractors

Published 2026-11-03

Short answer

Bill a job in stages by agreeing the schedule in writing before you start: a deposit, then milestones or percent complete, then a final balance. Tie each payment to something the customer can see, write the amounts as well as percentages, and make every stage invoice reconcile to the contract total. Check deposit limits where you work.

On a job that runs for weeks, waiting for one invoice at the end means you carry the cost of materials and labor out of your own pocket. Billing in stages fixes that, if the stages are agreed before the work starts and each invoice shows clearly what is being paid for. Here is how to set it up.

How do I agree the payment schedule before I start?

Put the payment schedule in the estimate or contract, in writing, so the customer has accepted it before the first invoice. Two common ways to set the stages are by milestone (a stage is billed when a defined piece of work is finished) and by percent complete (you bill the share of each trade that is done at the end of the period).

Milestones are simpler and cause fewer arguments, because a milestone is either reached or not. Percent complete suits long or large jobs where there is no clean break.

Example: an 18,000 bathroom remodel

20% on signing: 3,600 (the deposit)
30% when demolition and rough-in are done and inspected: 5,400
30% when tiling and waterproofing are finished: 5,400
20% on completion, after the punch list: 3,600

These four stages add up to 18,000, and each payment is tied to something the customer can see. Write the amounts as well as the percentages, so nobody has to do the math from a contract clause. The percentages are an illustration, not a standard.

What is the deposit for?

A deposit covers the costs you take on before any work is visible: ordering a vanity, a shower screen and tile that cannot be returned. In the example, the materials ordered at the start cost 4,100, so a 3,600 deposit leaves you carrying 500 rather than 4,100.

Customers accept a deposit more readily when you tell them what it buys. Deposits of 10% to 30% are commonly quoted, and the 20% above is only an example. Some places cap deposits on home improvement work well below that (in California, for instance, the limit on most home improvement contracts is the lesser of 10% or 1,000 dollars), and the tax treatment of money received before the work is done differs too. Check the rules that apply to you and ask your accountant.

How close should payments stay to the work done?

The aim is that what the customer has paid is never far above the value of the work finished, and that the money still to come always covers the cost to finish. A deposit that buys materials, as in the example above, is the usual exception.

Check the later stages the same way. After the second payment the customer has paid 9,000 of 18,000, while the value of work done is 6,000 (the first three lines of the example below). That gap of 3,000 is acceptable only if the remaining 9,000 still covers finishing the job. Billing a stage before its work is done is the thing to avoid, and some places restrict it.

Retainage, where the customer holds back an agreed share of each payment, often 5% to 10%, until completion, is common on larger and commercial jobs. If your contract uses it, show it as its own line on each invoice. The rate and release rules vary by contract, state and country, and some places regulate or cap retainage, so check yours.

How do percent complete invoices work?

For a percent complete invoice, split the contract into lines, often called a schedule of values, and bill each line by how much of it is done at the end of the period. Add up what each line has earned to date, subtract what you have already billed, and the difference is this invoice.

Example: percent complete on the same job

Demolition 1,500, 100% done: 1,500
Plumbing rough-in 3,000, 100% done: 3,000
Electrical 1,500, 100% done: 1,500
Tile and waterproofing 5,000, 40% done: 2,000
Fixtures and vanity 4,500, 0% done: 0
Finish and cleanup 2,500, 0% done: 0

The six lines add up to the 18,000 contract, and the value earned to date is 8,000. If the 3,600 deposit is credited on this first progress invoice, the amount due now is 4,400. Decide in advance how the deposit is applied, against the first progress invoice as here or in equal parts across the stages, and state it in the contract.

What goes on every stage invoice?

The contract total and the invoice number
The stage or lines being billed, and what has been billed before
Any deposit credited, and the balance still to come
The amount due now, the due date and how to pay

Keep each stage invoice short enough that the customer can check it against the contract in a minute. Every amount should trace back to the agreed schedule, so there is nothing to explain.

How do I bill the final balance?

Bill the last stage when the work is finished and the punch list is closed. The final invoice should reconcile against the contract total: payments received so far plus this invoice equals the agreed price, plus any approved changes. Keep approved changes on their own lines, as in change orders and extra work. See invoice numbers and payment terms for numbering and due dates.

Stage invoices in SiteReporta

SiteReporta converts an accepted estimate into a draft invoice with identical totals, and you can edit the lines of that draft. For a staged job, edit each draft to the stage you are billing, for example one line called "Deposit, 20% of contract" with quantity 1 and a price of 3,600. The app asks you to confirm each further invoice you create from the same estimate. The app does not take payments or track whether an invoice was paid, so keep your own record of what has been received. Read estimate vs invoice for how the two documents differ.

Frequently asked questions

How much deposit can a contractor ask for?

It depends on where you work. Some places cap it: California limits the down payment on most home improvement contracts to the lesser of 1,000 dollars or 10% of the contract price, and Victoria, Australia sets caps of 10% or 5% on domestic building contracts. Check your local rules.

What is the difference between milestone and percent complete billing?

Milestone billing charges a stage when a defined piece of work is finished. Percent complete billing charges the share of each line that is done at the end of the period. Milestones are simpler; percent complete suits long or large jobs.

What is retainage?

Retainage is an agreed share of each payment that the customer holds back until completion. Rates and release rules vary by contract and place, and some places regulate or cap it. For example, US federal construction contracts, for example, let a contracting officer retain at most 10% of a payment when progress is unsatisfactory.

How should a deposit be applied to later invoices?

Decide in advance and state it in the contract: credited against the first progress invoice, or split equally across the stages. Show any deposit credited and the balance still to come on every stage invoice.

Is a deposit taxed differently from the final payment?

It can be. Treatment of money received before the work is done differs by country, tax method and local rules, so ask your accountant.

Sources

Official sources for the rules and figures mentioned in this guide. Rules change and differ by place, so check the current text and your local rules.

General guidance, not legal, tax or accounting advice. Rules differ by country and trade.