Progress Payment
Progress payments in construction: how draw schedules work, how to structure them to protect cash flow, and how to avoid the 30-day cash gap that drains contractors.
Calculation Formula
Progress Payment = (Work Completed to Date - Previous Payments) - Retainage Real Contractor Example
Mid-way through a renovation, you've completed $50,000 of work. You've already been paid $20,000. Retainage is 10%.
Why Progress Payments Exist — And Why They Are Often Abused
Construction projects are too large to fund from a single upfront payment. Progress payments — also called draw payments or milestone billings — exist to allow the contractor to be paid incrementally as work is completed, matching cash inflows to the work being performed.
In theory, progress payments protect both parties. The owner doesn't pay for work that hasn't happened. The contractor doesn't self-finance the entire project.
In practice, progress payment schedules are often structured in ways that benefit the owner at the contractor's expense. Front-loaded schedules (where early phases appear to cost more than they do) benefit the contractor. Back-loaded schedules (where final payment represents a disproportionate share) benefit the owner. Understanding this dynamic lets you negotiate a schedule that doesn't put your capital at risk.
How to Structure a Progress Payment Schedule That Protects You
A properly structured progress payment schedule follows three principles:
Match payments to real cost incurrence: Your schedule of values should reflect when you actually spend money, not when the work becomes visible to the owner. Mobilization, material procurement, and rough-in work cost real money even when it doesn't look impressive.
Front-load where defensible: On the Schedule of Values, assign slightly higher values to early-stage work (demolition, foundation, framing, rough mechanical) to ensure your early draws cover the front-loaded material purchases and mobilization costs.
Invoice immediately at milestone completion: Delay between milestone completion and invoice submission is pure cash flow loss. If you complete a framing phase on a Tuesday and wait until end of month to invoice, you have self-financed 2–3 weeks of cash gap. Invoice the day the phase is complete.
The 30-Day Cash Flow Gap — And How to Close It
The typical cash flow gap in residential remodeling works like this: You complete a milestone, submit an invoice, the owner has 30 days to pay (or 45 if their contract says so), and you run payroll every two weeks.
While you wait for that payment, you are still paying crew, purchasing materials for the next phase, and servicing your overhead. The average small remodeling operation carries 35–45 days of cash gap between cost incurrence and payment receipt.
To close this gap: negotiate shorter payment terms for residential clients (Net 15 is reasonable for homeowners — they are not commercial entities). Invoice more frequently. Consider milestone-based billing instead of monthly billing. For commercial projects, submit AIA G702 applications early in the month to beat the owner's payment processing cycle.
Frequently Asked Questions
What is the difference between a progress payment and a draw request?
A draw request (also called an application for payment or AIA G702) is the formal document the contractor submits to request a progress payment. The progress payment is the actual money the owner releases in response to an approved draw request. In residential work, draw requests are usually simple invoices tied to milestones. In commercial work, they follow AIA or other standardized formats and require supporting documentation.
Can an owner withhold progress payments?
An owner can withhold payment for legitimate reasons: disputed work quality, incomplete milestone items, or lien notices from suppliers. Most standard contracts require the owner to provide written notice of withholding with a specific reason within a defined period. Prompt payment statutes in most states impose penalties for unjustified withholding.
What is an appropriate deposit on a remodeling project?
For residential remodeling, a 10–25% deposit at contract signing is standard and reasonable. The deposit should cover mobilization costs and early material procurement. Anything above 33% of the contract value raises regulatory issues in many states — some states cap deposits or have specific rules about when deposits can be collected.
Put This Into Practice
Knowing the definition is step one. RemodelFin tracks this in real time on every job — no spreadsheets.