How do I handle progress payments in my construction books?
Progress payments require a different approach than simple invoicing because the work happens over time and payment comes in stages. Getting this right means you’ll always know where each job stands financially.
Start by setting up each project as a separate job in your accounting system. In QuickBooks, this means creating a project or customer sub-job for each contract. Every invoice you send, every material purchase, every labor hour, and every subcontractor bill should be coded to that specific job. Without this separation, you have no way to know if a project is making or losing money until it’s too late.
When you submit a draw request or payment application, record it as an invoice to the customer for that specific job. If you’re billing $45,000 for completed foundation work, create an invoice for $45,000 coded to the foundation phase of that project. When the payment arrives, apply it against that invoice. This keeps your receivables accurate and shows what’s been billed versus what’s been collected.
Retainage needs its own tracking. Most commercial and larger residential jobs hold back 5 to 10 percent until final completion. When you invoice $45,000 but only receive $40,500 because of 10% retainage, you need to record that $4,500 somewhere. Create a retainage receivable account and track it by job. At project closeout when you receive the holdback, you’ll apply that payment and clear the retainage balance.
Match your costs to the same job and phase. If you’re invoicing for foundation work, your books should show the concrete, rebar, labor, and forming subcontractor costs against that same job. This is where most construction contractors struggle. The invoicing happens, but costs end up in generic expense accounts with no job assignment. You think you’re making money, but you can’t prove it.
Review your work in progress regularly. Compare what you’ve billed to what you’ve spent plus what’s committed. A job that looks profitable based on billings received might actually be underwater once you factor in the invoices sitting on your desk and the work remaining to complete the scope.
The goal is knowing your true position on each project at any moment. A bookkeeper near Gentry who understands construction can help you set up job costing correctly from the start. The structure matters as much as the data entry. Get it right and your books become a management tool, not just a tax compliance exercise.
Northwest Arkansas's Dedicated Bookkeeping Partner
The Next Step:
A Quick Conversation
Tell us about your business and where you need help. We'll listen, ask a few questions, and give you a clear plan and honest price.
More Questions
What reports should I run in QuickBooks each month?
Run Profit and Loss, Balance Sheet, AR and AP Aging, and Bank Reconciliation reports monthly. These show whether you're profitable, what's owed in and out, and confirm your books are accurate.
Read answerWhat is a chart of accounts and how do I set one up?
A chart of accounts is the complete list of categories your business uses to record every financial transaction. Setting one up involves choosing account types for assets, liabilities, equity, income, and expenses that match how you run your business.
Read answerWhat's the best way to track equipment depreciation?
A fixed asset register is the foundation. Track each piece of equipment with its purchase date, original cost, useful life, and depreciation method. Record depreciation entries monthly or annually to keep your financial statements accurate and your tax deductions documented.
Read answerWhat bookkeeping software do contractors recommend?
QuickBooks Online is the most common choice for contractors because of its job costing features and mobile access. But software choice matters less than how it's set up and whether you use it consistently.
Read answerHow do I reconcile my bank account in QuickBooks?
In QuickBooks Online, go to Settings then Reconcile, select your account, and enter the ending balance and date from your bank statement. Match each transaction and aim for a zero difference before finishing.
Read answerWhat insurance costs should contractors track separately?
Track general liability, workers' compensation, commercial auto, tools coverage, and surety bonds as separate expense categories. Lumping them together hides useful cost information and makes tax prep harder.
Read answer

