A progress payment is a partial payment on a construction contract for the work completed and materials stored so far, billed at set intervals (usually monthly) and paid once the owner or the owner's representative approves the bill. The contractor bills against an agreed schedule of values, the bill is checked against percent complete, lien waivers change hands, and the owner pays the approved amount minus retainage, the share held back until the job is finished. Materials and payroll go out before each payment comes in, so a profitable job can leave a contractor well below zero in the bank for months. A line of credit fits that repeating gap, and below we walk through the steps, the retainage rules and a $400,000 job month by month.
Our guide to construction financing compares every kind of funding a contractor uses, and our construction funding page has the short version. This post stays on how the billing works and what it does to construction cash flow.
How a progress payment works, step by step
Construction progress payments usually run through six steps, and your contract sets the dates for each one.
- You agree on a schedule of values before work starts. It splits the contract price into lines such as concrete, framing and electrical. Every later bill is measured against it, so give mobilization and early costs their own lines, because the schedule decides how much you can bill in the first months.
- You send a pay application at the end of each billing period. Progress billing in construction runs on this document, which shows for each line the work done to date, materials stored, retainage and the amount due now. Many jobs use the AIA's G702 and G703 forms. On federal fixed-price work, FAR 52.232-5 asks for an itemized request, a list of what each subcontract is worth and has been paid, and a signed certification.
- You bill by percent complete, whatever the work has cost you. If framing is an $80,000 line, you have reached 50% and you billed 25% last month, this month's bill on that line is $20,000.
- The architect, the owner's representative or the general contractor reviews the bill, compares your percentages with the work in place, and approves the bill or marks it down. New York's law for private jobs gives an owner 12 business days to approve or reject an invoice, with written reasons for any rejection.
- You trade lien waivers for the money. A conditional waiver gives up your lien right for that amount once the payment clears, and an unconditional waiver says you have already been paid. Texas (Property Code 53.284) and California (Civil Code 8132 and 8134) spell out the wording, and Texas bars anyone from requiring an unconditional waiver until you have the money.
- The owner pays the approved amount minus retainage, and you pay your subcontractors their share. The next table shows the deadlines in four places.
On federal contracts, "progress payment" can also mean financing based on costs incurred, separate from the construction payments described here. Under FAR 52.232-16 the government pays a set share of your costs as you incur them (the customary rate in FAR 32.501-1 is 80%, or 85% for small businesses), and FAR 32.500 says that system does not apply to construction contracts paid by percentage of completion.
Retainage in construction: how much is held and when it comes back
Retainage is the part of each progress payment the owner keeps as security until the work is finished. The percentage comes from your contract and from any law that caps it. The four rules below run from 5% to 10%, and federal jobs differ because retainage is held only when progress falls short.
| Where the job is | Progress payment due | Retainage | Release |
|---|---|---|---|
| Federal fixed-price construction (FAR 52.232-5, FAR 32.103 and the Prompt Payment Act) | 14 days after a proper payment request | None if progress is satisfactory, otherwise up to 10% | At substantial completion, apart from what the contracting officer keeps as protection, with the rest paid promptly once all requirements are met |
| Texas (Property Code chapter 28 and chapter 53) | By the 35th day after the owner receives a written request (a single-family home contract may allow up to 60 days) | The owner must reserve 10% on work where a mechanic's lien may be claimed, unless a valid bond is filed | The reserve runs until 30 days after the work is completed |
| California private jobs (Civil Code 8800, 8811 and 8812) | Within 30 days of a notice demanding payment, unless agreed otherwise | Up to 5% on contracts signed from January 1, 2026, with exceptions such as residential projects of up to four stories that are not mixed-use | Within 45 days after completion |
| New York private jobs of $150,000 or more (General Business Law 756-a and 756-c) | 30 days after the invoice is approved | Up to 5% of the contract sum, by agreement | Within 30 days after final approval of the work |
The Texas figure is a lien-law reserve that secures payment of workers and suppliers, and your contract may set its own retainage as well (our guide to small business loans in Texas covers the state's funding options). Retainage also passes down the chain. In California a subcontractor's retention cannot exceed the percentage in the owner's contract, and Civil Code 8814 gives the direct contractor 10 days to pay each subcontractor's share after receiving it. New York has a matching cap and charges 1% a month on retainage released late.
On most other jobs the contract does the deciding, so read the clause before you sign. Ask what the percentage is, whether it drops at a milestone such as 50% complete, and what has to happen before release. The AIA's retainage guide lists conditions such as finishing the punch list, submitting closeout documents and the final application for payment, and providing lien waivers.
Why a pay application gets held up, and what to do about it
A late payment often starts with a problem in the bill itself, and you can head off each of these before the next billing date.
| What holds it up | What to do |
|---|---|
| You missed the billing cutoff. | A bill that misses the monthly date can wait for the next cycle. Put the date on your calendar and send the reviewer a draft a few days early. |
| The reviewer disagrees with your percent complete. | Walk the job with your foreman before billing, attach dated photos and ask for written reasons for any markdown. The law limits what a dispute can hold back, at 100% of the disputed difference on commercial work in Texas (110% on homes of up to four units) and 150% of the disputed amount in California. |
| Lien waivers are missing or on the wrong form. | Collect conditional waivers from subcontractors and suppliers with their bills. In Texas and California, a waiver that does not substantially follow the state's form is unenforceable. |
| Stored materials have no backup. | Ask before you order whether stored materials can be billed and what proof is needed. On federal jobs, materials held off site count only if the contract allows it and you show you hold title. |
| A change order is unsigned. | Get it signed before the work starts where you can, then show it on its own line. An owner pays what the contract allows, and an unsigned change is hard to bill against it. |
| A federal document is missing. | Under FAR 52.232-27, billing offices return an improper invoice within 7 days with the reasons. Payment stops without the certification, and under FAR 52.236-15 a contracting officer may hold progress payments until you submit the required schedule. |
| The general contractor is waiting on the owner. | Ask in writing when the owner paid, because your clock often starts there. In Texas and on federal jobs, a contractor has 7 days from being paid to pay its subcontractors. |
If an approved payment is late, the law may give you interest. An unpaid amount earns 1.5% a month in Texas and at least 1% a month in New York, and California sets a penalty of 2% a month on amounts wrongfully withheld. In Texas, a contractor or subcontractor owed an undisputed amount may also suspend work on the 10th day after giving written notice. Suspension has its own notice rules, so talk to a construction attorney before you stop work.
A $400,000 job month by month
The figures here are an example only, and they match the chart below. A subcontractor takes a $400,000 job that runs four months and costs $340,000 in materials and payroll, so the job should earn $60,000. It bills $100,000 at the end of each month and is paid 30 days later, less 10% retainage, so each payment is $90,000. The $40,000 of retainage is released in month 6.
| Month | Money out | Billed at month end | Money in | Retainage held so far | Balance at month end |
|---|---|---|---|---|---|
| 1 | $120,000 | $100,000 | $0 | $0 | -$120,000 |
| 2 | $80,000 | $100,000 | $90,000 | $10,000 | -$110,000 |
| 3 | $80,000 | $100,000 | $90,000 | $20,000 | -$100,000 |
| 4 | $60,000 | $100,000 | $90,000 | $30,000 | -$70,000 |
| 5 | $0 | $0 | $90,000 | $40,000 | $20,000 |
| 6 | $0 | $0 | $40,000 (retainage) | $0 | $60,000 |
The lowest month-end balance is $120,000 short, at the end of month 1, and the job does not turn positive until month 5. The worst day falls inside a month. The first $90,000 lands at the end of month 2, so if that month's $80,000 of costs goes out first, the account touches $200,000 short the day before the payment arrives.
Retainage is two-thirds of the profit in this example. At the end of month 5 the contractor has collected $360,000 and spent $340,000, so $20,000 of the $60,000 is in hand and the other $40,000 is still with the owner. If the same job pays at 60 days, the lowest month-end balance grows from $120,000 to $200,000. Run this table on your next job before you bid, using your real payment terms and retainage clause.
Progress payments financing for a construction company
The right money depends on whether the gap repeats or happens once. Our construction financing guide compares the products in full, and our guide to business cash flow loans explains how funders decide on deposits and earnings instead of collateral.
A line of credit for the repeating gap
A line of credit up to $2,000,000 fits the gap between billing and payment because that gap comes back every month. Offers come in one to two business days. You draw for a materials bill or a payroll, repay weekly or monthly on what you have drawn, and the room opens up again as you repay. In the example, the line would need room for about $200,000 if costs go out before payments arrive, and the balance comes down as each $90,000 lands. Programs price draws differently, so ask what a draw costs in dollars over the time your jobs take to pay. Our comparison of a line of credit vs a term loan shows when each fits.
Revenue-based financing for a one-time need
Revenue-based financing from $5,000 to $2,000,000 is a merchant cash advance. A funder buys part of your future sales for a lump sum, sizes it on your usual revenue and collects a set daily or weekly payment until the agreed total is paid. It fits a one-time need such as mobilizing a job, because the decision rests mainly on four months of business bank statements and funding typically comes within one to two business days of choosing an offer. As an example, a $50,000 advance at a 1.30 factor rate has a total payback of $65,000, so the cost is $15,000, and 26 weekly payments of $2,500 repay it in about six months.
A contractor's deposits arrive as a few large progress payments, and a funder reads those lumpy deposits differently from steady daily sales, looking at monthly totals and the gaps between them. A weekly payment is often the better match, and our guide to merchant cash advance payments shows how it is sized. Payments start soon after funding, so plan to carry them from other jobs' deposits until the new job's first progress payment lands.
Equipment financing and long-term loans
Equipment financing up to $500,000 pays for machines, with offers typically in one to two business days, and our guide to construction equipment financing covers excavators, trucks and fleets. For a yard, a shop or another long-term need, SBA-equivalent and bank loans through our partners have long terms and monthly payments, with the partner setting the terms. Those take weeks, so they suit planned purchases more than next Friday's payroll.
Some contractors also look at factoring, where a specialist company buys unpaid progress billings at a discount and collects from the customer. We do not offer factoring, and if you look into it, ask how the company treats retainage.
How to apply through us
Start with the short application and four months of business bank statements, uploaded as PDFs or emailed to us, along with current contracts and schedules of values if you have them. Getting matched does not need a hard credit pull, since most funders prequalify from bank statements and a soft pull. The funders we work with generally look for about a year in business and about $20,000 a month in deposits. If you're not there yet, apply anyway. Some funders work with newer or smaller businesses, and we'll tell you what's realistic.
One application goes to the funders in our network, the offers come back side by side, and we go through them with you before anything is signed. There is nothing to pay to apply or to see offers. Our construction funding page shows what we arrange for contractors, and to talk through a job first, call (818) 351-0225.
Frequently asked questions
What is a progress payment in construction?
A progress payment in construction is a partial payment for the work completed and materials stored so far, billed at set intervals against the schedule of values and paid after the owner or its representative approves the bill, usually minus retainage.
What is retainage in construction?
Retainage in construction is the share of each progress payment an owner keeps as security until the work is finished, and the rules covered in this guide run from 5% in California and New York to 10% in Texas and on federal jobs that fall short on progress.
When is retainage released?
Retainage is released on the schedule in the contract and state law, such as 30 days after completion for the reserve in Texas, within 45 days after completion in California and within 30 days after final approval in New York.
How long does a progress payment take?
A federal progress payment is due 14 days after a proper request, a Texas owner has until the 35th day after a written request, California allows 30 days from a payment notice unless agreed otherwise, and New York allows 30 days after approval.
Can a construction company get financing to cover progress payments?
Through our network a contractor can apply for a line of credit up to $2,000,000 for the repeating gap between billing and payment, or revenue-based financing from $5,000 to $2,000,000 for a one-time need, and each funder sets its own terms.
