What is a progress payment and when do contractors use one?

What is a progress payment? It's a payment for part of a job, billed when the work reaches a stage you and the customer agreed on in advance. Rather than waiting for one invoice at the end, you bill in instalments as the job moves forward, usually after a deposit at the start and before a final invoice at completion.

Short answer A progress payment is an instalment billed as a job reaches an agreed point, such as framing complete or 50% of the work done. Contractors use them on jobs that run more than a week or two, or where materials are a large share of the cost. The stages, amounts and due dates belong in the quote before work starts. In Canada, GST/HST applies to each instalment separately, on the earlier of the day it's paid or the day it becomes due.

This guide covers progress payments on residential and small commercial trade jobs in Canada, not mortgage draws or government procurement.

How a progress payment differs from a deposit and a final invoice

Most staged jobs use three kinds of payment, and they're easy to blur together. The difference comes down to timing, and to what each payment is for.

Payment	When	Purpose
Deposit	Before work starts	Books the start date and covers early materials
Progress payment	After an agreed stage	Pays for work already completed
Final invoice	At completion	Settles what's left, less anything already paid

A deposit is paid in advance. A progress payment is paid in arrears, for work the customer can see. That distinction matters when you write the quote, because it changes how you describe each instalment and when you can reasonably ask for it.

When do contractors use progress payments?

Once the difference is clear, the next question is which jobs call for one. We'd suggest considering progress billing when any of these apply:

• The job runs longer than a week or two. Waiting a month for the first payment means carrying your labour and running costs on credit.
• Materials are a large share of the price. Framing lumber and drywall for a basement, or cabinets for a kitchen, can mean thousands of dollars spent before the customer pays anything beyond the deposit.
• The work has natural break points. Demolition, rough-in, finishing. Each one gives the customer a visible reason to pay.
• The total is large for the customer. Splitting a five-figure bill into stages is often easier for a homeowner to manage than one lump sum.

For a same-day repair or a two-day job, a single invoice on completion usually works well. For anything longer, staged billing keeps your cash moving at the same pace as the work.

Three ways to set progress payment stages

Having decided to bill in stages, you need a way to define them. There are three common approaches, and each suits a different kind of job.

Method	Basis	Suits	Watch
Milestone	A finished piece of work	Basements, additions, kitchens	Define "done" clearly
Percentage	Share of the contract price	Longer jobs with steady progress	Agree how progress is judged
Line item	Specific items on the quote	Jobs with distinct parts	Keep items matched to the quote

Milestones are the easiest for a customer to verify, because they can see that the framing is up. Percentages are simpler to calculate but invite debate about whether the job is really half done. We generally recommend combining the two, releasing a fixed percentage of the contract price at each milestone. That's the approach in the example below.

What is a progress payment schedule? A worked example

A progress payment schedule is the plan that sets out each stage, its amount and when it's due. Here's one for a basement finishing job in Alberta, quoted at $40,000 before tax. Alberta charges the 5% GST with no provincial sales tax, so the total is $42,000. The customer pays a 20% deposit at approval, two progress payments of 35% each, and a final invoice for the remaining 30%, with the deposit credited against it. We've kept the numbers round so the arithmetic is easy to follow.

Stage	Pre-tax	GST	Due	Balance
Deposit (20%)	$8,000	$400	$8,400	$33,600
Framing (35%)	$14,000	$700	$14,700	$18,900
Drywall (35%)	$14,000	$700	$14,700	$4,200
Final (30%)	$4,000	$200	$4,200	$0

The final row is where most errors creep in. The last stage is worth $12,000 before tax, but the deposit of $8,000 has already been paid and taxed, so the final invoice bills $4,000 plus $200 GST. Add up the Due column and you get $42,000, which matches the contract. Doing that check by hand at the end of a long day is exactly where a balance goes wrong.

This schedule front-loads cash to match the cost of the work. By the time the framing and rough-in are done, the customer has paid $23,100 toward a job where much of the lumber and drywall was bought in the first week or two.

How does GST/HST apply to progress payments?

The example shows tax on each line, and that's how the law treats it. Under subsection 168(2) of the federal Excise Tax Act, when the price of a taxable supply is paid or becomes due on more than one day, tax is payable on each part on the earlier of the day that part is paid and the day it becomes due. The tax is calculated on that part alone, not on the full contract.

Two practical consequences follow. First, each progress invoice should show the GST/HST on that instalment, as in the table above. Second, the CRA usually considers payment due on the date you issue an invoice, if that comes before the date in your agreement (CRA's RC4022 guide). Sending a progress invoice can make the tax on it owing, whether or not the customer has paid yet.

Longer renovation contracts

There's one more rule to know for bigger jobs. Under subsection 168(3) of the same Act, for a written agreement to build, renovate, alter or repair real property that's reasonably expected to take more than three months, tax on any amount not yet paid or due becomes payable at the end of the month after the month the work is substantially completed. In other words, holding the final invoice back for months after the job is essentially finished doesn't hold back the tax. Your accountant can confirm how this applies to a specific contract.

How to put a progress payment schedule on the quote

With the tax side covered, the schedule itself has to be written down where the customer agrees to it. That place is the quote, before any work starts. A clear schedule usually includes:

1. Each stage by name, such as "framing complete" or "drywall taped and sanded".
2. What done means for that stage, in a sentence the customer can check on site.
3. The amount or percentage for each stage, with tax shown.
4. When each invoice is due, for example within 7 days of the stage invoice.
5. How the deposit is applied, so the final balance is never a surprise.
6. How to pay, with a link or details on every invoice.

We'd also suggest photographing each stage as you finish it. When the progress invoice goes out, the photos show the customer what they're paying for, and they settle most questions before they're asked.

How StrikeHoney handles progress billing

All of this depends on keeping the schedule, the invoices and the running balance in step. That's the part we built StrikeHoney to do for you, from your phone.

• Bill a job in stages. Invoice the full job, a percentage of it, or specific line items. The remaining balance is worked out for you as the work progresses, and progress-payment invoices carry the context of the work they're for.
• Deposits that reconcile themselves. Your customer can approve the quote and pay the deposit in the same tap, and the deposit is credited automatically against the final invoice. That's the $4,000 line in the example, without the arithmetic.
• Photos and progress on the job. Turn the approved quote into a job in one tap, move the progress slider as stages finish, and keep stage photos attached to the job itself.
• One view of what's owed. Outstanding, Overdue and Collected sit on one screen, and automatic overdue reminders follow up on progress invoices that go unpaid.

Customers pay by card on a secure payment page or by scanning a QR code, and GST/HST is applied by province with a tax report when you need the numbers. Progress billing comes on the same single plan as every other feature, at $24/mo CAD, or $19/mo CAD when billed yearly. You can see how staged invoices, deposits and reminders fit together on our invoicing feature page.

The bottom line

So, what is a progress payment? It's an instalment for completed work, billed at a stage you agreed on before the job began. Use progress payments on longer or material-heavy jobs, define each stage so the customer can see it's done, show the tax on every instalment, and make sure the deposit comes off the final invoice. Agreed up front, a progress schedule keeps your cash in step with your costs from the first week to the last.

To work out the tax on each draw before you send the quote, use our free GST/HST calculator. Enter the stage amount, pick your province, and you'll get the tax and the total for that instalment.