Construction Progress Billing: AIA G702/G703 Explained

By SubcontractorHub Editorial Team·Published August 2026

Residential work teaches you a simple billing rhythm: deposit, maybe a draw, balance on completion. Then you win your first real commercial contract and discover that getting paid is its own discipline, with its own forms, its own vocabulary, and its own monthly deadline you did not know existed.

Progress billing is that discipline. Done well it funds the job as it runs. Done badly it is the reason a contractor with a full backlog and a healthy margin cannot make payroll. This guide covers how it works, how the AIA forms fit together, and the decisions that quietly determine whether the money arrives on time.

What progress billing is

Progress billing means invoicing for a portion of the contract as work is completed rather than once at the end. Each month you submit a pay application stating how far along each part of the job is. The owner or general contractor reviews it, certifies it, deducts retainage, and pays.

The reason it exists is arithmetic. Nobody can carry a $2 million project to completion out of working capital. Progress billing distributes the financing burden across the life of the job so the contractor is funding weeks of work rather than months of it.

On commercial work this is nearly always done on AIA forms, or on an owner's form that copies them closely. Even where the contract does not name the documents, the structure is the same: a detailed breakdown behind a one-page summary.

The schedule of values comes first

Before any billing happens you submit a schedule of values: the contract sum divided into line items that add up to the total. On a mechanical contract it might separate submittals, equipment procurement, ductwork rough-in, piping, controls, startup and commissioning, and closeout.

This document is more consequential than it looks, and most contractors treat it as a formality. Two things make it matter.

First, once the schedule of values is approved, changing it is difficult. You are living with that breakdown for the duration.

Second, how you distribute value across line items decides when you get paid. Work that happens early should carry realistic value. If you load all your margin into commissioning because it seemed tidy, you will fund ten months of labor before you see a dollar of profit. Owners and their architects watch for front-loading and will push back on a line item that is obviously inflated, but there is a wide legitimate range, and submittals, procurement, and mobilization genuinely do consume money early.

On commercial mechanical work, rough-in and procurement consume cash long before commissioning — which is why the schedule of values has to reflect when costs are actually incurred.

How G702 and G703 fit together

People talk about “AIA billing” as one thing, but it is two documents with a clear division of labor. The G703 is the detail. The G702 is the summary and the signed request.

G703, the continuation sheet, is your schedule of values in motion. Each line item gets a row, and each row tracks the scheduled value, work completed in previous periods, work completed this period, materials presently stored, the total completed and stored to date, that total as a percentage, and the balance to finish. The columns have to reconcile across periods, which is where spreadsheet-based billing tends to break down.

G702, the application and certificate for payment, takes the G703 totals and walks them down to a single number: original contract sum, net change by change orders, contract sum to date, total completed and stored to date, less retainage, less previous payments, equals current payment due. It carries your signature, usually notarized, and a block for the architect to certify.

The practical consequence is order of operations. The G703 has to be finished and internally consistent before the G702 means anything. A G702 whose totals do not tie back to the continuation sheet gets returned without a serious review.

Billing stored materials

The G703 has a column for materials presently stored, and it is one of the most underused lines on the form. If you have taken delivery of rooftop units, switchgear, or a truckload of pipe, you can generally bill for them before installation.

Contracts normally require that the materials be on site or in a bonded warehouse, insured, and documented with supplier invoices and often photographs. Meet those conditions and you pull cash forward by weeks or months on exactly the purchases that strain a contractor's credit line hardest.

Contractors skip this constantly, usually because the first application was set up without the column populated and nobody revisited it. On an equipment-heavy mechanical or electrical scope it is often the single largest cash flow improvement available, and it requires no negotiation at all.

Retainage and the profit problem

After the completed-work total is established, the G702 deducts retainage — usually 5 to 10 percent. Some contracts hold different rates against labor and stored materials, and many step retainage down or stop it once the job passes half complete.

What makes retainage sting is which part of the invoice it comes out of. Your costs are not withheld. Labor is paid, suppliers are paid, overhead is covered. What is held back is effectively the profit, which is why a job at a 10 percent margin with 10 percent retainage has its entire margin sitting in someone else's account until closeout. The retainage calculator shows what a given rate withholds per draw and in total, and the full retainage guide covers release conditions and how to speed them up.

Change orders and the billing cycle

Change orders are where progress billing most often goes wrong, because the field and the paperwork move at different speeds. Work gets directed verbally, the crew performs it, and it appears on a pay application before a change order has been executed. That line gets struck, and sometimes the whole application stalls behind it.

An executed change order becomes a new line on the G703 and moves the contract sum on the G702. Until it is executed it does not exist for billing purposes no matter how legitimate the work was. The change order guide covers how to keep authorization ahead of the crew, and the change order calculator prices markup and schedule impact.

Why pay applications get rejected

Almost none of it is disagreement about the work. Rejections are overwhelmingly clerical, and the same handful repeat:

• Percentages that do not reconcile with the previous application, or a line item billed above its scheduled value.
• Totals that do not match the approved schedule of values after change orders.
• Change order work billed before the change order was executed.
• Missing conditional lien waivers from lower-tier subcontractors and suppliers — the most common single cause.
• Retainage taken at the wrong rate, or taken after a contractual step-down should have stopped it.
• Stored materials billed without invoices, photos, or proof of insurance.
• Submission after the billing cutoff date, which is not a rejection so much as a lost month.

That last one deserves emphasis because it is invisible in the accounting. If cutoff is the 25th and you submit on the 26th, your application joins next month's cycle. The work is done, the costs are paid, and the revenue moves out roughly thirty days for a reason that has nothing to do with the project.

Getting the cycle under control

The contractors who get paid predictably are not the ones with the best relationships. They are the ones who treat billing as a scheduled operation rather than a monthly scramble.

A few practices carry most of the benefit. Put the cutoff date on the calendar as a hard internal deadline a week earlier than the real one. Collect lower-tier lien waivers continuously instead of chasing them the day before submission. Have project managers set percentages against actual cost-to-date rather than estimating from memory. Populate the stored materials column every period it applies. And reconcile each application against the last one before it goes out, since the reviewer certainly will.

Where software helps is in removing the transcription. When the schedule of values, executed change orders, job costs, and billing history live on one job record, the continuation sheet is generated rather than retyped, and the class of arithmetic error that causes most rejections disappears. Contractors running commercial and service work together can see commercial HVAC and mechanical contracting software for how contract billing and service operations sit on the same platform, or contractor payment software for the payment side specifically.

It is worth being clear about the limits. Progress billing is a cash flow mechanism, not a cash flow solution — you are still funding work ahead of payment, just less of it. On the residential side of a mixed business, customer financing changes the equation more directly, since the lender funds the contractor promptly and there is no retainage and no certification step at all.

Frequently Asked Questions

This article is general information for contractors, not legal or accounting advice. AIA documents are copyrighted forms licensed through AIA Contract Documents, and contract terms, retainage limits, and prompt payment rules vary by state and by agreement — review your own contracts with a construction attorney.