Description of Progress Billing

Progress billing is a method used primarily in construction and other project-based industries to bill clients incrementally for work that has been completed up to a certain point. This system ensures that payment is made in stages, reflecting the ongoing progress of the project rather than waiting for the entire project to be completed. Billing projects on a progress billing basis have often been billed using the long time American Institute of Architects AIA G702 G703.

How Progress Billing Works

Progress billing involves  multiple Pay Apps throughout the duration of a project. Each Pay App details the work completed, the percentage of the total project that work represents, and the corresponding payment due. Here is a step-by-step breakdown of how the process typically unfolds:

Step 1: Contract Agreement

At the beginning of a project, a contract is drawn up between the contractor and the client. This contract outlines the scope of work, the total cost, the timeline, and the payment schedule based on project milestones.

Step 2: Milestones and Schedule of Values

The project is divided into specific milestones, and a schedule of values is created. The schedule of values assigns a value to each major component or phase of the project. This detailed breakdown helps both parties understand the costs associated with each segment of work.

Step 3: Initial Pay App

Once the project begins, the contractor completes a portion of the work and submits the first Pay App. This Pay APP will include a detailed description of the work performed, the percentage of the project completed, and the amount due.

Step 4: Subsequent Pay Apps

As the project progresses, additional Pay Apps are generated at agreed-upon intervals or upon reaching specific milestones. Each subsequent Pay App follows the same format: it lists the work completed since the last Pay App, updates the total percentage of the project completed, and calculates the amount due for that period.

Step 5: Retention and Final Payment

Often, a percentage of each Pay App amount is retained by the client as a form of security. This retention is typically held until the project is fully completed to ensure that all work is done to satisfaction. Once the project is finished and any remaining issues are resolved, the final retainage Pay App is submitted.

Benefits of Progress Billing

Progress billing offers several significant advantages for both contractors and clients:

Cash Flow Management

For contractors, the AIA G702, G703 provides a steady stream of revenue, which is crucial for managing cash flow. Rather than waiting until the project is finished to receive payment, contractors can cover ongoing expenses, such as labor and materials, throughout the project’s duration with G702 applications for payment

Reduced Financial Risk

Clients benefit from reduced financial risk as they are only paying for work that has actually been completed. This incremental payment structure ensures that clients are not overpaying for unfinished work and can withhold payments if submitted progress on the G702 is unsatisfactory.

Transparency and Accountability

Progress billing using the G702 promotes transparency and accountability. Detailed Pay Apps provide a clear record of what has been accomplished, allowing clients to track the project’s progress closely. This transparency helps in building trust between contractors and clients.

Dispute Resolution

In the event of a dispute, G702 Progress Billing provides a documented history of work completed and payments made. This documentation can be invaluable in resolving disagreements, as it offers a clear reference point for both parties.

Encouragement of Timely Completion

The milestone-based payment structure incentivizes contractors to stay on schedule and ensures that the project advances steadily. Knowing that payments are tied to specific achievements encourages timely and efficient work.

Challenges of G702 Progress Billing

While G702 progress billing has many benefits, it also presents some challenges:

Administrative Burden

The process of creating and managing multiple Pay Apps can be time-consuming and requires meticulous record-keeping. Both contractors and clients must be diligent in tracking work completed and payments made.

 

 

PAYearned EASY to Use

However, now there is an advanced, efficient, economical and easy to use AIA G702 G703 application for payment solution called, PAYearned. PAYearned preforms complicated Pay App calculations and automates the Pay App process for contractors. Each application for payment builds on the one before, so it is critical they are error free as you move forward, and that is where PAYearned shines.

 

Conclusion

Progress billing is a valuable tool for managing cash flow, reducing financial risk, and promoting transparency in project-based industries. By breaking down the payment process into manageable increments, it ensures that both contractors and clients are aligned and satisfied with the project’s advancement. Using the PAYearned solution and maintaining clear communication can help mitigate the challenges associated with G702 G703 progress billing, making it an effective method for successful project management.