How to invoice as a contractor

How to invoice as a contractor, step by step

Contract work is billed against a fixed price or a schedule of rates, so each invoice has to tie back to that agreement. Set the stages before you start, raise an invoice when each stage is reached, list variations separately, deduct deposits and retention, and keep a running total so you and the client always know what is left to pay.

1. Read the payment clause. Note the stages, the percentage or amount for each, the retention rate if there is one, and how many days the client has to pay.
2. Reach the stage. Bill when the milestone is actually done, not when it is nearly done. Photos and a short note of what was completed help if the client queries it.
3. Build the claim. Start from the contract value, show what was claimed before, then this claim.
4. Add approved variations. Only ones the client has signed or confirmed in writing.
5. Take off deposits and retention. Show each as its own line so the arithmetic is visible.
6. Add tax, the due date and payment details, then send it with the job address and any purchase order number in the subject line.

You can fill all of this in with the contractor sample loaded in the invoice generator, then change the lines to match your job.

Progress claims: billing a job in stages

A progress claim is an invoice for one stage of a larger job. Instead of waiting until the end, you bill a set share of the contract price at agreed points, such as after framing or after fit out. It keeps cash coming in while you are paying for labor and materials, and it lets the client check each stage before paying for it.

Here is an example kitchen renovation with a contract price of $48,000 before tax, split into four stages. The figures are examples only.

Each claim invoice should carry a small summary block: contract value $48,000.00, claimed to date before this invoice, this claim, and balance remaining. On the Stage 2 invoice that reads $16,800.00 claimed before, $16,800.00 this claim, and $14,400.00 still to come. A client who can see the whole picture on one page rarely needs to call you to ask.

Retention: holding back part of each claim

Retention is money the client keeps back from each progress claim until the job is finished and any defects are fixed. It only applies when your contract says so, and the contract sets the rate and when it is released. It is common in commercial construction and with head contractors, and much less common on small residential jobs.

Show retention as a deduction, never by quietly lowering the claim. Using a 5% retention rate as an example, the Stage 1 claim above would read:

• Stage 1 claim: $12,000.00
• Less retention held at 5%: $600.00
• Amount due for this claim before tax: $11,400.00

Keep a separate retention ledger so you can bill the release later. When the contract allows release, send an invoice that names the retention release, lists each claim it came from and shows the total being released. How tax applies to retained amounts depends on your country and contract, so ask your accountant before you set it up.

Variations and change orders on a contractor invoice

A variation, also called a change order, is a change to the agreed scope that alters the price. Bill each one on its own line with a reference number, a short description and the date the client approved it. Never fold variations into a stage amount, because the client cannot then see why the number moved.

Example variation lines on a final claim:

The check: $340.00 plus $1,260.00 is $1,600.00, less the $180.00 credit, gives $1,420.00. If a variation is still waiting on approval, leave it off and bill it once it is signed. WhizQuote has a guide to writing variations and change orders before the work is done.

Deposits: bill them early, deduct them clearly

A deposit is an amount the client pays before work starts, often to cover materials and secure your start date. Send it as its own invoice, then show it as a deduction on a later claim so it is never counted twice. The contract should say which claim the deposit comes off, usually the first or the last.

In the kitchen example, the client paid a $4,800.00 deposit. If the contract says it comes off the final claim, the Stage 3 invoice reads: Stage 3 claim $14,400.00, plus net variations $1,420.00, less deposit already paid $4,800.00, giving $11,020.00 due before tax. Add $1,420.00 to $14,400.00 to get $15,820.00, then take off $4,800.00, and you land on $11,020.00.

For the paperwork side, including whether a deposit invoice should be a tax invoice, see our guide to deposit invoices.

Tax details contractors often leave off

A stage invoice is still a normal invoice in the eyes of the tax office, so it needs the same details as any other. The common gaps on contract invoices are the buyer’s details on large claims, the supply date, the tax rate on each line and a clear description of the stage. A few country rules, from official sources:

• Australia: a GST registered business must give a tax invoice for a taxable sale over $82.50 including GST, and the buyer’s identity or ABN is required for sales over $1,000 (business.gov.au).
• United Kingdom: every invoice must show the date the goods or service were provided as well as the invoice date (GOV.UK).
• Canada: for a sale of $500 or more, the information a client needs to claim input tax credits includes the buyer’s name, a brief description and the terms of payment (CRA).

For the full list by country, use the invoice checklist. If you work in Australia, the Australian preset in the invoice maker adds the tax invoice title and a GST line for you.

Labor, materials and site details

Split labor and materials into separate lines when the contract is priced on rates, or when the client asked for a breakdown. On a fixed price stage, one line per stage is enough, with materials already included. Either way, put the site address and any purchase order or contract number near the top, because your client may run several jobs at once.

Useful extras on contractor invoices:

• The claim period, for example 1 to 30 September, when you bill monthly instead of by milestone.
• A claim number (Claim 3 of 4) as well as the invoice number. Our guide to invoice numbering covers formats that stay unique across jobs.
• For subcontractors, the head contractor’s project name and your trade package, so the right manager approves it.
• The due date written as a date, not just a term. See how to set an invoice due date.

A ready layout for all of this is the contractor invoice template; builders often prefer the construction invoice template, which has room for stage summaries.