Deposits and progress billing for excavation jobs: get paid before you are out of pocket

Excavation is a business that spends before it gets paid. Fuel, a lowbed, a trucker, pipe, stone, and a crew's wages all go out the door before the customer has seen a bill. On a small job that is a nuisance. On a large one, billing only at the end means you are lending the customer tens of thousands of dollars, interest free, and hoping they pay. Deposits and progress billing are how you stop doing that.

This article is about the structure of the payment, before the invoice exists. For the invoice itself and the chasing routine, see our article on invoicing for excavation contractors.

For septic work, read septic deposits and invoicing. The excavation invoice template has deposit and retainage lines.

Know the rules where you work

Deposit and payment rules differ by state, and by whether the customer is a homeowner or a business. Some states limit how much a contractor can collect up front on a residential home improvement contract, and many require specific wording in that contract. Public work and many commercial subcontracts follow their own prompt payment rules and retainage terms. Your state contractor board, or your attorney, can tell you what applies. Nothing below replaces that. It is a way to think about structure.

The three tools

1. A deposit to hold the job

A deposit does two things. It tells you the customer is serious, and it covers your first out-of-pocket costs, such as ordering material or scheduling a hauler. It is common for small residential work, and it is common for any job where you buy material that cannot be returned.

Put the terms on the estimate where the customer signs:

• The amount, as a flat number or a share of the price.
• What it holds: a start date, material, equipment.
• That it applies to the final bill.
• What happens if the customer cancels or delays, and what is refundable.

Keep it plain. A deposit that nobody understood becomes a dispute.

2. Milestone billing

For jobs with clear phases, bill when a phase is done. A septic or foundation job might break into clear, haul and strip, excavation, install, and backfill and grade. A utility job might break into trenching, pipe laid and tested, and restoration. Each milestone has a percentage or a dollar amount agreed up front.

Milestones work best when the finish line of each one is something you can photograph. "Excavation complete and ready for inspection" is a milestone. "About half done" is an argument. Dated, geotagged photos of each finished phase make the invoice easy to approve.

3. Progress billing (monthly or by percent complete)

On longer jobs, especially commercial and public work, you bill on a schedule, usually monthly, for the work completed so far. The customer or the GC pays for what is in the ground. On bigger contracts this follows a schedule of values, a list of the contract's line items with a price for each. You report how far along each line is, and the bill is the completed amount minus what was already billed.

Many commercial customers expect the standard industry pay application format, the AIA G702 and G703 forms. If you work for GCs, ask which format they want before the first bill so it does not get bounced. Unit-price contracts work the same way with quantities: you bill the feet or yards installed this period at the unit price.

Retainage: expect it and plan for it

On commercial and public contracts, the customer will often hold back a portion of each payment until the job is finished or accepted. That is retainage. It is a normal part of those contracts, but it is also real money that can sit for months. Build it into your cash planning, track it per job, and know the release terms. Our page on what retainage is explains how release usually works, and our year-end closeout checklist has a step for chasing it.

Match the billing to the cash you will spend

A simple test: map out when the money leaves and when it comes in. List the big spends in order (material, subs, hauling, payroll) and ask where the job sits in the red at its lowest point. Your billing schedule should keep that low point small. If a job needs $40,000 of your money before the first progress bill, either ask for a larger deposit, bill sooner, or ask yourself whether you want that job.

This is also where small and large customers differ. A homeowner paying for a driveway is fine with a deposit and a balance on completion. A GC with a signed subcontract expects monthly billing. A developer with a loan draw schedule may only pay on draw dates, so find out when those are.

Sample wording

Adapt this with your attorney. It is a starting point, not legal advice.

A deposit of [amount] is due at signing to schedule the work and order material. It will be applied to the final invoice. The balance is billed [at completion / in the following stages: ...] and is due [number] days after the invoice date. Work completed beyond the estimate is billed as a written change order.

Habits that make it work

• Invoice on the day the milestone is reached. Not on Friday, not at month end. Every day of delay is a day of financing.
• Don't start the next phase on an unpaid milestone unless you have a reason and have decided it knowingly.
• Attach the proof. Photos, quantities, load tickets, and the signed change orders.
• Make change orders part of the bill. Extra work approved on site and never written up gets disputed at the end. See change orders on dirt jobs.
• Keep a lien deadline calendar for any job where you are not paid, since lien rights have deadlines that vary by state and run from specific dates.

Where TrackOver fits

TrackOver turns an estimate into a job and a job into an invoice, with the job's photos, hours, and change orders attached, so a milestone bill takes a few minutes instead of an evening. See estimates and invoices, check pricing, or start the 7-day free trial, no card needed.

Common questions

How big a deposit should an excavation contractor take? Enough to cover what you will spend before the first real payment, within what your state allows for that kind of contract. Check your state's rules for residential work before you pick a number.

What is progress billing? Billing for the work completed to date, usually monthly on longer jobs, instead of waiting until the job is done.

What is a schedule of values? A breakdown of a contract into line items with a price for each, used to calculate how much of the job is complete when you submit a pay application.

Can I stop work if the customer does not pay a progress bill? That depends on your contract and your state's law. Read the payment and suspension terms in your subcontract, and ask an attorney before you pull a crew off a job.