Contractor Invoice Template Guide
Contractor invoicing isn't freelancer invoicing with bigger numbers. Jobs stretch over weeks or months, materials get bought before labor happens, clients hold back retainage, and change orders appear mid-project. A contractor invoice has to track all of that — or you end up financing the job yourself and arguing about money at the end. This guide covers progress billing, how to separate materials from labor, what retainage means in practice, and how to handle change orders without drama.
Why contractor invoices are different
A typical freelance invoice covers finished work and asks for full payment. A contractor invoice usually covers partial work and asks for partial payment, several times over the life of a job. That creates three things a simple invoice doesn't have to handle:
- Progress billing — invoicing a percentage of the job as milestones are reached.
- Materials vs. labor — two different cost types that clients (and tax authorities) want to see separately.
- Retainage — a percentage the client holds back until final completion.
Get these three right and the money side of contracting runs itself. Get them wrong and every job ends with an awkward conversation.
Separate materials from labor — always
Never lump everything into one "construction services" line. Separating materials and labor protects you in three ways: the client can verify material costs against receipts, your own job costing stays accurate, and in many jurisdictions materials and labor are taxed differently.
A kitchen remodel invoice might show:
- Materials: cabinets, countertops, fixtures, tile, paint — 1 lot — $8,500 (receipts available on request).
- Labor: demolition, installation, plumbing rough-in, electrical — 124 hours × $50/hr — $6,200.
If the client supplied any materials themselves, list them as a $0 line marked "owner-supplied" so there's a record and no double-billing dispute later.
Progress billing: structure it before the job starts
The payment schedule belongs in the contract, not improvised mid-job. A standard structure for residential and light commercial work:
- Deposit: 10–30% on signing. This covers mobilization and initial material orders. Never start work with zero money down — you're not a bank.
- Milestone payments: 25–40% each tied to verifiable completion points ("rough-in complete," "cabinets installed"), not calendar dates. Tie payments to visible progress so the client never feels they're paying for nothing.
- Final payment: 10–15% on substantial completion and punch-list sign-off.
Each progress invoice should show: the contract total, total billed to date (including this invoice), and the remaining balance. That running tally prevents the classic end-of-job surprise where both sides remember the numbers differently.
Retainage, explained plainly
Retainage (or "retention") is a percentage of each payment — typically 5–10% — that the client holds back until the job is fully complete and accepted. It's standard in commercial work and increasingly common in residential jobs over $10,000.
How it looks on an invoice: if the milestone amount is $10,000 with 10% retainage, you invoice $10,000, show "less 10% retainage: −$1,000," and the amount due is $9,000. The retained $1,000 accumulates across invoices and gets billed on a final "release of retainage" invoice after punch-list completion.
Two rules: agree the retainage percentage in the contract (never accept it being introduced mid-job), and define exactly what releases it — "final inspection passed" or "punch list signed off," not "when the client feels like it."
Change orders: bill them separately, in writing, every time
The fastest way to lose money in contracting is doing extra work on a handshake. Every change gets a written change order — even a one-line email the client replies "approved" to — and gets billed as its own line or its own invoice, referencing the change order number:
- Line: "Change Order #3 — add recessed lighting, 6 fixtures, per approved CO dated Oct 12 — $1,850."
Never fold change-order work silently into the next progress invoice. Separate lines keep the original contract value clean and make the extra cost the client's explicit decision, which is exactly what it was.
A complete example: invoice #2 on a $24,700 remodel
- Contract total: $24,700 (kitchen remodel, 6-week schedule).
- Previously billed: Invoice #1 — 30% deposit — $7,410 (paid).
- This invoice (#2) — 50% milestone, rough-in complete:
- Materials — plumbing/electrical rough-in materials — $4,200
- Labor — rough-in, 96 hrs × $50 — $4,800
- Change Order #1 — upgraded faucet set, approved Oct 8 — $640
- Milestone subtotal: $9,640 · less 10% retainage (−$964) · amount due: $8,676
- Running totals shown on the invoice: billed to date $17,316 · retainage held $1,705 · contract balance remaining $7,384.
One page, and both sides can see exactly where the job stands financially. That's what a contractor invoice is for.
Contractor invoicing FAQ
Should I charge sales tax on materials, labor, or both?
It depends entirely on your state — some tax materials only, some tax the full contract price, some exempt contractors who buy materials tax-paid for resale. This is genuinely jurisdiction-specific: verify with your state's revenue department or an accountant before your first invoice.
What deposit percentage is normal?
10–30% is standard. Some states cap residential deposits by law (California, for example, limits them), so check your state's contractor rules.
Can I charge interest on late payments?
Yes, if it's in your contract — see our guide on how to charge late fees. Without a signed clause, collecting it is much harder.
How do I invoice when the client supplies materials?
List them as $0 "owner-supplied" lines for the record, and invoice only your labor plus any materials you purchased.