Progress Invoice in Xero: How to Bill in Stages

In Xero, a progress invoice is a standard invoice you create manually or from a repeating template, and you bill for a portion of a larger project by editing the line item amount to reflect the completed stage. Xero does not have a dedicated “progress invoice” feature, so you manage staged billing by adjusting quantities or amounts on a regular invoice, or by using the “Amounts are tax-inclusive” and partial payment options to track what has been billed and paid.

What Is a Progress Invoice and Why Use It

A progress invoice (also called a progress claim or stage billing) is a bill for a percentage of work completed on a long-term project, rather than a single full payment at the end. Contractors, builders, consultants, and software developers use them to keep cash flow steady and to reduce the risk of non-payment. For example, a website designer might invoice 50% upfront, 25% at the midpoint, and 25% on delivery. In Xero, each of those three bills is a separate invoice, each referencing the same project or purchase order.

The key point is that Xero treats every progress invoice as an independent sales transaction. There is no built-in link that automatically tracks how much of a project has been billed or what remains. You have to manage that manually—usually by using the invoice description, a tracking category, or a project code.

How to Create a Progress Invoice in Xero

Creating a progress invoice in Xero takes a few minutes, but you need to plan the stages before you start. Here are the steps:

1. Go to Business > Invoices and click New invoice.
2. Select the customer and the invoice date. Set the due date to match your payment terms (for example, 14 days from the invoice date).
3. Add the line item. In the Description field, write something like “Progress claim #2 of 3 – Foundation work completed.”
4. Enter the Quantity as the percentage completed (e.g., 0.5 for 50%) and the Unit price as the total project price, or simply enter the dollar amount for that stage in the Amount column.
5. If you have a tracking category for project names, assign it to the line item so you can filter reports later.
6. Click Save and then Approve to send it.

For a repeating project (like monthly retainers with a progress element), you can set up a repeating invoice template. But for one-off staged work, a manual invoice is simpler.

Using Tracking Categories and Projects for Progress Billing

Xero offers two main ways to keep progress invoices organized: tracking categories and the Projects feature (available on some plans).

Tracking categories are labels you attach to line items or invoices. Create a category called “Project” and add options like “Kitchen Renovation” or “Website Build.” Then, when you create each progress invoice, assign that category. Later, you can run a report (like the Profit and Loss by Tracking Category) to see total billed per project. This is the most common method for small businesses.

Xero Projects (included in the Established plan and above) lets you track time, costs, and invoices against a specific project. You can create a project, record time and expenses, and then create an invoice directly from the project. However, Xero Projects still does not automatically calculate progress percentages—you still enter the amount manually. It just keeps all related transactions in one view.

How to Handle Partial Payments and Retainage

Progress billing often involves partial payments and retainage (a percentage held back until final completion). In Xero, you record a partial payment by clicking Receive payment on the invoice and entering the amount paid. The invoice status will change to “Part paid,” and the remaining balance stays as Accounts Receivable.

For retainage, you have two options:

• Add a negative line item on the final invoice for the retainage amount (e.g., “Retainage – 10% held until final inspection”).
• Or simply invoice for the net amount after retainage on each progress claim, and then issue a separate credit note or invoice for the final release.

Many contractors prefer the negative line item method because it shows the gross billing and the holdback clearly on the same document. Just remember that Xero does not automatically track retainage across multiple invoices—you must track it in your own records.

Common Problems and How to Avoid Them

Users run into a few recurring issues with progress invoices in Xero:

• Duplicate billing – If you copy a previous progress invoice and forget to change the amount, you’ll overbill. Always double-check the line item amount before approving.
• Mixing tax-inclusive and exclusive amounts – If you enter amounts including tax but your invoice is set to exclusive, the totals will be wrong. Set the invoice to match your tax settings, or use the “Amounts are tax-inclusive” checkbox on the line item.
• Losing track of what’s been billed – Without tracking categories or a project code, you may lose sight of the total billed vs. the contract value. Solution: use a tracking category and run a summary report before issuing each new stage.
• Applying payments to the wrong invoice – If you have multiple progress invoices for the same client, payments can get misapplied. Use the invoice number or reference field to clearly label each stage (e.g., “INV-102 – Stage 1”).

Progress Invoice vs. Deposit vs. Part-Paid Invoice

These three terms are often confused. A deposit invoice is a request for an advance payment before work starts—it is usually a single invoice for a percentage of the total. A progress invoice is a series of invoices issued as work is completed, each for a specific stage. A part-paid invoice is simply an invoice that has been partially paid, regardless of whether it is a deposit or a progress claim.

In Xero, you create all three the same way—as standard invoices. The difference is in how you describe them and how you apply payments. For a deposit, you might invoice 30% upfront and then invoice the remaining 70% on completion. For progress billing, you might invoice 30%, then 40%, then 30% at three milestones. Xero does not distinguish between them; the accounting is identical.

Progress Invoice Template

Below is a generic template you can adapt for your own progress invoices. Fill in the blanks with your project details.

Frequently Asked Questions

Can I automate progress invoices in Xero? You can set up a repeating invoice template for fixed amounts on a schedule (e.g., monthly), but you cannot automate percentage-based progress billing based on project milestones. You must manually adjust the amount each time.

Does Xero Projects handle progress claims automatically? No. Xero Projects lets you track time and costs, and you can create an invoice from a project, but you still enter the invoice amount manually. It does not calculate a percentage of completion for you.

How do I show retainage on a progress invoice in Xero? Add a negative line item on the invoice for the retainage amount, or invoice the net amount. For example, if the stage value is $10,000 and 10% retainage, you can invoice $9,000 and note the retainage in the description, or invoice $10,000 and add a line item of -$1,000.

What is the difference between a progress invoice and a final invoice? A progress invoice bills for a portion of the work, while a final invoice bills for the remaining balance after all work is complete. In Xero, both are just invoices; the final one usually includes any retainage release or final adjustments.

Can I send a progress invoice as a PDF from Xero? Yes, you can email any invoice as a PDF directly from Xero. The PDF will show the standard invoice layout with your logo and details.

Do I need to use tracking categories for progress billing? Not strictly, but it is highly recommended. Without them, you have no easy way to run a report showing total billed per project, which makes it hard to avoid over- or under-billing.

Final Thoughts on Progress Invoicing in Xero

Progress invoicing in Xero is straightforward once you understand that it is just a series of standard invoices. The key is to be disciplined about labeling each invoice with the stage number, using tracking categories or Projects to group them, and manually checking that the sum of all progress invoices does not exceed the contract value. If you are working on a large construction project with complex retainage and change orders, consider using a dedicated construction accounting tool or ask your accountant to review your process. But for most small businesses, Xero’s standard invoice features are enough to handle progress billing effectively.

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