AIA Billing: Progress Payments, Retainage and Reconciliation

AIA billing is a construction progress-payment process commonly supported by an application for payment and a detailed schedule of values. The payment request connects completed work, eligible stored materials, approved changes and retainage. Your accounting records must also track what was requested, certified, invoiced and actually collected.

What G702 and G703 do

AIA Document G702 is the application and certificate summary. G703 is the continuation sheet supporting the work-by-work detail. AIA's G702 instructions describe how the contractor submits the package and the architect certifies payment under that document's process.

Use the form family and edition required by the contract. Different project arrangements can use different documents and approval roles. Obtain authorized forms from AIA or the required provider. The worksheet accompanying this guide is an original accounting reconciliation aid; it is not G702 or G703 and cannot replace the contract's payment application.

Build the schedule of values before the first application

Break the agreed contract sum into meaningful portions of work. Establish how the project team substantiates progress and stored materials. Keep approved change orders identifiable rather than silently changing the original amounts.

The schedule of values is a billing allocation. It is not the contractor's cost budget, and a percentage complete used for billing does not automatically determine accounting revenue. Maintain the connection to job costs without treating the two schedules as identical.

Use AIA's payment-application guidance for the actual documents. Keep the project cutoff, application number and revision history on the supporting records.

A worked progress-billing reconciliation

Assume an original $500,000 contract with $50,000 of approved additions. At the cutoff, supported work completed and eligible stored materials total $220,000. Assume the contract requires 10% retainage on that entire amount and prior certificates total $126,000. The rate and treatment are illustrative, not a legal rule or recommended contract term.

The $330,000 is not an estimate of cost to finish. It is unbilled work value in this simplified schedule. Also, $550,000 less $198,000 is $352,000, which includes the $22,000 retained amount. Label balances precisely so the team does not confuse unfinished scope with retained payment.

Suppose the owner has paid only $110,000 against the $126,000 previously certified. The earlier unpaid balance is $16,000. Do not subtract cash received instead of the required prior-certificate figure and request the same $16,000 twice. If the new $72,000 is certified and recorded, the cumulative $198,000 less $110,000 collected leaves $88,000 outstanding before other adjustments. The $22,000 retained amount remains separately tracked under the applicable accounting policy.

Prevent stored materials from being counted twice

Keep a record of materials included in earlier applications. When those materials are installed, reconcile the transfer from stored status into completed work; the same material should not appear in both places in the cumulative total.

Eligibility, documentation, location, ownership and insurance requirements come from the project documents. A paid supplier invoice alone does not prove that the materials can be billed now. AIA's tips for payment applications distinguish retainage treatment for completed work and stored materials. Apply the actual contract terms rather than copying the example's single rate.

Keep requested, certified and collected amounts separate

Use an application register with a row for each application and revision. Record the submitted amount and date, amount certified, invoice reference, collections, retainage and remaining balance. Attach the review explanation when a certification differs from the request.

If the reviewer certifies less than you requested, identify which scope or support changed. Do not hide the difference in a miscellaneous expense account to make the receivable reconcile. Management should resolve the commercial issue while accounting maintains the approved record.

Before changing or waiving contractual rights, get advice from construction counsel. This accounting guide does not establish payment deadlines, lien rights, required retainage rates or notice procedures for any state.

Connect billing to job costs and the monthly close

Reconcile the application register to the receivable ledger and bank receipts. Separately compare job costs with the approved budget and remaining commitments. A project can be ahead on billings and behind on profitability, or profitable on paper while short of cash.

Your WIP schedule should follow the reporting framework and accounting method used for the business. Issuing a payment application does not by itself settle earned revenue or tax recognition. The IRS explains accounting methods in Publication 538; construction contracts may require additional method analysis.

For the service context, see our construction CPA page, contractor tax planning guide and construction business tax deductions. A cash-flow forecast helps place expected collections alongside payroll, subcontractor payments and retainage. The profit margin calculator is a separate preliminary profitability tool, not a payment-application calculation.

A practical pre-submission review

Confirm that the current contract sum agrees with approved documents, cumulative progress is supported, stored materials are counted once, retainage follows the correct terms and prior certificates reconcile. Then confirm signatures, attachments and the submission channel specified for that project.

Keep disputed changes separately visible until approved under the agreement. Preserve the submitted package and later revisions. At month end, explain differences between billing, certification, revenue recognition and cash collection rather than expecting all four to match.

Questions about AIA billing

Is an AIA payment application just a standard invoice? It provides progress and certification information beyond a basic invoice. The contract determines the required submission and approval process.

Is retainage always 10%? No. The rate, covered amounts, reduction and release depend on the contract and applicable law. Ten percent is only the assumption in this illustration.

Can the amount certified differ from the amount requested? Yes. Preserve the review explanation and reconcile the approved amount to the accounting records rather than silently changing the history.

Does a larger progress billing mean the job earned more profit? Not necessarily. Billing progress, job costs and accounting revenue answer different questions. Review them together.

Educational, not individualized accounting, tax or legal advice. Figures are hypothetical. AIA, G702 and G703 identify their owners' documents; Taxstra does not supply or reproduce those forms. Updated September 7, 2026.