Top 6 Types of Construction Billing Methods and Uses
Published By
Mohammed Ali Khan
Construction/Contracting
Nov 4, 2025
Construction bills are more than just paperwork; they directly impact your cash flow, project costs, and client relationships. Saudi Arabia’s construction industry is set to grow by 4% in 2025, with an average annual growth of 5.4% expected from 2026 to 2029.
This growth is supported by the Kingdom’s 2025 budget, which allocates SAR 1.3 trillion for major sectors like transport, electricity, housing, and water infrastructure, up from SAR 1.251 trillion in 2024.
In this blog, you will learn what construction billing is, its uses, the main types used in the industry, and practical tips to handle common challenges for smoother projects and happier clients.
Key Takeaways
Construction billing methods like lump-sum, T&M, cost-plus, and progress billing help manage project payments effectively.
Choosing the right billing method ensures predictable cash flow, reduces disputes, and aligns payments with project milestones.
Common billing challenges include inaccurate records, unapproved changes, retainage, fluctuating costs, and poor communication.
Tools like HAL can streamline invoicing, track expenses, manage VAT compliance, and improve financial visibility.
What Is Construction Billing?
Construction billing is how you create and manage invoices for work completed on your projects, helping you get paid on time and keep costs under control. When you handle construction bills properly, you can maintain steady cash flow, track budgets accurately, and prevent disputes with clients or contractors. The bills usually include details like materials, labor, project milestones, and extra charges, giving both you and your clients a clear financial record.
Construction billing is more than just sending invoices; it plays a key role in managing finances, tracking progress, and keeping projects on schedule. Here is how it benefits your construction operations:
Cash Flow Management: Construction billing ensures timely payments from clients, helping you maintain steady cash flow and avoid delays in procurement or payroll.
Project Tracking: By linking invoices to milestones or work completed, you can monitor progress accurately and make informed decisions about resource allocation.
Budget Control: Detailed billing allows you to compare actual costs versus planned budgets, helping prevent overspending and identify areas for savings.
Transparency and Accountability: Clear invoices improve communication with clients and subcontractors, reducing disputes and building trust in your business relationships.
Regulatory Compliance: Proper construction billing, including VAT-compliant invoices (ZATCA), ensures your projects adhere to Saudi business and tax regulations.
Performance Analysis: Billing data can provide insights into project efficiency, labor productivity, and profitability, helping you optimize operations for future projects.
With the use of proper billing clear, it’s time to look at the different methods that can make managing payments easier.
Top 6 Types of Construction Billing Methods
Knowing the main construction billing methods helps you pick the right approach for your projects and handle payments smoothly. Here is the explanation of each method, along with pros and cons:
1. Lump-Sum Billing
This method sets a fixed price for the entire project before work begins.
Advantages
You know the full cost upfront, so budgeting is easier.
Managing payments is simple since the price doesn’t change.
Contractors have a reason to finish efficiently and stay on budget.
Disadvantages
Unexpected costs fall on the contractor.
Any extra work or changes can lead to disagreements or additional charges.
2. Time and Materials (T&M) Billing
You pay based on the actual hours worked plus material costs.
Advantages
Flexible for projects where the scope isn’t clear from the start.
You can see exactly what you’re paying for.
Changes can be handled easily without renegotiating the whole contract.
Disadvantages
Total cost can end up higher than expected.
Requires careful tracking of hours and materials.
3. Cost-Plus Billing
You reimburse the contractor for actual costs plus an agreed fee or percentage profit.
Advantages
Transparent because all costs are shared with you.
Good for complex or evolving projects.
Encourages quality since the contractor gets paid for the work done.
Disadvantages
Expenses can grow if not monitored.
Trust is important because cost reporting must be accurate.
4. Progress Billing
Invoices are issued as specific project milestones are completed.
Advantages
Payments match the work done, helping manage cash flow.
Contractors are motivated to keep the project moving.
You have a clear schedule of what’s paid and when.
Disadvantages
Milestones need to be clearly defined to avoid disputes.
Payment delays can happen if milestones aren’t met.
5. Retainage Billing
A portion of the payment is withheld until the project is fully completed or milestones are verified.
Advantages
Ensures work is completed properly before full payment.
Gives you leverage to fix issues before final payment.
Disadvantages
It can create cash flow pressure for the contractor.
Some contractors may be hesitant to accept delayed payments.
6. Unit Price Billing
Charges are based on the number of work units completed, priced per unit.
Advantages
Fair since you pay only for what’s actually done.
Great for repetitive projects like roads or utilities.
Easy to track progress and costs.
Disadvantages
Units must be measured accurately.
Mistakes in counting can increase costs.
7. Retention, Penalties, and Advance Settlement
Retention: A percentage (typically 5-10%) of each payment is withheld until project completion to ensure contract fulfillment.
Advantages
Quality Assurance: Encourages contractors to complete work to specified standards and timelines.
Financial Security for Clients: Provides a form of financial protection if work is not completed as agreed.
Incentive for Completion: Motivates contractors to finish the project and address any defects promptly.
Disadvantages
Cash Flow Disruption: Withholding a portion of payment can impact the cash flow of contractors and subcontractors.
Delayed Payments: Retention funds are often released only upon project completion, leading to delays in receiving full payment.
Administrative Burden: Requires meticulous documentation and follow-up, adding to the administrative workload.
Penalties: Financial deductions imposed for delays or non-compliance with contract terms.
Advantages
Timely Completion: Discourages delays, ensuring projects are completed on schedule.
Accountability: Holds contractors accountable for meeting deadlines and contract terms.
Disadvantages
Financial Strain: Contractors may face financial strain if penalties are imposed for delays beyond their control.
Disputes: Can lead to disputes over the reasons for delays and the imposition of penalties.
Advance Settlement: Payments made before work is completed, often used to cover upfront costs.
Advantage
Upfront Capital: Provides contractors with necessary funds to initiate and sustain project activities.
Cash Flow Management: Helps in managing cash flow, especially for large projects with extended timelines.
Disadvantages
Risk of Non-Completion: If the contractor fails to complete the project, the client may lose the advance payment.
Financial Management: Requires careful financial planning to ensure that advance payments are used appropriately.
Even with the right billing method in place, construction projects can face hurdles that complicate payment and record-keeping.
Common Challenges in Construction Billing & How to Overcome Them
Construction billing can often create delays, cash flow issues, and confusion if not handled carefully. Here is a detailed look at common challenges you may face and how to tackle them effectively:
1. Incomplete or Incorrect Records
Missing or inaccurate details in invoices, like wrong quantities or dates, can cause payment disputes and slow down cash flow.
How to Overcome It:
Keep complete records of all work, materials, and labor.
Use digital tools or billing software, like HAL, to automatically track transactions and prevent errors.
2. Unapproved Change Orders
Projects often evolve, and work outside the original scope can cause billing errors if not formally approved.
How to Overcome It:
Always get written approval for any changes before invoicing.
Maintain a change order log to track adjustments and communicate clearly with clients.
3. Holdbacks and Retainage
Clients may withhold a portion of payment until project milestones or final approvals are met, impacting cash flow.
How to Overcome It:
Understand retainage terms in your contracts.
Plan your cash flow around holdbacks to avoid shortages in materials or wages.
Consider using HAL to monitor holdbacks and manage retainage efficiently.
4. Fluctuating Material Costs
Material prices can rise due to supply shortages, import delays, or market changes, which can affect billing and project budgets.
How to Overcome It:
Regularly update your cost estimates based on current prices.
Maintain alternative suppliers or materials to manage sudden cost changes.
5. Outdated Billing Systems
Manual invoicing or old software increases errors, slows approval, and makes tracking payments difficult.
Ensure your system allows for real-time updates and reporting for faster decisions.
6. Payment Delays
Late payments are common in construction and can disrupt your project cash flow, delaying work or procurement.
How to Overcome It:
Clearly define payment terms in contracts.
Use automated reminders and maintain proactive communication with clients to follow up on payments.
7. Complex Payment Terms
Milestone payments, retainage, and layered contracts can be confusing and lead to miscalculations.
How to Overcome It:
Use billing software that aligns with your contract terms.
Break down complex payments into simple schedules for easy tracking.
8. Poor Communication and Collaboration
Misunderstandings between contractors, subcontractors, and clients often lead to billing mistakes and disputes.
How to Overcome It:
Keep all communication centralized in one platform or software.
Hold regular project meetings and ensure everyone has access to the latest billing information.
If these challenges sound familiar, it’s time to upgrade how your construction billing works. HALhelps you manage everything, from project expenses and intercompany billing to VAT compliance and financial reporting, under a single, easy-to-use system.
These common issues can slow down any project, but real-world examples reveal practical ways to overcome them effectively.
Case Study: Jash Holding - Making Billing Clear, Fast, and Reliable
Jash Holding, through its subsidiary Jash Technical Services (JTS), operates in facilities management, contracting, logistics, and manufacturing with over 4,000 employees across five companies. They needed a modern solution to unify operations and simplify financial management.
The Challenge
With multiple companies and legacy systems, Jash faced fragmented data, slow workflows, and little visibility into intercompany transactions.
Managing payroll, project costs, subcontracting, and inventory across divisions became time-consuming and error-prone, causing payment delays.
The Solution
By implementing HAL ERP, Jash streamlined its operations with modules for:
HR & Payroll: Automated contracts, leave, and end-of-service benefits.
Project Costing & Mobilisation: Clear staff allocation and profitability tracking.
Procurement & Subcontracting: Smooth vendor management and integrated billing.
Intercompany Transactions: Automated internal billing with VAT support.
Consolidated Reporting & Inventory: Real-time P&L, dashboards, and accurate site-level stock tracking.
The Result
HAL ERP helped Jash:
Improve cash flow predictability.
Reduce billing and payroll errors.
Gain complete visibility across all companies.
Achieved over 60% improvement in operational efficiency.
Track project costs efficiently.
Managing construction billing doesn’t have to be this complicated. With the right system, you can stay on top of every payment.
Simplify Construction Billing with HAL
Running large construction projects and keeping finances on track can be challenging. HAL brings all your financial operations into one place, helping construction companies maintain steady cash flow and manage billing effortlessly.
Transparent Accounting: Monitor all money coming in and going out in real time, so you always have a clear picture of your project finances.
Efficient Invoicing: Generate digital invoices, follow up on outstanding payments faster, and stay fully compliant with Saudi VAT requirements.
Simplified Expense Management: Record project costs, supplier payments, and payroll in a single system, helping you avoid surprises and errors.
Built-in VAT Handling: Ensure all tax reporting and compliance is accurate, reducing delays caused by billing or documentation mistakes.
Effectively managing construction bills is essential for keeping projects on schedule, maintaining cash flow, and avoiding disputes with clients or subcontractors. By applying the right billing methods and tackling common challenges, you can ensure smoother operations and stronger financial control.
Modern billing practices and digital tools also support Saudi Arabia’s Vision 2030, helping construction companies work more efficiently, stay transparent, and adopt smart technologies for long-term growth.
HAL ERP brings all your billing, invoicing, and expense management into one place, helping Saudi construction businesses track costs, stay VAT-compliant, and maintain predictable cash flow.
1. What is the best billing method for small construction projects in Saudi Arabia?
For small projects, lump-sum billing or unit price billing often works best. These methods provide clear costs upfront, simplify tracking, and reduce disputes. Choosing the right approach ensures smoother cash flow and easier management for SMEs.
2. How can SMEs avoid disputes with clients over construction bills?
Maintaining detailed records, issuing accurate invoices, and getting written approvals for change orders are key. Using digital tools like HAL Simplify can also help track work, materials, and payments efficiently, reducing misunderstandings.
3. Can construction billing methods affect project cash flow?
Yes, the billing method directly impacts cash flow. Methods like progress billing and retainage tie payments to milestones, helping manage inflow and avoid financial bottlenecks during critical project phases.
4. How do fluctuating material costs affect construction billing?
Rising material prices can increase overall project expenses and create disputes if not updated in invoices. Regularly reviewing costs, adjusting invoices promptly, and planning alternatives helps prevent delays and ensures accurate billing.
Mohammed Ali Khan
Mohammed Ali Khan is a seasoned ERP Implementation Consultant with over 100 successful projects across Saudi Arabia. With expertise across diverse industries, he has spearheaded large-scale retail implementations for hundreds of stores, bringing deep knowledge of omnichannel commerce, payment integrations, and the unique challenges of retail operations in KSA.
