Key Takeaways
- Bills clients incrementally as milestones complete.
- Supports steady cash flow for contractors.
- Spreads client payments into manageable amounts.
- Enables regular project quality and budget checks.
What is Progress Billings?
Progress billings are an invoicing method where contractors request incremental payments as project milestones are completed, instead of waiting for full payment at the end. This approach helps manage cash flow and keeps projects financially on track.
It is common in industries requiring ongoing funding for labor and materials, such as construction and consulting, where clear obligations to pay evolve throughout the project lifecycle.
Key Characteristics
Progress billings have distinct features that support project finance and client relations:
- Milestone-based payments: Invoices correspond to completed phases rather than the entire project cost.
- Schedule of values: A detailed breakdown of tasks and related costs helps track expenses against estimates.
- Cash flow management: Enables contractors to maintain steady funding, crucial in labor-intensive sectors and volatile labor market conditions.
- Client payment flexibility: Clients avoid lump-sum payments by making manageable installment payments.
- Accounting distinction: Differentiates between construction in progress and billed amounts, affecting balance sheet reporting.
How It Works
Progress billing starts with a contract that defines specific milestones and associated payment percentages. As you complete each milestone, you submit an invoice reflecting the percentage of the project finished, calculated against the total contract price.
The client reviews and approves the invoice based on work quality and completion. This process repeats throughout the project, allowing you to fund ongoing expenses such as materials or labor, similar to how a C corporation manages operational costs in stages rather than all at once.
Examples and Use Cases
Progress billing is ideal for projects requiring phased funding and ongoing client oversight. Common use cases include:
- Construction: Large-scale building projects where contractors invoice as each phase finishes, ensuring continuous cash flow.
- Consulting services: Firms delivering complex advisory work over months, using progress billings to match payments with delivered milestones.
- Software development: Companies like DAC implement progress billings to handle multi-stage product releases and updates.
- Airlines: Delta may use progress billing concepts in contracts with suppliers for phased aircraft maintenance or parts delivery.
Important Considerations
While progress billing improves cash flow and transparency, it requires clear contract terms and accurate milestone definitions to prevent disputes. Ensuring both parties agree on completion criteria and payment schedules is essential.
Additionally, managing receivables carefully is critical to avoid delayed payments that can disrupt your working capital. For businesses exploring financing options, reviewing our guide on best business credit cards can provide helpful funding alternatives during project gaps.
Final Words
Progress billings help maintain steady cash flow by aligning payments with completed work, reducing financial strain during long projects. Review your contract’s milestone schedule carefully to ensure invoicing matches your project’s progress and funding needs.
Frequently Asked Questions
Progress billing is an invoicing method where contractors bill clients incrementally as project milestones are completed, instead of requesting full payment at the end of the project.
Progress billing starts with a contract that defines milestones and payment percentages. Contractors submit invoices as each milestone is met, and clients pay based on verified completed work, enabling steady cash flow throughout the project.
Progress billing helps contractors maintain steady cash flow, allows clients to manage payments in smaller installments, improves project oversight through regular evaluations, and fosters better client-contractor relationships.
Since contractors receive payments incrementally, they can fund ongoing expenses like materials and labor without waiting until project completion, which helps avoid cash flow problems.
Construction in progress refers to the costs incurred on the project, while progress billings are the amounts invoiced to the client. The difference between these two is recorded as either a current asset or liability.
Progress billing is ideal for long-term, high-value projects such as construction, contracting, consulting, and any work that requires upfront material purchases or spans weeks to months.
By invoicing at each milestone, both client and contractor can regularly review work quality, timelines, and budgets, allowing early identification and adjustment of issues without impacting the entire project.
