Progress invoicing is an important tool that offers businesses a consistent revenue stream while giving customers a clear picture of the value they’re receiving at every payment stage. By breaking down payments into structured, transparent stages attached to project milestones, progress invoicing allows buyers and sellers to maintain clear expectations and align payments with work completed. Below, we’ll explore the mechanics, components, and best practices for implementing progress invoicing into a variety of business scenarios.

What’s in this article?

• What is progress invoicing?
  
• Progress invoicing components
  
• When would you use progress invoicing?
  
• How does progress invoicing work?
  
• Progress invoicing best practices
  

What is progress invoicing?

Progress invoicing, also known as progress billing, is a billing method in which businesses charge customers incrementally for a project or a long-term service. Instead of billing for the complete amount once the work is complete, businesses divide the total cost into multiple invoices based on project milestones, time periods, or specific phases.

This approach can be particularly beneficial for projects with extended timelines because it offers businesses a steady stream of revenue, which can help in managing finances throughout the project. For customers, it can make large expenses more manageable by spreading out payments, and it can also serve as a clear indicator of the work’s progress. Adopting progress invoicing can be a strategic move for businesses, especially for those involved in long-term contracts or extensive projects.

Progress invoicing components

Progress invoicing includes specific components that differ from a standard invoice. Understanding these elements is key for both the issuer and the recipient. Here’s a breakdown:

• Project overview: The invoice should offer a brief descriptor of the project or job. For instance, if the work is for a website development task, the descriptor might state, “Website Development for XYZ Corp.”

• Milestone or phase description: Detail what part of the project this specific invoice covers. For a book editing job, this might read “Editing: Chapters 1–5.”

• Percentage of total work: Indicate what fraction of the entire project this invoice represents. For a year-long consultancy project billed quarterly, it might show “25% of total project.”

• Amount due for this phase: Clearly state the amount that the recipient owes for this particular phase or milestone.

• Previous payments: List any amounts that the recipient has already paid in earlier invoicing cycles.

• Remaining balance: Indicate the amount that will still be due after the customer pays this invoice, giving the client a clear picture of future obligations.

• Payment terms: As with any invoice, include the payment terms. This could specify the number of days within which payment should be made, such as “Payment due within 30 days.”

• Contact information: Provide contact details for the issuer and recipient.

• Notes or special instructions: Here you can add any additional information or specifications related to the payment or the project. For instance, “Next phase to commence upon payment clearance.”

When would you use progress invoicing?

Progress invoicing is useful for many different projects, in a variety of industries, especially when the scope of work is extensive or lasts a long time. Here are a few specific scenarios and examples that illustrate when this billing method might be appropriate:

• Construction and real estate
  A homebuilder could invoice a portion of a project’s total cost upon reaching predetermined stages, such as foundation completion, framing, or final finishes. This ensures a steady flow of funds for ongoing expenses.

• Consulting and advisory
  A consultancy that has taken on a year-long market research project might invoice at the close of each quarter or upon reaching specific research milestones, instead of waiting until the end of the year.

• Software development
  A tech startup developing a new app may choose to invoice their client after the completion of each phase, such as design, beta testing, and final deployment, to distribute the cost over the project’s lifespan.

• Manufacturing
  A bespoke furniture manufacturer might bill incrementally while working on a customized set. The initial design approval could trigger the first invoice, followed by another after material procurement, and the final invoice upon delivery.

• Event management
  For a team organizing a large conference, costs and preparations are spread over months. They might invoice their client after booking the venue, then after completing initial event promotions, and finally after the event execution.

• Freelancers
  A graphic designer working on a branding package that includes logo, brochures, and a website could send invoices upon completion of each element.

• Research and development
  A biotech firm conducting extensive research might bill after completing each phase, such as literature review, lab experiments, and field testing.

In each scenario, progress invoicing offers businesses predictability in their revenue stream. By aligning payments with work stages, both parties can keep track of the project’s progress and their own financial commitments.

How does progress invoicing work?

Like any other billing model, progress billing is executed in different ways depending on the exact nature of the project, the type of business, and the customer. Here’s a general overview of the mechanics of progress invoicing:

• Agree to milestones and payments: Before beginning a project, both the service provider and client discuss the project’s scope. They split the project into smaller segments, each with a definition of completion. Both sides agree on the payment amount for each segment. Clear agreements at this stage prevent confusion and disagreements later.

• Reach a milestone: As work moves forward and the service provider finishes a segment, they should bill for that portion. The service provider should keep documentation of the finished work, such as reports, photos, or drafts, for their records. This documentation also provides the client with a sense of the completed work.

• Create and send the invoice: When the segment is finished, the service provider drafts an invoice with details about the completed work, the payment amount for that phase, and other important terms, such as when the payment is due. Including all relevant details in the invoice offers the client clarity and can reduce payment delays.

• Client checks and pays: After receiving the invoice, the client checks it against the initial agreement and the proof of finished work. If everything matches, they make the payment. If the client has questions or issues, the service provider should address them quickly.

• Move to the next segment: Once the invoice is settled, the service provider begins work on the next segment. This cycle of work, billing, and payment continues until the project is finished.

For businesses, progress invoicing facilitates regular revenue, especially for longer projects. For clients, it offers structured payments and updates on the project’s status, so they see value throughout the process.

Progress invoicing best practices

Progress invoicing requires a deep understanding of business objectives and client expectations, which will vary from business to business. Nevertheless, some best practices are universal when it comes to progress billing. These include:

• Ensuring transparency: Clearly outline the milestones or phases of a project in the agreement. Setting transparent expectations reduces potential disputes and keeps all parties informed about what each payment installment covers.

• Adapting invoice frequency: Depending on the project duration, decide whether you’ll invoice after each milestone or on a fixed schedule (i.e., monthly). The key is to strike a balance that maintains operations without burdening the client.

• Maintaining detailed records: Document all work completed, hours spent, materials purchased, or any other relevant metrics. This provides a basis for each invoice while helping with any clarifications the client might seek.

• Opening communication channels: Update clients regularly on your progress, especially if there are any delays or changes. This helps to build trust and can make the invoicing process smoother.

• Staying flexible but firm: While it’s important to be adaptable based on project changes or unexpected hurdles, it’s equally important to maintain the agreed-upon payment structure. This protects your business interests without compromising on service quality.

• Invoicing promptly: Once you’ve reached the agreed-upon milestone, or the specific point in time according to the set schedule, send out the invoice. Prompt billing can encourage prompt payments.

• Being clear about terms and penalties: Outline the payment terms, such as net-30 or net-60, and whether there are any penalties associated with late payments. This sets a clear expectation for clients.

Adopting these best practices can help businesses streamline their progress invoicing process, aligning each transaction with the cadence of value delivery and service or project fulfillment.