We know that cash flow issues are the reason for approximately 90% of business failures.
Where expenses run ahead of money coming in, making it more and more difficult for a company not only to manage but to survive.
This is where progress invoicing can prove beneficial.
A form of invoice accounting that helps to support business cash flow on a regular basis.
In this post, we look to answer the question “what is progress invoicing”, its uses, benefits, and more.
If you need overdue invoice debt collection, book a call with a member of our team today and see how our collection services can benefit you.
Progress invoicing explained
Progress invoicing, also known as progress billing, is an alternative to upfront billing or invoicing once the project is complete.
It is a method of invoicing where the project is broken down into smaller amounts, with the customer paying these pre-agreed amounts at pre-agreed project milestones.
The primary aim of progress invoicing is to keep cash flowing and help build a sustainable business framework. It does this by helping businesses to reduce their cash flow strain and cover their costs through the project cycle.
This type of invoicing procedure offers numerous cash flow benefits; however, it can be complicated and often labour-intensive, as several invoices are issued over a project’s lifespan rather than just one.
How does progress invoicing work?
Progress invoicing works by breaking the total amount of a project into smaller pricing amounts. These amounts are then invoiced periodically at agreed milestones until the final payment is due, ensuring the entire balance is paid.
The amount of each invoice is based on an estimated percentage of the project, with usually 5 to 10% of the balance held back until the end of the contract/project period to ensure that everything is delivered on time and to a satisfactory level.
Each invoice should include the original contracted amount, the value of progress to date, the balance due, the % left to complete the project, and the balance still outstanding.
Typical steps to progress invoicing
Both parties must agree and sign a contract, stating project deliverables and the method of project invoicing.
A clear and transparent payment schedule must be set up and agreed to.
Project progress must be regularly monitored and reviewed.
Invoices must be issued in a timely manner.
Note: Invoices must still be informative and clear in the information they provide. They should include:
- Invoice date
- Payment due date
- Payment methods accepted
- Any early payment discounts
- Late payment fees or charges
- What you’re invoicing for
- Contact details of both parties
- Description of pricing
- Totals
- Balance to be paid
- Balance still outstanding
When to use progress invoicing?
Progress invoicing is most suitable for large-scale projects that are expected to take weeks, if not months, to complete.
Progress invoicing is typically used in the construction sector, where projects take months to complete, and payments at certain times help businesses manage cash flow for the purchase of equipment and materials, avoiding a single large outlay.
Progress invoicing is also used in:
- Aerospace
- Consultancy services
- Manufacturing
- Event planning
- And more.
The aim is to provide businesses with a steady income to offer financial stability.
By breaking the total cost into smaller chunks, this can make it more manageable for the customer, and for the business, there is less chance/risk of default or late payment.
Why progress invoicing is so important
Progress billing can be vital for companies, primarily because it is a way to ensure you get cash influxes into the business within a set timeframe.
Other benefits of progress invoicing include:
- Smaller amounts are typically easier to collect from the customer
- It can motivate payments to be on time every time
- Keeps businesses in regular communication with their customers
- Helps with budgeting and forecasting
- Helps to keep projects on track, allowing businesses to plan better
- Provides opportunities for growth as cash keeps flowing
- Covers upfront costs, lowering financial risk.
- Improves customer retention as customers don’t have to pay the full amount all in one go
- Helps to maintain a healthy cash flow
- You find out sooner if a customer is experiencing financial problems, allowing you to put measures in place sooner to mitigate the risk and negative impact on you.
However, there can be complications to the process of progress invoicing, such as costs overrunning, invoice overdue situations occurring, only partial payments being made, potential for disputes to interrupt payment schedules, and more.
How to recover unpaid invoices
Progress invoicing is a great way to break down total costs into more manageable, regular payments; however, we know that overdue invoices do still occur.
This is why it is vital that you set clear expectations and align payments with work completed.
It’s also important to have robust credit control processes in place to ensure customers continue to pay.
Stay flexible but firm, invoice promptly, be clear about your terms and penalties, and follow up.
For further support on collecting overdue invoices and late payments, email us today and see how our team can help you.
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