PROGRESS INVOICING

QuickBooks Series
What is Progress Invoicing
 Progress billing is the process of incrementally
invoicing clients for a large-scale project based on the
percentage of work already completed or on basis of
milestones identified.
 It shows the original contract amount, changes made to
that total amount, the total balance already paid, the
percentage of work completed, the amount currently
due, and the total amount outstanding for the project.
 This process continues throughout the life of the
project until the final 5-10% of the total balance, which
are typically paid upon official project completion.
Reasons to Choose Progress Billing
In almost any project with a large budget
and long timeline, progress billing is
really a win-win billing alternative for
both the vendor and for the customer. If
you’re considering progress billing as an
alternative to your business but aren’t sure
how to sell the idea to your vendors or
customers, here are a few benefits worth
bringing up:
Benefits for Vendors
 In most cases, projects with long timelines require a significant
amount of overhead for the Contractor, either in raw material -
equipment costs or in payroll for personnel. With a progress
billing cycle, the Contractor gets paid as the work gets done, so
there is a consistent flow of cash coming in to order more
materials or issue payroll for the next phase of the job.
 From a management perspective, progress billing can also be a
great way of motivating the team—especially any consultant or
sub contractors. Simply put, if the work doesn’t get done,
people don’t get paid… And if you don’t get paid, they don’t
get paid. Knowing that their paycheck is directly tied to the
result of their work will certainly get the sub-contractors
moving in the right direction!
Benefits for Customers
 While vendors often initiate project billing the benefits to customers might be even
bigger!
 Billing for long-term projects always involves some amount as advance—often a
deposit of 50% upfront with 50% paid at completion of the job. But if your project
has a budget in millions that can be a lot of money before you see any work getting
done! But with progress billing customer makes small, continuous payments as the
work gets done, so the can monitor the progress before payment.
 Another significant concern, “take the money and run.” many reasons - the vendor
goes out of business. If the customer has paid for 50% of the project but the vendor
only completes 10%, that’s a significant risk of capital loss on the project!
 With progress billing in place, customers issue payments as the work gets done. So
while losing a vendor would still be a significant blow to the customer’s project
timeline, they would have the opportunity to continue the project with a new vendor,
with minimal capital lost.
 Finally, using the progress billing method incentivizes the vendor to finish the project
as efficiently as possible. Because large-scale projects across industries take longer
than initially projected, any incentive to finish quickly is always good news for the
customer.
Industries That Benefit From Progress
Billing
Construction
Progress billing will be most familiar to
those with experience in any construction
field. Land developers, general
contractors, plumbers, painters, roofers,
and others like them have all been using
progress billing for years. In most cases,
this billing method is a given in
construction contracts.
Industries That Benefit From Progress
Billing
Defense Industries
 Another industry with significant experience in
progress building is the field of aerospace and
defense. Similar to construction projects,
aerospace and large-scale defense projects
typically have huge budgets—usually in the
millions of dollars—and require several years to
complete. It would be impossible to simplify
these behemoth projects into clear-cut billing
cycles, so progress billing is the natural solution
for both vendor and customer.
Industries That Benefit From Progress
Billing
Web Development & Design
 While web development—along with other large scale
digital projects—don’t involve the same high cost of raw
materials as  construction and defence, these digital
industries do share the challenge of long project timelines.
 Larger scale application development or website design
projects can take several months or even years to complete,
often with unclear goals or requirements from the client in
the initial phase of the project. Progress billing allows
revenue for the project to be consistent and adjust with the
goals of the work, while allowing room for flexibility in the
exact timeline of work as well as the ability to change the
scope and total size of the contract along the way.
Industries That Benefit From Progress
Billing
Any Industry With Long Production
Cycles
Although progress billing might be a
relatively new concept in some industries,
it’s an option worth considering for any
industry with large budgets and long project
timelines. So even if progress billing hasn’t
historically been the norm in your industry,
don’t rule it out as an alternative accounting
method