As a contractor, your services often continue for weeks, months, or even years before they are concluded. As a result, it can be beneficial to use a progress billing model to take payments in stages as the job moves forward.
Because this method comes with its own set of challenges as it applies to payment compliance, it is in your best interest to take steps to maximize the efficiency and effectiveness of your invoicing, by integrating it into your point of sale (POS) system.
Progress invoicing defined.
This billing model involves charging incrementally based on time frames, milestones, or phases.
In many cases, businesses don’t send a bill until a service has been completed. However, due to the associated costs and extended nature of the projects in which you specialize, your contract company may instead opt to send out regular invoices over time.
This is known as progress invoicing. The progress invoicing model allows customers to spread significant payment amounts over longer time periods and provides built-in benchmarks that allow progress on the project to be gauged throughout the process.
As for your company, it gives you a steady, predictable revenue stream that you can use to cover your expenses at every stage of the project.
Components of progress invoicing.
Progress invoicing involves several elements. These include project overview, phase description, percentage of total work, amount due for each phase, remaining balance, payment terms, contact details, and special instructions.
Start by giving a concise description of the job. Then specify which part of the project is covered by this particular invoice. For the sake of clarity, also indicate what fraction of the entire project is covered by the invoice.
Of course, you need to clearly state exactly how much the customer owes for this phase. It helps to also include a list of the previous payments that have been made as well as a description of the balance that will remain as a balance after this payment has been received.
As with other invoice types, specify the payment terms, including the number of days that the customer is given to pay the bill. Additionally, contact details for both you and the customer should be included, as well as any special instructions you want the client to know about the project, such as “next phase to begin upon payment clearance.”
How progress invoicing works.
There are five basic steps in progress invoicing. These include agreeing to the arrangement, reaching a milestone, creating and sending the invoice, making a client payment, and advancing to the next stage.
1. Agreeing to the arrangement
The mechanics of progress invoicing are quite straightforward. First, you and your customer agree on the scope of the project, including when milestones occur and the payments that will be expected.
When definitions of completion are specified in the beginning, the potential for later misunderstandings is reduced.
2. Reaching a milestone
When each milestone is reached, you should document the finished work with photos, reports, and drafts. These can be kept by you and shared with the customer to promote clarity and transparency.
3. Creating and sending the invoice
The milestone forms the basis for the invoice you then can send, which should include all relevant details about the completed work, the payment due, and the terms of the arrangement.
4. Making a client payment
Once your customer receives the invoice, they can check over each detail. Should any concerns arise, they can contact you to discuss their questions. If all is well, they will submit their payment.
5. Advancing to the next stage
Upon receiving it or according to alternative arrangements that you have made with the customer, you are then able to move on to the next stage of the project. This cycle repeats until the job is completed.
Progress billing and your point of sale system.
Your point of sale system simplifies progress billing in several ways. These include keeping detailed records, automating the process, enhancing cash flow, increasing transparency, and streamlining your administrative processes.
Your POS system is the configuration of hardware and software that facilitates payment processing and acts as a hub for a wide variety of other inventory, customer relationships, and reporting mechanisms. Among its other talents is its ability to simplify the progress billing that you use to effectively invoice your customers. Most payment solutions for contractors contain everything you will need to get started.
Once you set up your POS for progress billing and begin to implement it with your customers, you will quickly discover its benefits. For one thing, its built-in database function makes it possible for you to seamlessly keep track of every detail of the job, including materials, time, and labor facts.
The software allows you to break down the entire project into smaller stages or segments that can be invoiced separately as they reach completion.
These billing solutions allow you to request payments in various ways: when a milestone is completed or as partial stages of a project are finished. As a result, you can look forward to improved cash flow with the reduced risk that comes from getting paid at regular intervals.
This clear communication and transparency leads to a precise understanding of costs at each stage of the project as it is accomplished. An invoice can be created that outlines all relevant facts about the project, including the materials used, the work that has been completed, and all associated labor costs.
Because much of the invoicing solutions process is automated, the need to do manual paperwork decreases sharply, minimizing administrative overhead. Since the system can also integrate with third-party accounting software, financial management and reporting are streamlined even further.
In order for your contracting business to succeed, you absolutely must be paid for your work in a timely fashion. Implementing progress billing with the help of your POS solution can be invaluable in assisting you to optimize and streamline this process.
If you want to get started right away, talk to your payment processing provider today.
