Receiving prompt payment from clients can be a challenge for small to medium-sized enterprises (SMEs). That is especially the case in industries such as construction and professional services, for long-term projects, and forms of work that have extended billing cycles.

Almost half of SMEs reported cash flow problems in the Intuit QuickBooks Small Business Insights 2022 survey. Three in five had unpaid invoices.¹

Progress invoicing can help businesses collect payments during a project, improving cash flow. But when would you use progress invoicing? This post explains how it works and the factors to consider.

In this article:
What is progress invoicing? When would you use progress invoicing? Advantages and benefits of progress invoicing Challenges of progress invoicing Factors to consider before progress invoicing Best practices for progress invoicing Example of progress invoicing When to use progress invoicing: Conclusion

What is progress invoicing?

Progress invoicing is a form of billing a customer that breaks down the total cost of a project into increments. The supplier issues a series of invoices to be paid at regular intervals.

The total project cost and the payment schedule are agreed upon upfront. They are set out in the contract between the customer and the supplier. The payments are typically calculated as a percentage of the total.

The supplier issues invoices to the customer as the project advances. This is typically done once certain milestones or phases are completed. A small percentage of the contract is often held until the project is fully completed. This is to ensure that it is delivered as agreed.

Progress invoicing ensures that the supplier has enough cash to complete the project. It can limit the risk to the supplier of non-payment and the risk to the customer of paying for work in advance.

When would you use progress invoicing?

Different industries take different approaches to invoicing. Some are more likely to use progress billing because of the way they operate.

Below are some examples of industries where progress invoicing is common.

Construction and real estate projects

• Progress invoicing in construction projectsProgress billing is standard practice in construction, where projects are often long and have large budgets. Construction projects tend to have several phases. They often involve the use of costly raw materials and third-party contractors. Construction companies use the funds they receive as each stage is completed to manage costs and client expectations.
• Progress invoicing in real estate developmentThe construction of residential or commercial real estate projects takes place in stages over long periods. So many developers also use progress invoicing. They use the percentage of completion to calculate the amount of revenue they can recognize on long-term projects.

Consulting and Professional Services

• Utilizing progress invoicing in consulting projectsConsultants often work on long-term projects that involve multiple deliverables and research stages. Progress invoicing allows consultants to bill clients as they complete key research milestones.
• Progress invoicing for professional servicesProfessional service providers such as lawyers, accountants, and marketing agencies use progress invoicing to break down complex projects into smaller stages. This helps both the business and the customer to keep track of payments.

Software Development and IT Projects

• Applying progress invoicing in software development projectsSoftware development projects often have distinct phases from design, development, and testing to deployment. Progress invoicing allows developers to receive payments as they complete each stage.
• Progress invoicing in IT and technology projectsAs with software development, IT projects often unfold in stages such as installing network infrastructure or system integration. Businesses can use progress invoicing to link payments to the successful completion of tasks in the project timeline.

Large and Long-Term Projects

• Benefits of progress invoicing in large-scale projectsSuppliers can face challenges in managing cash flow and resources in large projects with long timelines. Progress invoicing provides a structured approach, as it breaks down the project into manageable parts.
• Progress invoicing for long-term engagementsProgress invoicing simplifies ongoing billing for projects that span months or even years. It allows suppliers and customers to make adjustments as projects evolve.

Advantages and benefits of progress invoicing

Progress invoicing provides several benefits to suppliers and clients in the payment process.

Ensuring cash flow and financial stability

Progress invoicing helps suppliers and service providers to maintain consistent cash flow. This helps them to make sure they can cover expenses and manage resources.

Transparency and client satisfaction

Progress invoicing ensures that billing remains transparent throughout complex projects. This is key during long projects when the personnel involved may change over time. It also fosters client satisfaction. They can track the progress of a project and understand the value of each payment.

Mitigating risk and disputes

Progress invoicing sets out clearly defined milestones and payment terms from the beginning. This helps businesses reduce the risk of disagreements with customers over funds.

Flexibility in billing

Invoicing in stages makes the process more adaptable. Suppliers and clients can accommodate delays or changes in a project’s scope. They can also address unexpected challenges more easily.

Challenges of progress invoicing

There are clear benefits to suppliers and customers using progress invoicing. But there are also challenges that can arise, which are important to understand upfront.

Ensuring accurate progress measurement

It’s crucial to make sure that the initial agreement sets out how the progress of each stage will be measured. Otherwise, it may be difficult to prove whether a milestone is completed and when payment is due.

Addressing client dissatisfaction or disputes

Dissatisfaction or disputes can arise if clients perceive progress to be slower than they expected. Open communication and clear expectations from the start are key to avoiding issues.

Handling project delays and changes

Project delays or changes can affect the invoicing schedule. Suppliers must make sure to communicate and adjust the payment plans accordingly.

Factors to consider before implementing progress invoicing

There are several factors to consider before you go ahead and introduce progress invoicing for a particular project.

Project suitability and complexity

Not all projects may be suitable for this form of invoicing. You should evaluate whether it aligns with the type of project, its structure and stages.

Client relationship and agreement

Whether to use progress billing will depend on the relationship between the supplier and the client. The supplier should make sure the client agrees to this approach, which should be outlined clearly in the project agreement.

Communication and reporting

The agreement should establish regular communication and reporting mechanisms. This will ensure the client is kept up to date with the project’s progress and milestones.

Best practices for progress invoicing

If you decide that progress invoicing is right for a particular project, there are best practices you should follow to ensure that it works as intended.

Defining clear milestones and deliverables

A progress billing agreement should set out the milestones and deliverables that will unlock each payment. These will form the basis for issuing invoices.

Each progress invoice should be clear and easy to read. It should include the basic elements of any invoice, such as the issue date, due date, and accepted payment methods. Using an invoice generator, such as the free invoice generator from Wise, can help ensure all the key details are included.

A progress invoice should also include specific details, such as:
Full contract amount and applicable amendments Cumulative value of invoices issued to date Balance paid to date Percentage of project completed Remaining balance

Establishing transparent documentation and reporting

The supplier should maintain accurate records of their progress at each stage. It should communicate with the client as the milestones are achieved. And it should provide supporting documentation.

Reviewing and adjusting invoicing frequency

The supplier and client should regularly review the project's progress. They can adjust the invoicing frequency if needed to ensure it remains aligned with the project's advancement.

💡 For all you need to know about invoices, don't forget to read and bookmark the ultimate guide to invoicing from Wise!

Example of progress invoicing

A software development company takes on a project to build a customized e-commerce platform for a client. The project has five phases: requirements gathering, design, development, testing, and deployment. The project agreement states that the company will use progress invoicing. Payments will be made upon the successful completion of each phase.

The client makes an initial down payment for the company to start the project. This is followed by subsequent payments as each phase is completed and approved by the client. This allows the client to track the project's progress. It provides the company with steady cash flow. And it ensures that the payments are closely tied to the deliverables.

The company receives regular income. The client is able to make payments in stages and only when they approve the work delivered.

When to use progress invoicing: Conclusion

Progress invoicing can be especially beneficial for complex projects with extended timelines. It is well suited to long projects involving distinct stages. Businesses working in construction, real estate, consulting, and software development may consider using progress invoicing.

This form of invoicing can offer advantages to suppliers and customers. These include steady cash flow, transparency, dispute resolution, and client satisfaction.

Defining clear milestones and deliverables, transparency, and open communication are key. Regular review and adjustment of invoicing frequency are also needed. This will keep payments aligned with the project's progress, and ensure both parties are satisfied.

Receive payments for international invoices with Wise

Suppliers and service providers can use progress invoicing to receive payments from international as well as domestic customers.

If you need to handle international invoices, consider using Wise Business to receive invoice payments. You can use Wise’s free invoice templates and invoice generator to save time and hassle. Businesses can also get international account details to receive payments with ease, without losing money on currency conversion fees.

Stress-free international invoices:
Discover Wise Business

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can also get 9 major currency account details for a one-off fee to receive overseas payments like a local.

Some key features of Wise Business include:
Create invoices using the Wise invoice generator or invoice templates. Features for bill payment, including a QuickBooks Bill Pay connection. Bill payments will be synced, matched, and categorized in QuickBooks for simple reconciliation. Access to BatchTransfer: Signing up to Wise Business allows access to BatchTransfer which you can use to pay multiple invoices in one go.

**Better visibility and organization of business finances.** This is helpful for account reconciliations and audits.

**Administration controls for users.** It’s possible to allow team members to carry out specific tasks.

**Receive payments from e-commerce platforms** (such as [Amazon](https://wise.com/help/articles/2968914/how-do-i-receive-money-from-amazon) or via [Stripe](https://wise.com/us/blog/what-is-stripe)).

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Read the guide on how to open a Wise Business account

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Sources:

1. Small Business Insights: 2022 survey - QuickBooks
2. Set up and send progress invoices in QuickBooks Online