What is progress billing and how to use it?

For all kinds of business, deciding how to take payments from your customers is crucial. It’s important to balance keeping your customers happy with ensuring that your business has a healthy cash flow, which are two factors that should influence how you choose to deal with invoices and billing. One effective solution is known as progress billing.

What is progress billing, exactly? Put simply, it involves regularly charging your customers for the services that you are providing, rather than waiting until the entire project is completed. This stands in contrast to more traditional methods, such as billing in arrears, which involve waiting until the end of a project to charge customers.

Keep reading to find out more about the progress billing meaning and how this could help your business.

What is progress billing?

The first and most important concept to learn is the progress billing meaning. This is a new business practice that emerged from two key problems:

1. It can take a long time for a project to be completed, which can have a detrimental effect on your cash flow, something that can be particularly damaging for a small business.

2. You need to place a lot of trust in your customers when waiting until the end of the project for payment, which exposes your business to significant risk.

To respond to these issues associated with billing in arrears, progress billing involves regularly charging your customers at predefined points. This might be at regular time intervals, or perhaps at certain project milestones. It’s a great way to protect your cash flow without requiring your customers to pay in advance.

Why should you use progress billing?

Whether you decide to use progress billing or another billing process depends on the specific needs of your business. However, there are a number of advantages to progress billing that might convince you that it’s the right way to go. These include:

Setting expectations for the project

This can be a huge advantage for both you and your customers. You get a better idea of what needs to be delivered and when, and the customers can get a clearer picture of when they can expect work to be completed.

Managing finances effectively

With large-scale projects, you often have to pay out a large amount of overheads in advance. With progress billing, you can ensure that you have a consistent flow of cash coming in to pay for whatever materials or other costs you need to complete the work.

Benefits for customers

Not only does progress billing offer attractive advantages for you, but it also is a great option for customers. Rather than having to pay in advance for a large-scale project, they can simply make more manageable regular payments.

How to use progress billing

Now that you know a little more about progress billing, you might be wondering how you can use this exactly. There are various steps involved in this process:

Negotiate the contract

Before beginning any work, it’s important to get a clear contract drawn up. You should specify exactly when payments will be made, whether this is based on time intervals or on the completion of milestones.

Develop a progress timeline

In your progress timeline, you can detail when the customer can expect certain tasks to be complete, giving you both a better idea of the workflow.

Issue regular progress billing invoices

Once the terms are agreed upon, you should regularly submit progress billing invoices. You may choose to do this manually, or you can use an automated payment solution such as GoCardless to send these and automatically collect payments on the due date.

Industries that benefit from progress billing

You might be wondering what industries use progress invoicing. In generally, it is associated with high-value, long-term projects, and therefore tends to be used in the following industries:

• Construction

• Aerospace

• Manufacturing

• Engineering

• Web development and design

• Government defence

This is just a small selection of industries that use progress invoicing, and in practice it can be used by businesses operating across a wide range of domains.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.