Milestone billing is a time based billing and invoicing and structure popular in professional services management. In fact, it’s so beneficial that leading companies like Boeing have included it in their invoicing and payment process guidelines.
In this article, we’ll provide a well-rounded look at milestone billing and the benefits and challenges of this time-based billing structure. Keep reading to discover whether milestone billing is right for your company and projects and learn how you can get started using Wrike.
What is milestone billing?
Milestones are sub-goals that help achieve the main project goal. Milestone billing is a payment cycle that uses agreed-upon events or deliverables as billing deadlines. For example, instead of invoicing every two weeks, a freelance writer may set up a milestone billing agreement where the client pays for each piece of content as it’s written.
The amount types (percentage, dollar value, etc.) and milestones (project phase completion, shipped goods, etc.) are determined by the parties involved and will reflect the unique needs of the agreement. Because of this, the details of milestone billing plans are often project-specific and determined on a case by case basis.
What are the benefits of milestone accounting?
One of the main benefits of milestone accounting is that it spaces out payments so that larger project fees are more manageable for clients. It also helps business owners maintain a steady cash flow over many months and set specific goals service providers know to work toward.
Companies often use milestone billing because it helps structure budgets and ensures everyone stays within them even if the project takes longer than anticipated. This payroll method also helps both sides see a concrete relationship between payment and progress.
What are the challenges of milestone billing and accounting?
Despite the considerable benefits, it isn’t for everyone. The major challenges of milestone billing and accounting revolve around projects that lack concrete deliverables.
Ongoing work such as administrative assistance or marketing campaign management isn’t complete once they’re done with one specific set of tasks, hence the need for salary or hourly compensation.
In examples like these, billing by work completed doesn’t equate to the value provided so milestone accounting isn’t the best option.
How to set up a milestone payment schedule
- Define your timeline, budget, and main project objectives so that all of your collaborators are on the same page about these big picture concerns.
- Ask for input on what deliverables to expect by when.
- Turn deliverables into milestones by assigning them as tasks with their own individual timelines and effort estimations.
- Assign a monetary value to each milestone.
- Determine the invoicing method, payment method, and payment terms that will be used for each milestone.
- Create contingency plans for how you’ll adjust milestones in the event that an issue arises or a great idea moves the project in a new direction.
- Choose a project time tracking tool.
- Determine how you’ll handle payments if a milestone is eliminated or the workload associated with it is somehow decreased.
- Set up a visual project management system so all collaborators can keep track of upcoming milestone deadlines, follow up on payments, and discuss project updates in real-time so no one misses a beat.
How does Wrike help with client billing?
Wrike helps with client billing in two major ways. Firstly, Wrike’s project management features can organize, track, and adjust milestones on a given timeline. Tasks can be given custom durations and effort metrics like time or difficulty. And if there are any unexpected delays, it’s easy to visualize the remaining timeline, drag and drop milestones as needed, and keep both the project and accounting moving forward with little interruption.
You may even want to divide billing and invoice development into sprints like Sarah Ghosh, finance director of SweetTree Home Care Services, did during their massive accounting overhaul project after a large growth period.
The second way Wrike helps with client billing is through time reporting and invoicing. Wrike allows collaborators to track their time right within the project. That information is automatically added to invoicing information, which makes billing and invoicing faster for everyone. Plus, it helps hold team members accountable for their tasks, which is known to improve company culture, profitability, and productivity.
Milestone billing vs progress billing: what are the alternatives to milestone billing?
Alternatives to milestone billing include fixed or project-based billing and time and materials billing. Project-based billing is one lump sum paid in full or through installments. Time and materials billing is the sum of the materials purchased plus the hourly labor rate spent on the task or assignment. If your project has quite a long duration, you can also choose to use a progress billing model, where payment is made for the portion of the project completed to date.
How do I know if milestone billing is right for my company?
Milestone billing is right for your company if you often conduct mid to long term projects and are looking to mitigate scope creep as much as possible. It’s also great for defining objectives, deliverables, and deadlines.
How does time tracking relate to milestone billing?
Time tracking is useful to note alongside milestone billing because every milestone will have its own unique duration and effort involved. If there is a discrepancy between the estimated versus actual time spent on a milestone, these issues can be resolved while remaining actively engaged in a project so that everyone is compensated fairly without missing a beat.
Alleviate cash flow issues with milestone billing and Wrike
Now that you know what milestone billing is, how to do it, and whether or not it’s right for your project, it’s time to start reaping its chief benefit: alleviating cash flow issues. Before you begin your next project, make sure you give Wrike’s milestone billing tools a try.
With time tracking, visual progress dashboards, and accurate forecasting capabilities, Wrike’s two-week trial will show you how to solve your biggest financial challenges.