Most companies in the A/E and professional services industries bill clients using either milestone billing or project billing.
Both billing methods have benefits and disadvantages, and the one that’s right for you depends on your firm’s cash flow needs, project scope, relationships (e.g., working with repeat clients or new ones), and more.
With milestone billing, you bill your clients at predetermined project milestones. In contrast, the project billing method means you receive one lump-sum payment when all your project deliverables are complete.
Keep reading to learn more about these billing methods' benefits and use cases and how to choose the right one for your firm.
What is Milestone Billing?
Milestone billing, or phased billing, is a popular billing model that allows you to bill in phases of a project that a client agrees to. Before project work begins, create a customer agreement with milestones and a corresponding price schedule. Once your client agrees to the terms, start work, and for each milestone achieved, your client is billed for part of the project total. Milestones are treated like sub-goals to keep your project on track.
For example, a construction firm may utilize phased billing and collect payments at defined project steps, such as when permits are issued, materials arrive, final inspections are complete, and when the project is done. At each milestone, your client pays the predefined amount.
Milestone billing may be right for your firm if you work on mid-length to long-term projects where you want to define deadlines and deliverables, avoid scope creep, and keep your cash flow more predictable. Milestone billing is unique because the amount due at each checkpoint can vary depending on the project, client, and other factors. No two projects are entirely alike.
What is Project Billing?
Project-based billing is very straightforward. You offer your clients upfront pricing and a deadline, and once you complete all the deliverables, you receive your payment in full. For example, if you’re building someone's fence, you don’t receive any payment after gathering the materials, digging holes, or installing posts. You receive your money all at once when the fence is complete.
Project billing is generally reserved for short-term projects, while milestone billing is more suitable for longer projects. Finishing these types of projects under budget is a massive win for your company and an opportunity to enjoy a higher profit margin because the project price was already set.
In contrast, if you deviate from the agreed scope, the changes can cut your profits. Because of this, project billing is best for projects with minimal overhead, scope that’s unlike to change, and a clearly defined, short schedule.
Benefits of Milestone Billing
Before we go through the benefits of this phased billing process, let’s first look at a few reasons why companies don’t use it. If you’re working with a new client, they may not yet feel comfortable using this model. It can slow things down and cause tension every time you must wait for a client to approve a milestone and submit payment.
However, there are several benefits to using milestone billing, which is why it’s so popular with A/E and professional services sectors. As a business owner, you get your money sooner, and cash flow is steadier. Clients get transparency and more control over the process, and their payments to you are more manageable because they're spaced out.
Milestone billing can lead to more exciting opportunities for your firm, like larger, more expensive projects, without requiring clients to pay upfront. This type of phased billing may enable your firm to plan more accurate, structured projects too, where you must stick to your budget, hit every deadline, and better understand the relationship between your team’s progress and what you get paid.
The flexibility of your cash flow needs may be the primary factor in determining a project's billing method. With project billing, you can't count on cash coming in as you work on the project, so if that’s a concern, you may want to stick to milestone billing.
Benefits of Project Billing
For smaller projects, ones for newer clients, or work that doesn’t have many concrete deliverables, you may want to stick to project billing. Project billing also offers several benefits for both firms and clients.
Billing is uncomplicated, clients are left out of minute project details, and there's no back-and-forth communication at each milestone. But if your project's scope starts to creep and the project is longer term than you predicted, you may run into cash flow trouble. When using project billing, your firm needs to be as detailed about its project planning and budgeting as possible.
BQE CORE’s All-in-One Firm Management Dashboard
Your firm’s billing method for project work depends on your preferences and what your client is comfortable with. Some clients want more say in a project and updates on its progress, in which case, milestone billing is best. Other clients want to be left out of frequent updates and back-and-forth of a project, which is when project billing is the correct option.
Either way, using an all-in-one project management software enables your company to plan more precise projects, monitor budgets and resources as you work, track time and expenses, and bill clients all within one platform.
Using the milestone billing model, you must track your time accurately. As you report milestone updates to clients, they may be curious if there’s a discrepancy between a project phase’s estimated time vs. the actual time spent on it. Time tracking protects you in these situations.
Using BQE CORE’s time tracking software, you can easily capture travel time and expenses and tie them to projects or even individual tasks. Capture every second spent on a project through pause-and-play timecards, reduce hours spent on manual time entry with smart timecards, and reduce errors associated with manual reporting.
BQE CORE allows you to customize milestones, schedules, invoice values, and contract types for every project, then streamline your firm’s invoicing flow, so clients receive accurate invoices automatically and pay on time. The BQE CORE platform includes milestone billing, project management, time and expense tracking, payroll, invoicing, HR, and more, all in one centralized dashboard.
With BQE CORE, your firm has all the tools it needs to plan better projects, finish them profitably, and get paid accurately and on time. Try a free demo today to use automated milestone billing and all of BQE CORE’s other powerful features.