Updated January, 2025
What is Milestone Billing
How Milestone Billing Works
How to Set Up Milestone Billing
Milestone Billing Template
Milestone Billing Best Practices
How to Automate Milestone Billing
Milestone billing is a strategic invoicing approach tailored for Architecture and Engineering firms, offering better cash flow management and aligning payments with project progress. Sometimes referred to as phased billing, it is a common billing model for Engineering, Architecture, and other professional service businesses due to these industries’ project-driven revenues. But is it the right fit for your A&E firm?
Phased billing is an excellent option when a project has defined objectives, deadlines, and deliverables. Tying your billing to milestones, phase completion, or other deadlines connects revenue with work completed and can address some specific pain points. It is a logical billing method that clients can understand and agree to, which could minimize disputes throughout a project. It also can help with irregular cash flow compared to hourly billing.
In this article, we will define milestone billing, discuss when you may want to use it, when it may not be the right fit, and how it addresses the pain points mentioned above.
Milestone billing is a payment method where clients are invoiced at key project stages or deliverables. Also called phased billing, this model ties payments to progress, ensuring firms get paid as work is completed. It helps manage cash flow, keeps projects on track, and provides transparency for both businesses and clients.
When a milestone is reached, your client is billed for a designated amount of the total amount of the project. Milestones can be billed for services that involve multiple work orders and resources delivered over time.
For example, you may break down a project into the following phases:
For each of those phases, you may then set up a 50% Deliverable and 100% Deliverable. In Milestone billing you would then invoice the client after each deliverable is sent, and each invoice would be for 50% of the total fee for that phase of work. Ultimately, you are taking the full project fee and breaking it down into smaller chunks. This is in contrast to project billing where you may request a down payment upfront to begin work, but then invoice the remainder of the fee upon completion of the project.
Each milestone is essentially a sub-goal that is a step along the path to completing a distinct phase of a project, and ultimately to achieving the main project goal. When you use the phased billing model, instead of invoicing every couple of weeks, you set up a phased billing agreement where your client pays for each milestone/deadline as it’s reached.
You don’t have to use 50% and 100% milestones. Set milestones that fit your project’s length, complexity, tasks, and scope. A breakdown like 30%, 60%, and 100% may work better. Especially for larger projects with longer phases. For example, in a big project schematic design may be broken down into 30-60-90% milestones. Plan strategically to avoid long gaps between invoices and keep payments flowing smoothly.
The amount due at each milestone and each deadline can differ from project to project, this model is project-specific and will be unique to each new case. Your project managers must stay on top of the project schedule and deliverables and communicate with the billing department when it is time to send an invoice and for how much.
Download your Milstone Billing Schedule Template
This is how I would break down a project (let's assume a design fee of $200,000) when I was running an architecture firm and managing projects. I started by breaking down the project into phases, assigned a percentage of the overall project scope to each phase, and assigned a fee based on the set percentage. For example:
Pre-design: 5%
Fee = $10,000Schematic Design: 15%
Fee = $30,000Design Development: 20%
Fee = $40,000Construction Documents: 35%
Fee = $70,000Permitting/Entitlements/Approvals: 5%
Fee = $10,000Bidding and Negotiation: 5%
Fee = $10,000Construction Administration: 15%
Fee = $30,000
Creating strategic milestones ensures steady invoicing and aligns with project progress. Based on the above breakdown of phases and percentages, I would create milestones for each of the phases, and calculate the appropriate fee for each milestone:
Pre-Design:
Single Milestone: Project kickoff, site analysis, programming, client vision finalized.
Invoice = $10,000
(I personally would request 100% of this phase's fee to be paid upfront to kickoff the project - acting as a down payment.)Schematic Design:
30% Milestone – Initial concepts reviewed with client
Invoice = $10,000
60% Milestone – Revised design incorporating feedback
Invoice = $10,000
100% Milestone – Final schematic design approved
Invoice = $10,000Design Development:
30% Milestone – Major systems and materials defined
Invoice = $12,000
60% Milestone – Coordination with consultants completed
Invoice = $12,000
100% Milestone – Finalized design ready for construction documents
Invoice = $16,000Construction Documents:
30% Milestone – Key drawings developed (plans, elevations, sections)
Invoice = $21,000
60% Milestone – Detailed drawings completed, specifications in progress
Invoice = $21,000
90% Milestone – Full set ready for permit submission
Invoice = $21,000
100% Milestone – Final construction documents issued
Invoice = $7,000Permitting/Entitlements/Approvals:
50% Milestone – Permit application submitted
Invoice = $5,000
100% Milestone – Permit/approvals secured
Invoice = $5,000Bidding & Negotiation:
50% Milestone – Bids received, contractor interviews completed
Invoice = $5,000
100% Milestone – Contract signed with selected builder
Invoice = $5,000Construction Administration:
Monthly or Progress-Based Milestones – Payments tied to site visits, contractor payments, and key construction phases.
Invoice = $2,000 / month (estimating a 14-month construction schedule)
100% Milestone – Final walk-through and project closeout
Invoice = $2,000
I would then share this breakdown with the clients and consultant team to get buy-in and approvals. Once everyone agreed to the project structure, I would set up all the invoices in advance within my project management software. At each milestone, the team would deliver the defined scope, and I'd click send on the assigned invoice. It was easy and predictable.
This structure prevents long gaps between invoices while ensuring payments align with deliverables.
How Milestone Billing Works
Milestone billing is a structured approach to invoicing that aligns payments with project progress. Instead of billing at arbitrary intervals, you tie invoices to specific project phases or deliverables. Each milestone represents a significant project achievement, ensuring that payments reflect the value delivered at each stage. This approach improves cash flow and adds transparency, keeping clients and teams aligned. By strategically planning milestones, you can streamline operations, reduce disputes, and ensure financial stability throughout the project lifecycle.
Why Milestone Billing works:
Aligns Payments with Progress: Invoices are tied to specific project phases or deliverables, ensuring payments reflect the value delivered.
Enhances Cash Flow: Structured billing ensures steady income throughout long-term projects, reducing financial strain.
Improves Transparency: Clients see what they’re paying for at each stage, building trust and reducing disputes.
Simplifies Operations: By linking payments to defined milestones, firms streamline invoicing and focus on deliverables.
Supports Financial Stability: Regular milestone payments help firms manage expenses and maintain profitability.
Milestone billing is an effective invoicing strategy for architecture and engineering firms, especially for long-term projects that span months or years and are broken down into phases.
This method is particularly useful for projects with clearly defined deliverables or those funded by construction loans or grant funds. Aligning invoices with project progress and funding disbursements helps A&E firms manage their cash flow while providing transparency for clients. Milestone billing also mitigates financial risk in high-stakes projects prone to delays or scope changes by ensuring payments are linked to progress rather than time-based billing which can be highly variable and unpredictable. For instance, projects with multiple stakeholders or complex financing and approvals benefit greatly from this structured billing approach.
In addition to the financial advantages described above, milestone billing fosters trust and collaboration between firms and their clients. By linking payments to specific outcomes, clients can see exactly what they’re paying for at each stage, reducing disputes and improving satisfaction. For A&E firms, this system allows clear documentation of progress, making it easier to track project profitability and ensure all parties remain aligned. To implement milestone billing successfully, firms should establish clear contracts, define milestones upfront, and maintain open communication with clients throughout the project.
While milestone billing offers many advantages, it’s not always the best fit for every project or client. In many situations, I wouldn't recommend it for A&E firms. If your project doesn’t have concrete deliverables or the schedule isn't clearly defined, milestone billing might not be the best option. If your engagement is open-ended or ongoing, without any milestones, a monthly billing cycle would make more sense as your billing strategy.
For smaller projects with quick turnaround times, milestone billing may complicate the invoicing process unnecessarily. For example, if a project only requires a few weeks or even a couple of months to complete, setting up milestones could create administrative overhead without adding value. In such cases, a lump-sum payment at project kickoff and a balance due at project completion may be more efficient and straightforward. This can save significant administrative time and expense for both you and your client
Projects with ambiguous deliverables or evolving scopes are also poor candidates for milestone billing. In these scenarios, defining specific milestones upfront can be difficult, and tying payments to uncertain outcomes can lead to disputes with clients or negative impacts on cash flow for your A&E firm. For instance, a feasibility study or preliminary consultation where outcomes are fluid may benefit more from a fixed fee structure, or time-and-materials billing to allow for flexibility as the project progresses.
Finally, milestone billing might not be suitable for clients or firms who prefer simpler or more predictable payment terms. Clients unfamiliar with the A&E industry or those with limited budgets may find milestone billing confusing or burdensome. For these clients, a flat fee with a billing structure tied to pre-determined time periods can simplify the process and ensure a positive working relationship. When I was running my firm, I evolved to use this approach for almost every project. We worked out a fixed price agreement and then broke that total fee into fixed monthly payments. This gave both us and our clients cost certainty and predictability for monthly costs and cash flow. It simplified our accounting and made our revenue much more regular and predictable.
For example, I took on a custom residential design project. I offered three-tiered pricing options and the clients chose one with a total fixed price of $105,000 for the architectural design services. We then broke this amount down into 10 monthly payments of $10,500 each. All reimbursable and consultant fees were in addition to this fixed price and were invoiced separately. Since the monthly fee was fixed, I was able to set up automated invoices in our billing system and didn't have to think about it again. On the first business day of the month, the system automatically sent the appropriate invoice to the client. Typically the clients paid within a few days of receiving the invoice since they were expecting it. This was a huge improvement from the unpredictability of sending invoices at different times and for different amounts.
When considering whether to use milestone billing, it’s essential to assess the project’s complexity, client preferences, the level of administrative effort required, and the benefits or drawbacks to your business.
You also may not want to use milestone billing if your firm is struggling with cash flow. Since project schedules can be unpredictable, and milestones or deadlines could shift, it is hard to ensure you will have consistent revenue coming in. When your expenses are typically fixed on a monthly cadence (payroll, rent, software subscriptions, etc.) you may also want your invoicing to match that rhythm. In this case, billing monthly for the percent complete or time worked would be preferred to milestone billing.
In short, break your project into phases, define the milestones for each phase, tie these milestone dates to deliverables, and align payment schedules with these milestones in a detailed agreement. This ensures transparency, simplifies invoicing and keeps everyone on the same page.
Start By Defining Milestones
Clearly define payment requirements in the agreement for professional services with the client. The agreement should define the payment timing/interval and the basis of the invoice. The basis might be the percentage of completion of the phase or milestones or an estimate of hours (see discussion in the section above.)
One approach that can help foster payment is to provide a fee schedule up front that relates to the project schedule. The fee schedule can be used as a back-up to the invoice. It is especially helpful for complex projects with overlapping phases.
- David B. Richards, FAIA : From the article Getting Paid on AIA.org
Milestones are the backbone of phased billing. Each marks a critical project achievement, like completing the schematic design or submitting construction documents. These clear, measurable goals ensure billing aligns with progress, making it easier for clients to see the value of your work. Well-defined milestones keep your projects organized, your cash flow steady, and your client relationships strong.
Once a project kicks off, hold a meeting with all stakeholders to outline the overall project and desired outcomes. Then break down the larger scope into individual phases. Together with your client, define a few milestones within each phase that will trigger a deliverable from your firm to the client, and trigger an invoice being due. Defining this at the start of a project creates transparency and sets realistic expectations for all parties regarding fee disbursements.
When setting up milestone billing, first break down the total project into phases, and define what percentage of the total project scope each phase represents. For instance, a schematic design phase could be 15-20% of the total project here Construction Documents could be 30-40%. Once the phases are defined, assign a percentage of the total project fee to each phase based on its workload, complexity, and duration. From there you should break the phases into strategic milestones, such as 30%, 60%, and 100%. Each of these milestones would correlate with a specific deliverable - like a drawing set - as well as an invoice. Breaking down a larger project into these bite-size pieces ensures steady cash flow and aligns payments with progress. This approach prevents long gaps between invoices while keeping the project financially sustainable.
To keep projects on track and ensure timely payments, assign specific dates for each milestone based on the project schedule. This is best done at the outset of the project and communicated to the entire project team including internal resources and all external stakeholders and consultants. Align these dates with key deliverables, such as design approvals, permit submissions, or construction phases. Setting clear deadlines keeps the team accountable, helps clients plan ahead, and reduces delays that could impact cash flow.
With the milestones set and agreed to, you now break down the overall project fee into smaller chunks that correspond to each milestone. List out each milestone and the corresponding fee. Calculate these using a percentage of the overall project that that fee represents. Once this table is set, share it with your clients and other stakeholders that it impacts to get approval. Now all parties are on the same page and have expectations for the financial side of the project. This approach will reduce conflicts and confusion later on in the project so it is important to get this clarified right from the start.
To streamline milestone billing, set up your billing system to automate invoices and track payments based on the defined milestones. Use software that allows you to assign percentages to each milestone, set due dates, and send reminders. A well-configured system reduces manual work, minimizes errors, and ensures a steady cash flow without delays. In this way, your progress billing will be simple and clear from the outset of your project and you can forecast future revenue.
Tracking project progress is essential for ensuring milestone billing runs smoothly. Use project management tools to monitor task completion, approval timelines, and budget usage. Regular progress checks help align deliverables with invoices, reducing disputes and keeping revenue steady. With proper setup, you can also easily track the contract amount, invoiced amount to date, and remaining balance so you can project cash flow and know exactly how much work is left to deliver.
Establishing a clear approval process for deliverables and payments is crucial for project success. A structured workflow ensures that all project outputs meet the required standards before acceptance, reducing delays and disputes. Firms that implement formal approval steps see faster invoice processing and fewer payment disputes, improving cash flow and project efficiency.
Implementing milestone billing effectively requires strategy and precision. Done right, it can improve cash flow, foster stronger client relationships, and ensure project profitability. Based on user data from our software, published in the 2024 BQE ENGINEERING Benchmarking Report, firms using an automated billing process along with e-payments see 30% faster payment cycles, with 41.6% of invoices being paid within 30 days.
To see invoices get paid faster, and improve your cash flow, follow these best practices for how to make milestone billing work for your A&E firm:
Define Clear Milestones: Break down your project phases into measurable, client-approved milestones (e.g., 50% schematic design, 100% schematic design, 50% design development, 100% design development, 50% construction documents, 100% construction documents, and so on). Define all of the milestones and get sign-off from your client during the onboarding process for each new project. This clarity reduces confusion and aligns expectations.
Tie Payments to Deliverables: Assign specific payment amounts or percentages to each milestone. This ensures your billing reflects progress and value delivered at every stage. It also makes the financial side of your project transparent from the get-go. Everyone knows what to expect and can plan for predictable revenue and expenses.
Maintain a Realistic Schedule: Avoid long gaps between milestones to keep cash flow steady. Typically, you want to have at least one milestone every month. Align your invoicing schedule with project timelines to prevent financial strain. Make sure your project managers are part of this process so they can keep the project on track.
Use Firm Management Software: Automate your milestone billing process with financial management software. Set up notifications, automated invoicing, track deliverables, and generate real-time financial reports to save time and reduce errors. Make sure automated reports are sent to the right people to keep the project on track.
Communicate Regularly: Keep clients informed of milestone progress and upcoming invoices. Transparent communication builds trust and minimizes billing disputes.
Document Everything: Include milestone billing terms in your contracts, specifying deliverables, payment amounts, timelines, and other terms and conditions. Written agreements protect your firm and ensure alignment with clients.
By following these best practices, you can turn milestone billing into a powerful tool that simplifies your workflow, improves cash flow, helps you collect payments faster, and enhances client satisfaction.
When I ran a small architecture firm in Portland, Oregon, we used milestone billing on the larger, more complex projects we worked on. The advantage we found was that it led to better client relationships than when we worked on hourly-billed projects. By having conversations about fees and milestone payment schedules and tying the finances to delivering work, clients felt more comfortable paying invoices and tended to pay much faster. We also saw a dramatic improvement in the predictability of our revenue.
When billing hourly we had very little insight into how much we would bring in when looking at future months. It was hard to predict how much time we would spend on each project. When moving to milestone billing, we worked with our clients upfront to set the project schedule and payment schedule. Meaning as a firm owner, I could build a spreadsheet that showed exactly how much revenue each project - and the firm as a whole - would generate in future months. Looking forward 12 months, I could see when we were over-booked and may need to hire, or when our revenue dropped off, so I knew we had to increase our business development efforts.
This insight allowed me to better manage our resources and plan. It took a lot of the stress off of leading the firm. Seeing what was coming gave me a feeling of huge relief when compared to the early years of running the firm when it felt like we were flying blind.
To assist you in initiating your milestone billing process, we have developed a user-friendly spreadsheet template. This tool is designed to provide a detailed framework for organizing and managing your milestone billing schedules and invoice breakdowns per project. It includes sections for defining project phases, setting milestones, assigning due dates, and calculating payment percentages and amounts for each milestone.
Download the Milestone Billing Plan Template
Milestone billing offers A&E firms a structured approach to invoicing, aligning payments with project progress. This can improve your business operations because it provides financial stability and transparency, but it’s essential to understand both its advantages and potential challenges. Let’s break down the benefits, challenges, and how automation can make milestone billing more effective.
Improved Cash Flow.
Progress billing ensures steady revenue throughout a project by tying payments to progress and deliverables. This helps firms cover operational expenses like payroll, software subscriptions, and rent regularly. Be sure to set at least one milestone each month to maintain a steady revenue stream.
Enhanced Client Relationships.
By linking payments to clear deliverables, clients can see the value of your work at every stage. This transparency builds trust and reduces disputes, also helping you get paid faster.
Reduced Financial Risk.
Billing by milestones minimizes the risk of non-payment or late payment, as invoices are sent for completed work rather than relying on arbitrary timelines.
Alignment with Project Complexity.
For large, multi-phase projects, milestone billing aligns perfectly with project workflows, making it easier to manage budgets and track profitability.
Simplified Administrative Work.
Because the milestones and associated fees are defined from the start of the project, it cuts down on administrative time throughout the project. Instead of having to track down time sheets or estimate percent complete, the amount billed at each milestone is already defined.
More Administrative Work Up Front
Setting up milestones and tracking progress can be time-consuming at the outset of a project. Without a streamlined system, this could be cumbersome, especially for firms that don't have administrative staff and rely on principals or project managers to set up projects in their software systems.
Unpredictability Can Disrupt Cash Flow
Delays in project progress or approval of deliverables can lead to gaps in revenue, potentially causing financial strain. This is why it is important to clearly define each milestone and get sign-off by the clients before kicking off the project.
Client Resistance
Some clients prefer simpler billing models, such as fixed monthly fees, or lump-sum payments, and could find milestone billing inconvenient as it could be less predictable when expenses will be incurred. Other clients may prefer hourly fees. The fee structure and payment schedule must be negotiated as part of the contract so conflicts don't arise.
Scope Changes
Projects with evolving scopes can make milestone definitions difficult to finalize, potentially leading to disputes or the need for contract adjustments. It is vital that your team understands what is included in each milestone deliverable and identifies when any additional services are being requested so you can charge for that work. Even when scope changes don't occur milestone adjustments may still be necessary for complex projects that have an evolving schedule. This is common as most projects have unforeseen challenges pop up along the way, ultimately requiring flexibility from both the design team and client to make the appropriate milestone adjustments as needed.
Streamline the Process & Save Time
Firm management software like BQE CORE automates milestone billing by integrating invoicing with project progress. This reduces manual work and ensures invoices are accurate and faster to create and send.
Real-Time Tracking
Automated systems provide real-time visibility into project milestones, deliverables, and payments. This helps project managers stay on top of deadlines and ensures invoices are sent promptly, and which invoices are still outstanding.
Reduce Errors
Automation minimizes the risk of human error in invoicing, such as incorrect amounts, missing milestones, guessing at percent complete, or mistakes in time sheets. Automation improves accuracy and client satisfaction.
Customizable Workflows
Software tools allow firms to customize billing schedules based on project phases, contract types, and payment percentages, making it easy to adapt to different project needs.
Building the business case for milestone billing involves weighing its clear benefits against potential challenges. By automating the process with the right tools, firms can overcome administrative hurdles, improve cash flow predictability, and enhance client relationships. Whether you’re managing large-scale projects or complex workflows, milestone billing can be a powerful strategy for long-term success.
Automating milestone billing streamlines your invoicing process, ensuring accuracy, consistency, and timely payments. The first step is to set up the milestones tied to project phases or deliverables in your invoicing software. Each milestone should be linked to a specific payment amount or percentage of the total project fee. Once these milestones are established, firm management software with integrated billing tools, like BQE CORE simplifies the rest.
Break Down Projects
Define clear milestones tied to deliverables and set payment amounts for each.
Create a Billing Schedule
Align milestones with project timelines and set realistic due dates.
Automate Invoices
Schedule invoices to generate automatically when milestones are completed.
Track in Real-Time
Use dashboards to monitor progress and address delays before they impact billing.
Keep Clients Updated
Send automated progress updates and invoice notifications to maintain transparency.
Review and Adjust
Regularly evaluate your process and refine templates or schedules as needed.
Another important step outside the specifics of a project is to have the systems in place to execute milestone billing easily and consistently. This involves:
Select Software
Use firm management tools like BQE CORE to manage projects, automate billing, track progress, and facilitate invoice reporting.
Set Up Templates
Create reusable project schedules and milestone templates for common project types to save time. Also, make use of templates for your invoices.
Using the firm management software, you can create project schedules that align milestones with deadlines, enabling you to track progress in real time and set up automated invoicing, so when a milestone is completed, the system automatically generates and sends the invoice to your client. This reduces manual effort and eliminates the risk of delays or errors in time-based billing or poor cash flow due to project billing. This can have a dramatic impact on your business's cash flow. When combined with e-payments you can expect to get paid faster and on a more regular basis when compared to manual invoicing processes.
Automation enhances financial visibility. Firm management platforms provide dashboards and reports that show outstanding invoices, cash flow projections, and milestone progress at a glance. This data empowers your team to stay proactive, ensuring no payment opportunities are missed.
By leveraging automation, you save time, reduce administrative overhead, and create a smoother experience for your team and clients. To see these benefits in action, consider adopting a solution like BQE CORE to revolutionize your milestone billing process.
This video explains how to set up milestone billing schedules in BQE CORE. This includes laying out the invoices, setting dates, associating fees or percentages, creating automated notifications, and using features like batch invoicing.
BQE CORE lets you create unique schedules for project milestones both in the project center and within the billing tools. This allows you to build a system that easily connects invoicing your clients with the completion of specific milestones. The BQE billing and invoicing tools include:
Invoice values are based on fixed amounts or % of the contract based on the phase and milestone.
Distribute services and expenses across one or multiple phases or milestones.
Implement milestone billing for standard contract types: hourly, fixed fee, cost plus, unit cost, and percentage.
Automated Reports for project invoices, expenses, time tracking, cash flow, and more.
You can ensure your clients receive project invoices on time, every time. With BQE CORE you can create a customizable process flow that meets your firm's unique needs. Out of the box, our software offers a range of invoicing tools to save you time including:
20+ standard invoices & customizable templates.
Create invoices based on preferred schedule and frequency automatically.
Batch invoicing which cuts down manual processes and saves administrative time.
Schedule automatic invoicing based on dates, phases, percentage complete, contract types, and more.
Automate reports to be sent to the right people for review.
Not all firm management software has the phased billing capabilities to help you easily incorporate milestone billing into your projects. And with so many firms working on large and complex projects, this feature is incredibly important. Especially as firms grow and scale. BQE CORE not only includes phased billing, but also provides an all-in-one platform that incorporates accounting, invoicing, e-payments, time and expense tracking, project management, HR, CRM, and more.
Bringing your billing processes into an all-in-one system saves time, reduces costs, and gives you up-to-date accurate data so you can make better decisions faster to keep your business on track.
Streamline your billing process, add automation, and enhance client relationships with BQE CORE. Schedule a free demo today and see how milestone billing can transform your firm.