Milestone Billing

Term Definition
Milestone billing means distributing the total amount to be billed over multiple billing dates in the billing plan when pre-defined milestones are reached. As each milestone is successfully reached, the customer is billed either a percentage of the entire project cost or simply a pre-defined amount agreed upon prior to the project.

Organizations may use performance-based milestone billing to assure clients that they are invested in successfully meeting the client's need or resolving their problem. Tying fees to performance aligns the goals of the organization and its customer, as the organization is only paid when the promised results are achieved. For example, a contract might require billing ½ of the contract amount upon completion of field research, a second payment of 1/3 at completion of the first draft report, and the final 1/3 upon delivery of the research report. Estimated dates for each of the milestones would be outlined in advance.

Milestone billing may also be used for high dollar projects or projects that will last for a long period of time. In the example of a $100,000 project, the organization might require a $10,000 payment at the start of the contract, $20,000 at the midpoint and $70,000 at the contract conclusion.

Milestone billing is good for clients, as they are given the confidence that the contractor has a financial incentive to complete the project requirements as agreed upon. Contractors benefit in that the client has an incentive to pay. In essence, milestone billing creates a partnership between the client and contractor.

Many consultants may use milestone billing and fixed billing in their practices. Typically milestone billing will be used for larger scale projects, as it provides them with a steady cash flow over the life of the project. If a project will take several months to complete, the consultant's resources may be utilized to capacity. Milestone billing provides them with revenue at fixed points, rather than waiting until the completion to get one large payment.

Area of Application
Professional Service Billing
Time and Billing

Related Terms
Date Based Milestone
Stage Based Milestone

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