Milestone billing: invoice a project in stages

A studio in Austin builds a website over ten weeks and sends one invoice at the end. For ten weeks it pays its own people and gets nothing. If the customer goes quiet in week nine, the studio is owed everything. Billing in stages fixes both problems. The price is the same; it is just paid in parts, each one when a clear piece of the work is done.

Why one invoice at the end is risky

• You carry all the cost. Wages, materials and software are paid for weeks before any money comes in.
• The whole amount is at risk. A dispute or a customer in trouble puts the full price in doubt, not one part of it.
• A big invoice is slow to pay. A large amount needs more approvals than three smaller ones.
• Problems come out late. A customer who has paid for a stage has looked at it and accepted it. One who pays at the end may raise everything at once.

Stages help the customer too. They never pay far ahead of the work, and each payment follows something they can see.

What makes a good milestone

A milestone is a point in the job that both sides can see has been reached. A good one is:

• Something delivered, not something felt. “Design approved in writing”, not “design mostly done”.
• In your hands. “Site ready for launch” is better than “site launched” if the launch date is the customer's choice.
• Spread out. Aim for a stage every two to four weeks, so no single invoice is too large.
• Matched to the work. The share billed at each stage should be close to the share of the work done by then.

Add one safety line for the stages that wait on the customer: “If feedback is not received within 10 working days, the stage is treated as approved and invoiced.” Without it, a slow reply from the customer delays your payment as well as the job.

How to split the price

Make the first stage a deposit, paid before work starts; our post on deposit invoices covers how much to ask for. Keep the last stage small enough that you could live with a delay, since the final payment is the one most often held back. A last stage of 10% to 30% is usual.

In building work, customers sometimes hold back a small share, often 5% to 10%, until a few months after the job is finished, in case of defects. If you agree to this, write down the amount and the date it is released, and bill it on that date like any other stage.

Agree the plan before you start

Put the stages in the quotation or the contract, so the customer accepts the price and the plan together. Wording you can copy:

• The plan: “The price of $12,000.00 is billed in three stages: 30% on signing, 40% when the design is approved, 30% when the site is ready to go live.”
• The terms: “Each stage is invoiced when it is reached and is due within 7 days.”
• Late payment: “Work on the next stage starts when the invoice for the stage before it is paid.”
• Stopping early: “If the project is stopped, stages already invoiced remain payable, and work done since the last stage is billed at the day rate.”

The third line is your real protection. It turns a late payment into a pause, not an argument, and a pause usually gets the invoice paid. For the due dates themselves, see invoice payment terms.

What each stage invoice should say

Each stage is a normal invoice with the next number in your series. It should let the customer place it in the plan at a glance:

• the project name;
• which stage it is, and how many there are: “Stage 2 of 3: Design approved”;
• its share and the full price: “40% of $12,000.00”;
• what has been paid so far and what is left on the project;
• its own due date, and the customer's purchase order number if they gave you one.

Send it on the day the stage is reached. An invoice sent two weeks after the milestone is paid two weeks later, and the next stage starts unpaid. More on timing in how to get paid faster.

Tax on stage invoices

Each stage invoice carries the tax on its own share, so the stages together carry the tax on the full price exactly once. In many countries, tax on a stage is due when you invoice it or are paid for it, not when the whole job ends. Some countries have special rules for long contracts and for building work. Ask your accountant how stage payments are treated where you are.

When the project changes

• Extra work. Do not hide it in a stage. Quote it, get a yes in writing, and bill it as its own invoice or as an added stage.
• Less work. Lower a stage that has not been invoiced yet. If it was already invoiced, use a credit note.
• A delay on the customer's side. Use your safety line: after the agreed number of days, invoice the stage.
• The project stops. Invoices already issued stay as they are. Bill the work done since the last stage, and close the project.
• A stage is disputed. Pause the next stage and settle it first. See when a customer disputes an invoice.

The short version

• One invoice at the end leaves you carrying the cost and the risk of the whole job.
• Split the price into stages tied to things both sides can see, about two to four weeks apart.
• Start with a deposit and keep the last stage small.
• Agree the stages in the quotation, with the rule that the next stage starts when the last one is paid.
• Each stage invoice names the project, the stage, its share, what was paid before and what is left.
• Invoice on the day the stage is reached.
• Bill extra work separately, and fix an issued stage with a credit note.