Progress billing as a business opportunity
One of the fundamental questions for any company performing project or contract work is how will it be billed? What billing options will be made available?
There are a number of reasons why your company may want to bill based on progress, including:
- Quicker receipt of payment, rather than postponing invoicing until project completion.
- Greater flexibility for clients by allowing them to break lump sum payments into more manageable, periodic payments over the course of the project.
- More direct funding of project costs, such as equipment, labor, and subcontractors during work-in-progress (WIP).
- Protection against clients who may pay late or not at all, by limiting receivables exposure to a single phase rather than the whole project.
- Peace of mind for customers who want to make sure the job is finished properly before making final payment.
- Increased flexibility in terms of allowing for scope changes.
- Satisfaction of specific bid requirements.
Limitations of solutions not designed for progress billing
The challenge for many companies isn’t in determining if progress billing is required. That’s often fairly self-evident. The challenge typically arises in terms of effectively managing all the different aspects that go into successful progress billing.
The reality is that many, many accounting and billing programs simply do not have the capabilities to effectively manage progress billing. Different programs have different limitations. But there are a few main culprits. The ability to recognize deposits and partial payments in the accounts receivable portion of a billing system is the most basic of the common disqualifiers for programs not up to the task of progress billing. Progress billing also requires a number of integrations with other functional areas to work well. The ability to integrate information held in job costing, project management, time tracking, estimating, and even CRM modules is important to successful progress billing. These multiple integration points can make progress billing difficult to support as an add-on to a core accounting system. It’s not uncommon for progress billing to be one of the feature improvements that pushes project oriented businesses out of a more basic accounting or ERP program into a more industry specific and robust option.
Benefits of software designed specifically for progress billing
There are a number of benefits associated with managing your progress billing through a program designed specifically for the task:
- It can easily handle deposits and partial payments as components of a single project or work order, so that the relationship between all billings is clearly maintained.
- It provides a consistent platform, rather than having sales people or project managers work up their own manual invoices.
- It provides a mechanism to handle % of work calculations and other financial computations, which can decrease accounting errors.
- It offers a common platform, which can be more easily supported and trained on.
- It will provide tools to create, manage, and maintain contract documents.
- It centralizes a repository of previous contracts and invoice documents, allowing for ongoing reporting and templating.
The components of a progress billing system
Let’s take a closer look at some of the main functionality provided by a progress billing solution:
- Invoice creation. Creating consistent, attractive invoicing documents is a key part of any progress billing solution. Customizability is particularly important in a progress billing solution, where line items need to be clearly documented and additional information about job completion relayed.
- Accounts receivable and progress payments. An accounts receivable structure that allows for processing of partial payments is a critical differentiator of specifically adapted progress billing solutions. In many cases, progress billing will be as simple as collecting an upfront deposit and a final payment. However, the progress billing software should allow for further flexible division of payments. Typical payment divisions can be based on a percentage of completion, project milestone dependencies, specific project dates, and even project categories in terms of the type of work performed. The accounts receivable portion of a progress billing solution handles the application of any payment terms and the record keeping related to the receipt of payment.
- Project management and job cost integration. Integration with project management and job costing modules is important for a streamlined, efficient progress billing solution. Data passed from project management solutions can automatically create alerts when certain billing thresholds have been reached. Integrating with job cost solutions provides a more reliable and much less error prone method of identifying individual job charges than manually re-entering line items.
- Multiple payment methods. There are progress billing solutions designed to handle payment from a variety of different payment types, including: check, credit cards, and electronic funds transfers.
- AIA billing. AIA billing is a standardized methodology of progress billing created by the American Institute of Architects. Solutions that conform to AIA billing standards will include two key forms, G-702 and G-703.
Taking the next steps
If you have had the experience of trying to manage progress billing without the right software tools, you already know how frustrating that challenge can be. If you’re now at the point where you are ready to find which progress billing software solutions are right for you, we can help. Whether you are looking for a standalone progress billing package or a complete accounting system, through a brief phone call, our software specialists will look to better understand your business and software needs to help you locate the most relevant solutions for your requirements. Get started today!