Progressive Milestone Billing: Examples

Percentage of Completion

A construction company enters into a 12-month contract worth 120,000.00. The details are as follows: 

• Total amount: 120,000.00
• Start date: January 01, 2020
• End date: December 31, 2020
• Billing frequency: Monthly

The percentage of completion method to determine the invoice amount for each billing period. The billing periods progress as follows: 

• January 01 to January 31: Estimated 10 % of project to be completed. The completion entered was 5%, and the invoice to the customer was 6,000.00.
• February 01 to February 28: No material progress on the project. No invoice sent to the customer.
• March 01 to March 31: Estimated 23% of project to be completed. The invoice for March is calculated as follows: 23% - 10% = 13%. The invoice to the customer is 13% of 120,000.00 = 15,600.00.
• April 01 to April 30: Re-estimated the project cost to 20%. Invoices sent to the customer are more than the actual. As a result, the customer is given a credit memo or the customer account receives a credit of 3% for the following billing period.
• In October, the project is 100% completed, two months earlier. The invoice for October is fro 100% completion, and any remaining amount is on the invoice for the customer, and the contract is terminated.

Milestone Billing

A company enters a software licensing contract with a customer. In the transition period the vendor pays the company 100,000.00 to develop a product. The project is for six months and has seven milestones. Each milestone has its own budget and invoices for each milestone is created separately after it is completed. All milestones occur concurrently. Invoices for each milestone is calculated for the number of hours submitted against each milestone.

The amount of the project is fixed at 100,000.00 and cannot be changed. Each milestone has an estimated budgeted amount of hours. The actual cost of each milestone can defer from the budgeted amount as the actual hours are submitted. Based on the actual hours entered, adjustments can be made towards the end of the project when it becomes apparent that adjustments are needed.

Adjustment Contract

A construction company enters into a five-year fixed price contract for 100,000.00. Invoices are based on the percentage of completion method. At the end of four years, the contract is renegotiated and the amount is increased to 120,000.00 at the end, due to the large increase of construction materials. The new contract amount is used for calculating invoice amounts.

Calculating Percentage of Completion

A milestone template is set up as follows:

• Milestone No.: Template1
• Allocation Method: Percentage
• Is Progressive is turned on

Template Item	Frequency	Allocation Percent
Event 1 or Item 1	Monthly	20
Event 2 or Item 2	One Time	25
Event 3 or Item 3	Quarterly	45

A billing schedule with the milestone parent amount of 1000.00 generates the following milestone child: 

Template Item	Frequency	Allocation Percent	Amount
Event 1 or Item 1	Monthly	100	1000.00

The billing details for the first milestone child item shows 12 billing lines (based on the end date of the billing schedule line). The percent of completion for January to April is updated as follows. The updated values for the percent of completion represents the completion of the whole project.

Billing Period	% of completion	Quantity	Unit Price (Amount/quantity)	Amount
Jan	10	1	100.00	100.00
Feb	30	1	200.00	200.00
March	40	1	100.00	100.00
Apr	40	1	0.00	0.00
May	0	1
June	0	1
July	0	1
Aug	0	1
Sep	0	1
Oct	0	1
Nov	0	1
Dec	0	1

When invoices are created, the invoice amount for each subsequent billing period is the total amount of the project to the current billing period subtracting any invoices that were previously given to the customer. Invoices for each billing period (January to April) are created as follows: 

Billing Month	Invoice Amount	Description
January	100.00	Total amount * 10% = 1000.00 * 10% =
February	200.00	% of completion is => 30% Total amount => 1000.00 * 30% - January invoice amount 300.00 - 100.00 =>  200.00
March	100.00	% of completion => 40% Total amount => 1000.00 * 40% - January + February invoice amounts 400.00 - 300.00 => 100.00
April	0.00	% of completion => 40% Total amount => 1000.00 * 40% - January + February + March invoice amounts 400.00 - 400.00 = 0.00 No invoice created for the customer because the % of completion of the project in April did not change.