As businesses grow and take on larger, more complex projects, the way we manage accounts receivable needs to evolve too.
If you’re an AR manager, bookkeeper, or business owner dealing with milestone-based billing, you’ve likely encountered the unique challenges it presents. Today, let’s look at a common issue that can turn a lucrative project into a cash flow nightmare – and more importantly, how to prevent it.
The Milestone Muddle
Picture this: Your company lands a major contract. It’s a game-changer, with multiple phases and billing milestones spread over months or even years.
Exciting, right? Absolutely – until those milestone payments start slipping through the cracks.
The root of the problem often lies in a disconnect between project management, accounting systems, and client communication. Here’s what typically happens:
- Project managers track progress and work to hit milestones.
- These milestones don’t automatically trigger invoices in the accounting system. (Problem in the making)
- The client’s procurement and accounting departments aren’t synced with your project timeline.
- Result: delayed invoicing, missed payment deadlines, and a whole lot of headaches for you.
Sound familiar? Don’t worry – you’re not alone, and there are ways to tackle this. (And if you’re working on taking on bigger customers, here is what you need to know…)
Bridging the Gap: Strategies for Smooth Milestone Payments
1. Align Your Internal Systems
The first step is to ensure your project management and accounting systems are talking to each other. Consider implementing software that integrates both functions, automatically triggering invoices when milestones are marked as complete.
If a full system overhaul isn’t feasible, create a standardized process for project managers to notify the accounting team when milestones are reached. This could be as simple as a shared spreadsheet or a regular project status meeting.
2. Clear Communication with Clients
From the get-go, make sure your client’s procurement and accounting teams are in the loop about project milestones and associated payments.
Here’s how:
- Include a clear payment schedule in your contracts, linking each payment to specific project milestones.
- At the project kick-off, have a dedicated meeting with the client’s financial team to review the payment schedule.
- Send advance notices before each milestone is expected to be completed, giving the client’s AP department time to prepare.
3. Streamline Your Invoicing Process
When a milestone is reached, time is of the essence. Streamline your invoicing process to get those bills out the door quickly:
- Create invoice templates for each milestone in advance.
- Use automation tools to populate invoice details and send them out.
- Include all relevant project and milestone information on each invoice for easy reference.
4. Regular Check-ins and Forecasting
Institute a regular “AR health check” for ongoing projects:
- Review upcoming milestones and expected payments.
- Check in with project managers on timeline changes that might affect billing.
- Forecast potential delays or issues and proactively address them with the client.
5. Leverage Technology
Today’s AR management software often includes features specifically designed for milestone billing. These can help you:
- Set up automated reminders for upcoming and overdue milestone payments.
- Generate real-time reports on project financial status.
- Provide client portals where they can view upcoming milestones and payments.
When Payments Still Lag: The MetCredit Approach
Even with the best systems in place, sometimes payments still lag. That’s where we come in. At MetCredit, we understand the complexities of milestone-based projects and the unique challenges they present in B2B collections.
Our approach for these situations includes:
- Detailed review of project contracts and milestone agreements.
- Direct communication with the appropriate departments in your client’s organization.
- Negotiation of payment plans that align with project progress and cash flow realities.
- Preservation of business relationships while ensuring you get paid.
Remember, bringing in a collection agency isn’t admitting defeat – it’s a strategic move to protect your cash flow and focus your energy on what you do best: managing successful projects.
The Bottom Line
Milestone-based billing doesn’t have to be a roadblock to smooth cash flow. By aligning your internal processes, communicating clearly with clients, and leveraging the right tools, you can turn potential payment pitfalls into a steady stream of incoming revenue.
As you take on bigger projects and clients, keep these strategies in mind.
And if you ever find yourself in a tough spot with overdue milestone payments, remember my MetCredit team and I are here to help. We’ve got the experience and expertise to navigate even the most complex B2B collection scenarios.
Reach out anytime if you have questions or need professional advice from debt recovery experts. No pressure, ever.
Here’s to your success and smooth cash flow in all your future projects!
