Milestone and Progress Billing

Milestone billing and progress billing are payment structures used in contracts where work is delivered over an extended period. Instead of a single invoice on completion (which would require the buyer to fund the work entirely before any payment is received), or continuous monthly invoicing based on time and materials (which can be hard to budget), milestone billing ties payments to the achievement of defined contractual milestones. Progress billing is a variant where payment is based on the percentage of total project value completed during each billing period, regardless of whether a specific milestone has been reached.

These payment structures are common in construction contracts, software development projects, professional service engagements with long timelines, and manufacturing of customised or large-scale equipment. They serve the interests of both parties: the supplier receives staged cash flow rather than waiting until project completion; the buyer does not pay the full amount until value has been demonstrably delivered at each stage.

Processing milestone invoices in AP

Milestone invoices require a verification step that standard invoice processing does not: confirming that the milestone has actually been achieved before the payment is approved. The milestone definition should be in the contract -- "practical completion of structural steel frame," "delivery and installation of software module 3," "design documentation issued for client approval" -- and the project or operational team must confirm milestone achievement before the AP team can approve the invoice for payment.

The AP team's role is to route milestone invoices to the project or contract manager for milestone confirmation, with a clear request for written confirmation (not verbal) that the milestone criteria have been met. Once confirmation is received, the invoice proceeds through normal approval. Without this step, milestone invoices are being paid based solely on the supplier's assertion that the milestone is complete -- which removes the commercial protection that the milestone structure was designed to provide.

If a milestone is disputed -- the supplier says it is complete and invoices; the buyer says it is not -- the invoice should be placed in dispute and the dispute communicated in writing within the contract's notification period. The supplier should not be paid for an unachieved milestone regardless of payment terms, but the dispute must be formally notified under the contract. In construction, SOPA imposes a response deadline that applies whether or not the milestone is disputed -- a payment schedule must still be issued within the statutory period, stating the amount to be paid (which may be zero for a disputed milestone) and the reason.