Stage Based Milestone

Term Definition
Stage-based milestone is a milestone billing methodology where payment triggers are tied to stages rather than dates. Milestone billing means distributing the total amount to be billed over multiple billing dates in the billing plan when pre-defined milestones are reached. As each milestone is successfully reached, the customer is billed either a percentage of the entire project cost or simply a pre-defined amount agreed upon prior to the project.

Organizations may use stage-based milestone billing to assure clients that they are invested in successfully meeting the client's needs or resolving their problems. Tying fees to stages aligns the goals of the organization and its customer, as the organization is only paid when the promised stage is reached. For example, a contract might require billing ½ of the contract amount at phase one of the project, a second payment of 1/3 at completion of the second phase and the final 1/3 upon completion of the final stage. Estimated dates for each of the milestones could be outlined in advance.

Milestone billing may also be used for high dollar projects or projects that will last for a long period of time. For example, for a $100,000 project, the organization might require a $10,000 payment at the start of the contract, $20,000 at the midpoint and $70,000 at the contract conclusion.

Milestone billing is good for clients as they are given the confidence that the contractor has a financial incentive to complete the project requirements as agreed upon. Contractors benefit in that the client has an incentive to pay. In essence, milestone billing creates a partnership between the client and contractor.

Many consultants may use milestone billing and fixed billing in their practices. Typically, milestone billing will be used for larger scale projects as it provides them with a steady cash flow over the life of the project. If a project will take several months to complete, the consultant's resources may be utilized to capacity. Milestone billing provides them with revenue at fixed points, rather than waiting until the completion to get one large payment.

Area of Application
Professional Service Billing
Time and Billing

Related Terms
Data Based Milestone
Milestone Billing

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