by Justin Grensing, Esq., MBA
In many B2B relationships, the amounts of money changing hands can be significant. For small businesses engaged primarily in the B2B realm, a single B2B client could make up a huge percentage of the small business’s total revenue. Moreover, the products and services offered to B2B customers can be fairly complex and take time to deliver in full. All of this makes the invoicing process a valuable tool for small-business owners serving B2B customers. A well-designed invoicing system can help smooth cash flows and provide revenue even before the ultimate completion of a final deliverable.
When we say “invoicing system,” we’re not talking about software applications that handling the actual process of sending invoices and managing payments, although those can provide value as well. What we’re talking about is the structuring of payments based on agreed-upon dates, events and deliverables. Often, these are referred to as milestones.
How Milestones Work
Consider, for example, a 10-person company that is engaged in a multi-year project to assist with the development and delivery of a new IT system for a B2B customer. The consulting company may have most or even all of its staff engaged primarily in this single project. It can’t wait until the completion of the work before it receives any payment. Not only does this expose it to risk if things go south; it also creates a cash flow problem when trying to pay staff salaries and other expenses. Instead, the company might create payment milestones for certain events, dates, deliverables, occurrences, etc.
These milestones might look something like this:
- Contract signed: 10% of the contract fee
- Completion and delivery of architectural design: 25% of the contract fee
- Start of system testing: 25% of the contract fee
- Completion of the project: remaining 40% of the contract fee
This is a simple example to illustrate the point, but there could be many more payment milestones depending on the complexity of the project and the steps involved.
That same approach can be used by marketers.
Evening Out the Cash Flow
Payment criteria and milestones don’t necessarily have to have a precise dollar-to-dollar connection to the underlying activity, but there should be some logical link. Many companies and, especially government entities, may balk at a payment milestone simply tied to an arbitrary date or even an upfront fee without any actual work tied to it. A clear connection between work performed and money paid helps avoid arguments when the invoice comes.
Additionally, as noted above, payment milestones should help ensure consistent cash flow to a business. With the exception of getting full payment upfront, most companies would probably prefer a steady flow of regular payments rather than unpredictable, uncertain and unequal payments.
Complex projects take time to deliver. Particularly for small businesses, it can be difficult to wait until the very end to get paid. Incorporating payment milestones is a great way to maintain cash flow while the work is still being completed. The key is to make sure their carefully crafted so they make logical and business sense to both the vendor and the customer.
Could payment milestones work for your business?
About Us
Strategic Communications, LLC, works with B2B clients to help them achieve their goals through effective content marketing and management with both internal and external audiences. We work with clients to plan, create and publish high-quality, unique content. Whether on- or offline, or both, we’ll help you achieve desired results.
(Strategic Communications is certified as a Woman-Owned Business Enterprise through the Wisconsin Department of Administration.)
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Tags: better business practices, billing clients, business practices, Customer Service, invoicing systems, managing cash flow, payment milestones