What is the correct way to handle progressive billing, especially in the UK?

Question

To clarify: for many projects I'll take an installment upfront, a second payment at a project milestone and then a final payment 30 days after completion. To date I've been supplying an invoice for the total amount, with follow up statements for each payment. If we take 'correct' to loosely mean "I'm not going to end up with a convoluted tax return at the end of the year", is this the 'correct' way, or should I be issuing a separate invoice for each payment?

Follow up questions: what is the proper format for handling these types of payments? Where do you specify the schedule of payments? In the original invoice?

Answer 1

I'll give my advice, but I cannot say for sure if it's accurate tax wise for the UK.

If I have a project, and all my objectives in a row, I bill the full amount, then send out invoices with just a "memo" field on them. This way, my invoice program does not think I should be bringing in much more money, and I still have a record of what I have taken in and what is still left owing.

1. Generate the Master Invoice. This invoice should have the final cost, including any and all parts, expected to be used and billed. This is the master amount you need to keep track of, on this specific invoice. In the memo field, include information about when you expect payments (i.e. 25% due January 15th, 2015; 25% due February 15th; remainder due March 15th; late fee of 2% per month for outstanding balances).

   This will create the single reference, and ensure that the customer understand when/what he's being billed. You send this out, and save a paper copy for yourself.

2. Send out the next notice. This will be an invoice, but you will not have any chargeable items (except possibly the late fee). It will contain a memo field that states how much is owing, and how much has been paid already. It would be awesome if your program also allows you to apply previous payments into an invoice; each program is different though. The point is, you do not want to add new billings (unless required) to the original invoice.

3. Track payments on the Master Invoice. Remember how I said print it out for yourself as well? Use a pen, and write in any payments made towards that invoice, including the new balance owing. Mark when you send out a new invoice with the new total, then write a single line through each note about payments, so you always have a fresh copy.

4. Once the invoice is paid in full, you are done. Ensure the customer's account is at a $0 balance, and send a final thank you invoice/notice, explaining everything has been paid up.

Answer 2

I find it depends on what sort of schedule I feel I can keep and also what they are likely to work to as a client. Some clients have specific rules they set up in advance.

I build websites and clients are happy with me giving them 14 day terms.

I bill them 20-30% up front most often, then try and break down the remainder to one or more % invoice after 2-4 weeks and keep going leaving at least 30% invoiced at sign off. The last point is a little vague and so usually around going live or when I push them to say all work is done.

I then give them some free time for fixes after launch but waiting 30 days after the finish seems unneeded. As I do all my taxes and billing through FreeAgent website I send my invoices from there as its so easy.

I dont think there is a correct way, but most I have seen invoice in small parts, though I like Luke answer of pre dated main one.