Definition of Progressive Payments
Progressive payments, also called progress billing, are payments made as different parts of a long-term project are completed. Payments can also be tied to deadlines. This is effectively a pay-as-you-go policy.
Progressive payments are a common billing procedure for construction projects, for instance. Another example is a shipment that cannot be delivered all at once.
The client is served by not having to pay an unaffordable payment up front, and by having a tool to keep workers motivated to complete the project. The project manager is served by having a steady stream of income to pay worker wages and buy materials.
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Reduction of legal liability
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Another advantage of progressive payments is that, if the project is not completed, parties are less likely to feel that the other got an upper hand, but rather that the client got what he paid for, especially if the payments were matched to individual tasks. A sense of equity goes a long way to preventing litigation. The progressive payment structure therefore serves as a type of liability protection for the project manager.
The legal liability that a client has for the full amount, by law, upon putting in an order is tempered by the use of a payment schedule.
Release
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Another advantage of progressive payments to the project manager is the ability to walk away from a poorly paying project when another opportunity comes along.
The client also has an opportunity to walk away from the project if he finds the work to be substandard.
Preferably, the contract states these releases explicitly. A contract of adhesion (the one presenting the contract originally does not allow contract changes), however, may make default/release language favor one party over the other.
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Payment by deadline vs. task
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If payments are triggered by task completion, a project manager is motivated to complete tasks quickly. If they are triggered by time deadlines, then the project manager has less motivation to keep the project on schedule.
Maintenance of liquidity
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Project managers must pay their workers. A steady stream of income from progressive payments helps to meet payroll if reserves are low.
Incorporating materials costs into matching payment amounts reduces the chance of reserves being impaired, which is one more reason to match payments to tasks instead of deadlines.
The contract
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Orders tend to make the client liable for the full payment of the service, by commerce norms and commercial law, so it is important not to enter into an arrangement in which deviations from generally accepted payment norms are unclear.
The payment schedule should therefore be articulated in writing, as in a contract, so both parties are informed and in agreement, and the schedule is legally enforceable. Language derived from contingency planning should be included, such as remedies for default, non-payment, partial payment, and non-completion.
For example, a project manager or vendor may want to include a condition that if payment is not received within a certain time of order delivery or task completion that the full amount becomes due.
Companies exist that sell such language, which can help reduce drafting costs (see References).
The payment agreement can also be established in writing by letters or email, with both offer, acceptance, and conditions of acceptance explicated.
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