You provide a service over a longer period of time and as it is, you’ve set out a payment schedule in your agreement. Now, in your accounting you use the completion method for determining receivables, sales and payables. We’ve talked about completion method and accounting that’s related to it separately, but what I want to focus on now is the payment schedule you agree on and the actual cash need you may have. 

It may happen that you need to buy some equipment, some materials etc. that require significant cash outflow from you at some point. Thing you must consider is if you have the money or not. If you don’t, make the payment schedule accordingly so that your client pays for the purchase. It’s about managing your cash flows from the very beginning and thinking ahead about your cash requirements. Obviously you cannot plan for everything and it may happen that circumstances fall outside the payment schedule, but you should try to do it as much as possible.

The consequences if you fail to plan for the cash flows may be pretty severe starting from you having to take a loan and ending at you being unable to fill the contract and having to pay penalties on top of unearned revenue. So consider carefully when agreeing on payment schedules.