Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How a Roofing Company Fixed Cash Flow With Progress Billing
Transcript
- Lucas: So we've talked a lot about float, prepayments, factoring — but there's one tool that a lot of service businesses overlook, and it's staring right at them every time they send an invoice. Luna: Let me guess — you're about to say progress billing. Lucas: Exactly. And not the generic version. I want to look at a roofing company in Ohio that used progress billing to get out of a really nasty cash crunch. The owner's name is Mike, and he runs a crew of twelve. Last spring, he was sitting on sixty days of receivables for a couple of big commercial jobs, but his payroll and materials bills came due every week. Luna: That's the classic trap — you're financing your clients' projects with your own cash flow. Lucas: Right. And Mike had been doing this for years, just accepting that it was part of the game. But then one job almost broke him. He had to buy forty thousand dollars worth of shingles upfront for a strip mall, and the client wasn't scheduled to pay until thirty days after completion. He ended up putting it on a credit line at twelve percent interest. Luna: Ouch. That's the kind of interest that eats your margin if you're not careful. Lucas: Exactly. So what did he do? He switched to progress billing. But not just the standard 'bill a third upfront' thing. He structured it around actual work milestones — materials delivered, tear-off complete, new roof installed, final inspection. Luna: So each milestone triggers a payment. That's pretty standard in commercial construction, but for residential and small commercial, it's less common. Did the clients push back? Lucas: That's the interesting part. Some did. But Mike learned that the way you frame it matters more than the terms themselves. Instead of saying 'I need money upfront,' he framed it as 'Here's how we keep your project on schedule and avoid delays.' He explained that the material payment means the shingles are on the truck, the second payment means the crew is on site, and so on. Luna: That's smart. You're basically selling certainty, not just asking for cash. Lucas: Yeah. And it worked. Within a month, he had cut his receivables aging from sixty days to about twenty. He wasn't relying on the credit line anymore, and he actually took on two more crews because he had the working capital to cover payroll between milestone checks. Luna: How did he handle the final payment though? The last milestone is usually the biggest chunk, and it's the one that's most likely to be delayed. Lucas: Good question. He structured the milestones so no single payment was huge. Materials was maybe thirty percent, tear-off was twenty, installation was thirty, and final inspection was twenty. So even if the last payment slipped, he wasn't out the entire job cost. Luna: That's the key — you're not just changing when you get paid, you're also de-risking the end of the job. Lucas: Right. And that's something any service business with long job cycles can think about — not just construction. A marketing agency that delivers a campaign over three months could bill on milestones like research, creative, launch. A custom furniture maker could bill when materials are ordered and when the piece is finished. Luna: But what about the client who says, 'I'm not paying until I see the finished product'? That's got to be a common objection. Lucas: Sure. But here's the thing — in most B2B contexts, milestone billing is actually the norm. Think about how a contractor builds a house — you don't pay the entire cost upfront. You pay draws as work progresses. Progress billing is just that same idea applied to smaller contracts. Once you frame it that way, it feels less like a demand and more like standard practice. Luna: Right. And it's also a trust signal — you're showing that you're willing to be paid based on results, not promises. Lucas: Exactly. And before we go deeper into the mechanics — quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. We keep it ad-free, and it's because a small group already keeps it going. Luna: Yeah, it's wild to think that a couple hundred people can sustain a whole podcast network. But it's true. Lucas: Anyway, back to Mike. The other piece of this is the cash conversion cycle. If you can shorten the time between when you pay for materials and when you collect from a client, you don't need as much working capital. Progress billing directly attacks the collection half of that equation. Luna: So it's not just about getting paid faster, it's about reducing the amount of money you need to have sitting in the bank to operate. Lucas: Exactly. And that's why Mike's story is so useful. He was able to stop using his credit line for everyday expenses, which saved him probably two or three thousand dollars a year in interest alone. That goes straight to his bottom line. Luna: I want to bring up a cautionary tale though — a contractor I read about who tried progress billing but did it badly. He asked for fifty percent upfront, then thirty percent at halfway, and then twenty at the end. But the milestones weren't tied to anything concrete. The client felt like they were just giving him money with no proof of work, and the relationship soured. Lucas: That's a perfect example of why the milestones have to be objective and verifiable. Mike's worked because each milestone was tied to something the client could see — shingles on the roof, tear-off done, new roof installed. If you're billing based on 'progress' that's vague, you're inviting conflict. Luna: So how do you decide what makes a good milestone? Is there a rule of thumb? Lucas: For me, it's three things. One, the milestone has to be tied to a cost you've actually incurred. Two, it has to be observable — the client can see it or verify it. Three, it has to be significant enough that you're not sending an invoice every other day. For Mike, that meant four milestones on a job that took six to eight weeks. Luna: And what about the client who's worried about cash flow on their side? If you're asking for thirty percent after materials delivery, that's still a big chunk before the job is done. Lucas: That's a fair point, but remember — you're not asking for more total money, just earlier payment. And in many cases, the client's risk is actually lower because you're less likely to walk off the job if you're not bleeding cash. Luna: That's a good way to think about it. It aligns incentives. Lucas: Exactly. And that's what makes progress billing a win-win when done right. The contractor gets cash flow, and the client gets a more stable contractor who can actually finish the job. Luna: So for a listener who runs a service business — maybe a landscaping company or an HVAC firm — what's the first step to trying this out? Lucas: Start with your next large job, not your whole book of business. Pick a quote that's at least ten thousand dollars and has a natural sequence of work. Write down what the milestones are, and draft a simple contract clause. Then, when you present the proposal, frame it as a way to keep the project on schedule and avoid surprises. Luna: And if the client pushes back? What's the fallback position? Lucas: You can always offer a small discount for paying faster, or you can compromise on the number of milestones. The key is to have a conversation, not a demand. Mike said that once he explained the logic, nine out of ten clients were fine with it. The one who wasn't, he let keep the old terms — but he built the float into the price. Luna: That's a nice touch — pricing the risk of delayed payment into the quote for clients who refuse progress billing. Lucas: Absolutely. And that's the thing — progress billing isn't a one-size-fits-all tool. It's a lever you can pull based on the job, the client, and your cash position. But for Mike, it was the difference between constantly scrambling and actually growing. Luna: So what's the one takeaway you'd want a listener to remember? Lucas: That your invoice terms are a design decision, not a default. You can choose to get paid for the work you've done, not just for the work you've finished. And that choice can free up more cash than a lot of fancy financing tricks. Luna: Well put. And maybe that's the thought to leave with everyone — next time you're about to send a bill, think about whether you're actually getting paid for progress, or just for waiting.