Service contracts: plan delivery milestones and cash receipts together

Separate delivery, invoicing and cash

For each milestone, record three related but distinct timelines:

• Delivery and acceptance: the work, deliverable, customer dependencies, acceptance procedure and handling of disputes.
• Invoicing: the invoicing entity, amount and timing under the real transaction, contract and applicable requirements. An invoice date is not automatically the payment date or revenue-recognition date.
• Receipts and payments: the contractual trigger and payment period, actual receipt date, and the dates on which staff, suppliers and taxes must be paid.

For an entity applying China's Accounting Standard for Business Enterprises No. 14, Revenue, revenue recognition depends on the contract's performance obligations and when control of the service transfers. A performance obligation is satisfied over time only when the standard's conditions are met; otherwise the applicable point-in-time analysis is required. A deposit, invoice or milestone alone does not decide revenue recognition. An entity applying another accounting regime must use the rules applicable to it.

Example: cash timing for an RMB 12 million contract

Suppose a service company signs a VAT-inclusive contract with three customer payments: an RMB 3.6m deposit; RMB 6m payable on day 90 after the agreed stage is accepted; and an RMB 2.4m balance payable on day 120 when final delivery and the agreed payment conditions are met. The payments total RMB 12m; assume no other contract adjustment.

Planned project-related cash payments to suppliers, the project team and subcontractors are RMB 3m on day 30, RMB 2.5m on day 60 and RMB 3.2m on day 120, totalling RMB 8.7m. These are assumed VAT-inclusive cash outflows. Other taxes, expenses and cash movements are not included in the scenario; they must be added when they exist in an actual plan.

The company starts with RMB 2.4m of cash available to this plan and receives the deposit on day 5. On day 120 it pays RMB 3.2m before receiving the balance:

If management requires an RMB 1m minimum cash balance for this plan, the RMB 0.5m on day 60 is RMB 0.5m below that floor. The customer's total planned payments exceed the listed project outflows, yet there is still pressure before the milestone payment arrives.

The day-90 receipt is forecast until it actually enters the bank. The final RMB 5.7m includes the RMB 2.4m opening balance and omits other business cash movements; it is neither project profit nor the company's net cash earnings.

Examine payment triggers, not just percentages

Before agreeing to the contract, identify the acceptance evidence, the customer's responsibilities and how delayed or disputed acceptance affects the payment clock. Distinguish the contractual due date from the expected bank arrival date. Check the agreed relationship between invoicing and payment instead of assuming same-day payment.

Review whether supplier payment dates can be coordinated with the project within existing agreements. A proposed extension is a scenario until the other party agrees. If acceptance or receipt is likely to move, update the dates and recalculate the lowest balance. Treat retention, refunds, deductions and other contract terms according to actual documentation instead of assuming they are zero.

Maintain one milestone tracker

For each stage, record the VAT basis and contractual amount, responsible delivery owner, expected and actual completion dates, acceptance and invoice status, contractual due date, actual receipt, and related project payments. Keep unknown dates marked as unknown.

In the example, track the payments due before day 60 and confirm the acceptance and payment conditions for the day-90 stage in advance. If the minimum cash floor cannot be met, compare changes to payment dates, project scheduling or finance facilities and their costs; availability, rates and terms require confirmation.

CaiGeek is an AI financial assistant for small and medium-sized businesses. Ask it to organise a contract's milestones and cash dates and flag the lowest projected balance; responsible business and finance staff provide the records and review the result. See the pricing and payment terms guide or the contact page for more information.