Industry guide · UK
Credit control for engineering firms
By AutoSettle · Updated
Quick answer
Credit control for engineering firms means billing long projects by milestone, getting variations approved in writing, tracking retentions, and chasing invoices from the moment they fall due. Engineering work often runs for months before completion, so staged payments and automated reminders stop the firm funding clients' projects from its own cash.
Engineering businesses cover a wide range of work: mechanical and electrical design, structural and civil consultancy, precision manufacturing, fabrication and maintenance contracts. What they share is long projects, specialist labour and significant upfront costs.
When payment only arrives at the end of a project, or at irregular intervals, engineering firms can be profitable on paper but short of cash. This guide explains how UK engineering firms can structure billing and credit control to keep money flowing throughout a project, from the first design drawing to final commissioning.
Why engineering firms wait for payment
Long project durations
Design and delivery can run for months. Without interim billing, the firm funds staff, materials and subcontractors throughout.
Milestones that slip
If payments depend on milestones outside your control, such as client approvals or site access, delays in the project become delays in cash.
Unapproved variations
Changes requested by the client mid-project are often carried out before being priced and approved, and later disputed.
Retentions and warranties
Retentions held until commissioning or the end of a defects period are easily forgotten.
Complex client approval chains
Large clients may need engineer sign-off, project manager approval and a purchase order before an invoice is paid.
A credit control process for engineering firms
- 1
Structure payments in the contract
Agree a deposit or mobilisation payment, regular interim payments or milestone payments, and payment terms before work starts.
- 2
Tie milestones to things you control
Where possible, link payments to your deliverables or to dates, not to client approvals that could stall.
- 3
Get variations approved before starting
Issue a written variation with price and time impact, and get client approval before carrying out the work.
- 4
Invoice promptly with supporting evidence
Send each invoice with the PO, milestone evidence or timesheets so it can be approved first time.
- 5
Chase the approval chain early
Send reminders before the due date to catch any missing sign-offs while there is time to fix them.
- 6
Track retentions separately
Record retention amounts and release dates and chase each release as a separate invoice.
- 7
Escalate overdue balances
Add statutory interest, consider suspending work where your contract allows, and send a letter before action if needed.
Engineering billing structures compared
| Billing structure | Cash flow | Main risk |
|---|---|---|
| Payment on completion | Poor: firm funds whole project | Delays or disputes at the end |
| Milestone payments | Good if milestones are well defined | Milestones slip due to client delays |
| Monthly interim valuations | Steady and predictable | Valuation disputes |
| Time and materials | Regular monthly billing | Timesheet queries |
| Deposit plus balance | Good for short jobs | Balance chased after delivery |
Your rights when engineering clients pay late
Engineering clients are businesses, so the Late Payment of Commercial Debts (Interest) Act 1998 lets you claim statutory interest at 8% above the Bank of England base rate and fixed compensation of £40, £70 or £100 per invoice unless your contract provides a substantial alternative.
If your work counts as construction operations, including many engineering design and installation services, the Construction Act gives you rights to interim payments, to receive notices, and to suspend work for non-payment after seven days' written notice. Some manufacturing and supply work is excluded, so check whether it applies.
This is general information, not legal advice.
Work out what you can claim with our late payment interest calculator.
Worked example (illustrative)
A fictional mechanical engineering consultancy is appointed by Hartley Brooks Ltd for a six-month plant upgrade worth £96,000, originally billed on completion. The consultancy would carry six months of salaries before receiving anything.
It renegotiates to a 10% mobilisation payment and five monthly milestone invoices. Automated reminders go out before each due date, and one milestone invoice that goes 14 days overdue is chased with a notice mentioning statutory interest and £100 compensation. It is paid the following week. Figures are illustrative.
Variations: the biggest source of engineering disputes
Unpriced variations are one of the most common reasons engineering invoices go unpaid. A simple variation process prevents most of them:
- Log every client request that changes scope, however small.
- Issue a written variation with the price and programme impact.
- Get approval, by email if needed, before starting the work.
- Invoice approved variations with the next scheduled payment, not at the end.
Contract terms that keep engineering cash flowing
Engineering contracts are often drafted by the client. Before signing, check the payment terms carefully and negotiate where you can:
- A mobilisation or advance payment before work starts.
- Monthly interim payments or clearly defined milestones.
- A process for pricing and approving variations before work starts.
- Retention percentages, release triggers and dates.
- Payment terms of 30 days or less, and statutory interest for late payment.
- Your right to suspend work for non-payment with notice.
- Limits on set-off and contra-charges.
Engineering credit control KPIs
Track these alongside project margins:
- Work in progress not yet invoiced, by project.
- Approved variations not yet billed.
- Retentions held, with release dates.
- Days sales outstanding by client.
- Milestone invoices delayed by client approvals.
How AutoSettle helps engineering firms
AutoSettle reads milestone, interim and retention invoices from Xero, QuickBooks or Sage and chases each from its due date. Reminders go to the right accounts contact with the project manager in copy, and a clear escalation path, including statutory interest and a letter before action, runs only with your approval.
Frequently asked questions
How should engineering firms bill long projects?
Use a mobilisation payment followed by monthly interim or milestone payments, rather than billing only at completion.
Does the Construction Act apply to engineering firms?
It applies to many engineering design and installation services that count as construction operations, but some manufacturing and supply work is excluded. Check your contracts.
What if a client delays approving a milestone?
Where possible, link milestones to dates or your own deliverables. If approvals are delayed, raise it early and refer to your contract.
Can I charge interest on late engineering invoices?
Yes, under the Late Payment Act, unless your contract provides a substantial alternative remedy.
How do I avoid disputes over variations?
Issue a written variation with price and time impact, and get client approval before carrying out the work.
Can AutoSettle chase milestone invoices?
Yes. AutoSettle chases every invoice in Xero, QuickBooks or Sage from its due date, including milestone and retention invoices.
What retention percentage is normal in engineering contracts?
Retentions of 3–5% are common in construction-related engineering, usually with half released at practical completion or commissioning and the rest at the end of the defects period. Always record release dates when the contract is signed.
Can I refuse to start work until a mobilisation payment is made?
If the contract makes the mobilisation payment a condition of starting, yes. Agree this in writing before signing, as it is much harder to introduce once work is under way.