What is a milestone payment?

A milestone payment refers specifically to a payment made when certain predefined contractual obligations or milestones have been achieved during the course of a project. This payment structure is commonly used in various industries, such as construction and software development, to ensure that funds are released based on progress and performance rather than on a fixed schedule.

This approach benefits all parties involved, as it aligns payment with the completion of significant phases of work or the delivery of specific outcomes, fostering accountability and encouraging timely execution. By tying payments to the achievement of tangible goals, it helps manage risk and ensures that the project remains on track.

Other payment types, such as payments made at the start of a project or upon project completion, do not specifically reflect this conditional nature. Similarly, payments made to suppliers without conditions lack the structured approach that milestone payments embody. Thus, the emphasis on meeting specific criteria is what distinctly characterizes milestone payments.