Milestone billing, retention and bank guarantees in solar EPC contracts
Staged payments, retention held for a defect period and bank guarantees that expire quietly. How to track each as a dated obligation so nothing is billed late, released late or lapses.
- A milestone is a trigger plus evidence plus a date. Missing the evidence is the usual reason it is not billed.
- Retention is a receivable with a long fuse. Track it from day one.
- A bank guarantee is a dated risk. Alert on expiry long before it arrives.
- Link each milestone to the operational step that earns it, such as delivery or commissioning.
- GST treatment of supply and installation in one contract should be confirmed with your CA; sources we checked did not agree.
Quick answer
Treat every milestone, retention amount and bank guarantee as a dated obligation with an evidence requirement, an owner and an alert. For milestones, record the contractual trigger and the proof needed to bill. For retention, record the release date and defect-liability end. For bank guarantees, record amount, bank, issue date, expiry and claim period, and set renewal alerts well before expiry. Confirm GST treatment of your contract structure with your chartered accountant.
How do milestone payments work in a solar contract?
The customer pays in stages, each tied to an event. A common pattern is an advance when the order is placed, a larger share when material is delivered, a share when the system is commissioned, and a retained amount released later. The split is negotiated per contract. The mistake is not the split. It is treating milestones as a payment schedule on paper instead of a chain of operational steps.
From operational step to cash
What should a milestone record hold?
| Field | Example |
|---|---|
| Milestone name and share | On delivery, 50% |
| Contractual trigger | Material received at site |
| Evidence required | Delivery challan signed, photos |
| Trigger date reached | Date the evidence exists |
| Invoice date and number | When billed |
| Expected collection date | Contract terms or history |
| Collected date and amount | Actual |
| Blocker and owner | Why late, who is chasing |
The column most spreadsheets lack is evidence required. Billing delays are often not about the customer. They are about a missing signed challan.
How should retention be handled?
Retention is a receivable that sits for a long time. Record it at contract signing: amount or percentage, release condition, the defect-liability period and its end date. Put the release date on a calendar and alert 30 and 60 days ahead. Track it in the same view as other receivables, labelled separately so it does not look overdue when it is simply not due.
If the customer releases retention against a bank guarantee instead, track the guarantee below.
How should bank guarantees be tracked?
A bank guarantee is a dated risk with a cost. Lapsing, or failing to release one when the obligation ends, ties up credit limit or creates a claim risk.
| Field | Why |
|---|---|
| Type: advance, performance, retention | Different release triggers |
| Amount and currency | Exposure |
| Issuing bank and reference | Who to call |
| Beneficiary and contract | What it covers |
| Issue date and expiry date | The clock |
| Claim period after expiry | Some guarantees can be invoked after expiry; read the text |
| Fee or margin paid | Real cost of the contract |
| Release or renewal action and owner | So it does not lapse |
Alert at 90, 60 and 30 days before expiry. Link each guarantee to the project so its release is part of project close-out.
What about GST and invoicing?
Be careful here. Reported sources say most solar goods moved to a 5% GST rate from 22 September 2025. The pages we checked did not agree on how installation services and a combined supply-and-install contract are treated, and one gave different rates for inverters in different places. We are not stating a rate for your contract. Confirm with your chartered accountant and the current GST notifications, and make sure your invoicing system lets you split supply and service lines correctly. E-invoicing and e-way bill obligations also depend on your turnover and on goods movement.
Where does this not apply?
Small residential jobs paid mostly upfront have little milestone complexity, and scheme projects have their own subsidy timing (see PM Surya Ghar tracking). This page is for C&I and larger projects with staged payment, retention or guarantees.
What to do this week
- List your open bank guarantees with expiry dates. If you do not have that list, that is the finding.
- For each live project, add an “evidence required” note to every unbilled milestone.
- Put retention release dates on one calendar.
Part of the guide Running a solar EPC business on connected systems.
The tracker design is our own model. GST: a Tally Solutions page on solar GST rates states most solar products attract 5% GST as of 22 September 2025, but the same page is internally inconsistent about inverters and the installation split, so no rate for a contract is stated here. This is not tax advice; consult a chartered accountant.
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