Liquidation

When the customer pays progress payment bills, these payments represent a liability by your company because no delivery was made.

These payments are known as "unliquidated progress payments." When the delivery is made, you must reduce the delivery invoice amount by a liquidation percentage, which is usually the same percentage as the progress payment rate. The customer does not pay you for the "gross" delivery invoice amount, but rather for the "net" invoice amount, which includes a reduction for a percentage of the progress payments that were already paid. Therefore, when deliveries are made, they "liquidate" a portion of the progress payments that were paid to your company. This procedure allows you to reduce or eliminate the liability incurred when the progress payment bills were paid.

For example, if your company submits a delivery invoice that contains items totaling $100,000, and the liquidation rate is 80%, you are paid $20,000. The delivery invoice is "netted" to arrive at the amount of the invoice because you already received the initial $80,000 on a progress payment bill before delivery was made.

Unliquidated progress payments are computed on the form 1443 as follows:

Total Progress Payments

less:   Total Liquidations taken against Delivery Invoices

=   Unliquidated Progress Payments