Client Pre-Pay for Hours

On the Pelago side of our business we do a healthy amount of prepay maintenance similar to how you work. We offer pricing discounts on our hourly rate based on how much the client purchases up front. The more they buy the bigger the discount. This helps generate cash flow and the client gets a break on the hourly rate. Here is an example of our maintenance contract if you are interested.

For your scenario:

1. We do create free form invoices with the package they selected as the line item (Pre Pay Web Maintenance : Package 1 : $5,000 for example).
2. We track all of our hours as billable. This will help show you when the amount of work has exceeded what has been paid for.
3. You can set up an alert at the project profile to let you know when a certain project threshold has been reached. We typically set it at 75% for maintenance contracts so we have a heads up that the prepayment is close to being used up. For a report, the project activity report with "by task" selected in the summary drop down is what we typically use. The top half of the report will show all of the totals and the bottom half will show the financial value of each individual task.
4. If you are going to continue working with the client we allow our maintenance customers to extend the contract by making another payment. Something similar may work for you as well. If you are completely done with the customer then another free form invoice could be generated with a line item with the final overage.