Many companies struggle with billing cycles that take too long and not billing customers properly, especially with time-based work. In this episode, Curt talks about two ways you can calculate the return on investment (ROI) of automating your billing processes, so you can bill your customers quicker and more accurately.
Hi there. What is the return on investment for automating billing if you’re currently doing it all manual and with…crayons, let’s say? And if you think about it, seriously, I know there’s a lot of you out there in the consulting business where your invoicing system isn’t a whole lot better than crayons and construction paper.
There are two ways that you get money back when you automate billing, especially automating the time collection for billing – which means that you have some sort of timesheet software that you’re collecting the data, and then you push it on through into your accounting system, whether it’s QuickBooks, or SAP, or Great Plains, or Navision, or something in between. The first one is that you’re getting your bills out faster, you’re getting them in the hands of your customers faster, they’re more likely to be approved because there’s accurate data on them. In fact, you can even pull the customers into the approval process so that they’re approving it online so when they get the bill, they’re getting an invoice that they already know they’ve pre-approved before they see the invoice. And what this means is you get paid faster.
If you have 100 engineers working in a dark closet – again, these same poor engineers in a dark closet – you’re invoicing them out to customers. Let’s say you’re paying them all $50 an hour and you’re billing your customers $100 an hour. So that’s $100 an hour times 100 engineers, which is $10,000 an hour, times 40 hours in a week, that’s $400,000 a week. Typically, you can increase your…decrease your AR by two weeks’ worth of AR. So you can lower the amount of time that it takes to get the money by two weeks. So instead of six weeks, it’s four weeks. Instead of nine weeks, it’s seven weeks – that sort of thing. That’s $800,000 of benefit from automating the time collection and getting good invoices out that are precisely accurate to all your customers for those hundred engineers that you’ve got trapped in the closet.
How much does it cost to implement a time tracking system and integrate with your accounting system for those hundred people? Well, worst case, let’s say it’s $20 a user a month – that’s $24,000 a year, but you just said you got $800,000 of benefit from doing this. That’s a one-time benefit, because you can’t just keep pushing the…you can’t get two weeks of improvement in your AR collections every single year. You can get it once and then you have to keep it there.
Then, the second benefit you get is that you’re going to end up billing more time, because people are going to have a mobile phone to enter their time on, and they’re going to have a web-based system to enter their time on, and they’re going to have it integrated with their calendar so they can get more time collected. They’re going to be much more likely to bill every minute that they possibly can. The benefit from that, let’s say that you just increased your billings per employee by five minutes a week. You already said you were billing $100 an hour for these people, and so five minutes a week means every 12 weeks you would be billing another hour, so it’s an extra $100 every 12 weeks, and we said that we were going to charge $20 a user a month, so that’s…you’re paying $60 and you’re getting $100 back (and that’s pretty conservative that you’re only invoicing an extra five minutes a week).
The ROI is enormous in either case, well over 100% in both cases, and they add up to be this huge number that makes everybody happy. So, you should start tracking your time for your consulting billing immediately and get it integrated with your accounting system so that you can all be much more wealthy. Have a great day!