Services are provided to a client, followed by an invoice, which is then paid by the client. Seems pretty straightforward, right? But how do you know that what your billing is actually correct?
The client is only obliged to pay the amount defined in the invoice, so if that is incorrect, the received payment will be incorrect too. This may seem like an obvious statement, but startling numbers of organizations are getting this wrong at a systematic level.
Your employees enter a certain amount of time they worked on any given client project using some sort of time-keeping system. That amount of time translates into billable hours, which then translates into a billing amount, based on a set hourly employee rate. But therein lies the potential profit killer – if you’re not absolutely certain that you’re capturing accurate time from your employees, then your billable hours and invoices will not be accurate either.
Eliminating the Billing Profit Killer
Robust protocols and good management are key to eliminating this potential profit killer. Implementing a policy of accurate time-keeping and recording work done for clients may require an initial capital outlay to cover systems and training, but it will secure your profits in the long run. A good time tracking system that makes it easy for your employees to enter time on client work is crucial as part of this investment.
In addition to focusing on accurate invoicing, your organization should be aiming to hone their invoicing process into a slick and well-oiled machine. There are many factors that can cause an invoice to go out late – perhaps the approvals were slower than expected, information was entered incorrectly before being changed, or maybe the invoicing department were snowed under – but all of these can harm your profits.
Good clients pay their invoices quickly, bad clients may take longer, but no clients are going to pay invoices they have not yet received. Late delivery of an invoice means late payment at the very least, and the result is a period of time when the money wasn’t in your hands – or bank account. It could even result in further delays if it needs to be resubmitted. Accountants refer to this as float, and it is something you and your team should be working hard to minimize.
Float can be eliminated with a more automated way of processing time data into the billing system. With useful integrations, data will automatically sync between your time tracking and billing system. This avoids data corrections ands speeds up the invoicing process.
If you want to find out more about other potential profitability killers, download “The Top 3 Profitability Killers You Don’t Know Are Harming Your Business”.