Your consulting firm operates in good faith that most clients will pay promptly and accurately. However, in the professional services industry,profit is sanity, and cash is king, which means you need positive cash flow to run your business profitably. And yet, recent studies reveal that a high percentage of mid-sized businesses in the US don’t receive their payments on time– 62 percent of invoices are paid late, and almost an average of 14 hours are wasted every week on following up on overdue invoices.
Overdue invoices and late payments ultimately impact cash flow and the overall financial growth of consulting organizations. A sizable outstanding amount can hamper a consulting firm’s ability to meet its financial obligations and operate seamlessly. Moreover, constrained cash flow forces consulting companies to invest their cash reserves or seek loans – both impact long-term financial stability. Additionally, consulting companies should invest less than half of their revenue to improve and scale their business.
We have listed below some ways to improve your billing practices and safeguard your cash flow to help you manage flakey clients and late payments:
1. Automate the Billing Cycle
Managing cash flow and late payments is a constant challenge for consulting companies, as invoice errors and administrative overheads significantly impact the financial growth of the business. Organizations that aim for net positive cash flow should opt for faster payments for services delivered to increase financial solvency. If you can, insist on monthly or even weekly billing cycles instead of quarterly or annually. Even if you’re billing for milestones — with billing linked to specific deliverables — try to negotiate for shorter milestones. This approach would ensure a steadier flow of revenue back to your company and make larger bills more palatable to your customers.
Investing in billing automation software will help you keep your financial processes on track. Companies that leverage intelligent billing software gain a centralized view of invoices and outstanding bills at a glance, which empowers them to take proactive measures to streamline the billing cycle and get paid faster.
2. Update Your Payment Methods
Expanding your list of accepted payment methods can make invoicing less demanding for your clients. For example, as checks increasingly become outdated,accepting credit card payments is necessary for consulting firms. Other options to consider are PayPal, e-checks, direct transfers, and any other method that your firm considers easy and safe. Thus, your customer will pay you faster if you offer them multiple payment methods. In contrast, when you limit your payment gateways, you miss out on a massive opportunity to secure payments and increase your cash flow. Also, ensure that you offer seamless payment terms to your customers in their native currency.
Automating various payment gateways and notifications with real-time reminders will help you receive payments faster. In addition, once the payment is received, you could also share the payment receipt and a personalized ‘thank you’ note. Hence, tracking your received billables will help you stay on top of your finances.
3. Throw Out Your Hindsight Time Tracking
Too many consultants let their time recording fall by the wayside, which can cause significant revenue leakages. In fact, according to an Intuit QuickBooks survey, 89% of businesses reported receiving payments beyond actual billable time, which naturally hinders their long-term growth. The culprit is often manual, after-the-fact time tracking processes. For example, suppose your firm records billable hours manually in Excel or something similar. In that case, your consultants aren’t taking the time to itemize and record their hours worked until long after the fact. And yet, if you don’t record in real-time, then much of the profitability of your business relies on your consultants’ ability to recall exactly how they spent their time — days, weeks, or even months ago. When you track time in hindsight, your billing doesn’t reflect the actual hours worked, and the valuable billable time slips through the cracks.
Automating these processes is the best way to optimize your time tracking and billable hours. Upgrading to an automated system makes time tracking more accurate and saves your employees’ valuable time that they spend on administrative tasks. Besides, it enables them to redirect those hours to client deliverables. However, ensure that the automated solution you choose has a mobile app so that employees working in remote and hybrid setups can access it whenever, wherever. Besides, more detailed, accurate billing and automated time-tracking processes also help you compile all the information you need to send itemized invoices, thereby increasing trust and integrity with clients.
4. Maintain Amicable Relationships
Nothing is more important than your relationship with your clients — it informs all aspects of your projects, your work, and your client interactions, including payment processes. If you’ve fostered a relationship of mutual respect and trust with a client, then the odds are that they will pay timely and accurately.
The best way to maintain good terms with your clients when it comes to billing is to ensure that you unambiguously stipulate the payment terms in your initial contract. Ideally, your contract should contain the following to avoid miscommunication:
- An overview of the scope of the services you’re offering
- The broken-down cost of each service
- If you’re offering an estimate, you should also delineate the process for price adjustments and payment logistics, including late payment and nonpayment penalties.
- You should create a policy for terminated projects, outlining the notice period you need and the amount the client should compensate you.
If you have a good relationship with a client, you may be tempted to agree to payment terms with a nod and a handshake. Still, taking the time to delineate the terms in writing beforehand can save you quite a few headaches after the project.
Choose Replicon to Improve Billing and Get Paid Faster
Consulting firms experience various difficulties while processing invoices and billing clients and around compliances due to the nature of the business. Serving a global client base while ensuring timely payments can be challenging for many consulting businesses. Furthermore, generating and sending timely invoices, tracking received and outstanding payments, and ultimately ensuring an efficient turnaround from clients and vendors is no small feat for consultants. You can use one of the many time and billing management hacks to support fast and accurate billing practices. However, investing in an automated solution is the most effective option. Replicon automates critical billing processes with its cloud-based time and billing platform.
Replicon’s platform enables you to create faster and more accurate invoices, reducing the time required from days to hours. In addition, the customizable, intuitive time-tracking system allows you to track billable and non-billable hours against projects, tasks, and clients. Besides, Replicon seamlessly integrates with leading accounting, ERP, and other solutions to support better billing practices, helping your organization grow and thrive.