Do most of your projects miss deadlines or go over budget? Do your project managers have a hard time managing …
One of the most time-consuming tasks within professional services is managing a billing system and tracking hours. Simplifying and automating your project billing and invoice management can help you reduce revenue leakages and improve cash flows. Once you’ve chosen the right billing system for your company, it’s time to get efficient with seven ways to bill your project better.
Different Billing Methods
When you’re setting up your project billing system, it’s important to decide which billing method works for your business and for your clients. When you’re evaluating different billing systems, consider:
- Industry norms for the client
- Fixed and variable costs for your business and the project
- Complexity of the project
- What other projects your team is working on
- Client preferences for billing methods
Below are the most common billing methods that you can choose from. Make sure to choose the billing method that will be best for you and your client.
Flat Fee Per Project or Fixed Price Billing
The simplest and most straight-forward project billing method is fixed price or flat fee billing. With this type of project billing, you charge a client a flat fee for the entire project. While this is a straight-forward billing method and is simple for your clients, it’s not at all simple for you.
When you submit a project bid to a client for a flat fee, you have to ensure you’ve accounted for all the hours your team will spend working on the project, any materials that will be used, and any unexpected expenses.
Fixed price billing is great for projects that have minimal moving parts and fluctuations.
- Predictable: You know exactly how much money you’ll receive for the project from the start.
- Simple: You bid a price, you get paid that amount.
- Up-front work: Before you can send the bid to the client, you have to do a lot of up-front work to determine the right price to charge and avoid under- or over-charging.
- Scope creep: You have to guard against scope creep to ensure that the project stays profitable and within your bid.
- High risk: If the project goes over budget or takes longer than expected, you and your team pay the price.
Time and Material Billing
As a billing method, invoicing per hour is simple. You bill the client for the number of hours worked. Where this can get complicated is deciding the price per hour of work and determining your billable hours. Some hours worked aren’t billable.
Some enterprise companies have a tiered hourly rate. This means that certain tasks are paid at higher or lower rates. Different staff members might also have either higher or lower hourly rates.
- Accurate: The best part of hourly billing is you get paid for every hour you and your teamwork. This gives you accurate data on how much time was spent on tasks and completing the project.
- Profit: Charging by the hour allows you to reduce your risk of scope creep and not making a profit on a project.
- Difficult to estimate: The drawback of hourly billing is the client doesn’t know at the beginning of the project the total cost of the project.
Milestone billing is when you bill or invoice clients on a set time schedule or milestone within the project. It can incorporate some of the qualities of other project billing methods. Your check-in and billing milestones may be based on the number of hours worked, a time period (a week or month), or after a specific deliverable has been completed.
- Built-in check-ins: Milestone project billing gives you and your team automatic check-ins with the client. Regular check-ins ensures the client is happy with the work.
- Regular payment: You and your team get paid regularly, which can make paying bills easier.
- Time spent creating and sending invoices: Milestone billing requires your team to create and send invoices more regularly, which can take up extra time.
Charging clients a retainer is a type of flat fee billing, but happens at a regular, predetermined interval. For example, you might charge the client a flat fee monthly or quarterly. Similar to flat fee billing, it’s up to you to accurately estimate the amount of work you’ll do during each time period. In general, when you’re on retainer with a client, you get paid the same amount whether you work more or less than expected.
- Predictable: The best part of billing on retainer is that you have guaranteed income. This makes it easier to control your cash flow.
- Need clear boundaries: When working on retainer, you need to have clear boundaries about how much work you can deliver within each time period. If you want to earn X amount of dollars per hour for the project, and you underestimate that number of hours, you will ultimately reduce your hourly rate.
7 Tips to Bill Projects Better
Once you’ve decided which project billing system you want to use, you can refine how you bill and get even better at it.
1. Understand the Difference Between Billable and Non-Billable Hours
If you’re charging a client per hour, you need to differentiate between billable and non-billable hours. Billable hours are hours you bill to the client and have spent working on the project. Non-billable hours are those you spend on invoicing the client, training employees, or other tasks that benefit your business, not the client’s project.
For more accurate project billing, you must know the difference between billable and non-billable hours.
2. Charge a Down Payment
Before you start work for a client, charge them a down payment. This payment is made to retain your team’s time so they can work on the project. Often, the down payment is a percentage of the total cost of the project.
3. Communicate Payment Terms Upfront
When you send a new client their contract, it should include all of your payment terms. When these terms are set up front, there’s no confusion later on how or when the client will pay you.
Payment terms might include:
- A payment due date
- Late fee if the due date is missed
- Discount for early payment
- Percentage required to be paid up front
- How the client can pay, such as by check, credit card, or ACH
4. Set Project Milestones and Check-Ins Prior to Billing
Whether or not you’re using milestone billing, it benefits you and the client to set check-in periods prior to the start of the project. These check-ins might be set at specific milestones or set weekly. Check-ins allow you to redirect your team or resources if the client isn’t happy with the project progress.
5. Provide Customized, Detailed Invoices
Each client will have slightly different needs. As such, you’ll want to customize your invoices for the needs of each client. You want to customize your invoices to include the details that are important to the individual client. Making invoices detailed also helps clients to know what work you’ve done and what they’re paying for.
When you create a customized, detailed invoice, you’re showing clients the value they receive when working with you.
6. Make It Easy to Pay with Online Billing
One of the best ways to make sure you get paid is to make it easy and convenient for clients to pay. Setting up online pay and having a pay button on your invoice makes it easy for clients to pay and for you to get your money quickly.
7. Streamline Your Internal Process with Time and Project Billing Software
When it comes to billing systems and invoice management, you want the process to be easy and efficient for both you and your clients. Using project management software makes it easier for you to track the time you spend on projects and to create customized, detailed invoices quickly and get them sent off to your clients.
The more efficient your internal billing system is, the faster you get paid. When it comes to project billing and invoice management, you want to automate and digitize as much of the process as possible. This saves you time so you can get back to work and charge clients those billable hours.