Spend a day going through the previous year's paid invoices.
At the end of the day, your consulting firm relies on the assumption that a good percentage of clients will honor their payments promptly and accurately. In the professional services industry, profit is sanity and cash is king — that is, you need positive cash flow to keep your business up and running, end of story. And yet, studies show that 37 percent of invoices are paid late, and 16 percent aren’t paid at all. So in reality, less than half your revenue actually goes back into improving and scaling your business. To help you ensure that your bottom line doesn’t bear the burden of flakey clients and elusive payments, we put together a few ways to improve your billing practices and safeguard your cash flow:
Opt for a shorter billing cycle
When the goal is net positive cash flow, then opting for faster payments for services delivered is a good way 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. Not only will this bring a steadier flow of revenue back to your company, but it can also make larger bills more palatable to your customers.
Keep your payment methods up-to-date
By expanding your list of accepted payment methods, you can potentially make invoicing a less onerous process for your clients. As checks increasingly become outdated, accepting credit card payment is becoming a must for consulting firms. Other options to consider are PayPal, e-checks, direct transfers, and any other method your firm considers easy and safe.
Throw out your hindsight time tracking
Too many consultants let their time recording fall by the wayside, and this can cause significant revenue leakage. In fact, a Chrometa survey of over 500 professional services employees showed that participants ultimately billed for just 67 percent of their actual billable time. The culprit of this is often manual, after-the-fact time tracking processes. If your firm records billable hours manually in Excel or something similar, then it’s likely that 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 their time was spent days, weeks, or even months ago. When time-tracking is done in hindsight, then your billing just isn’t going to reflect the actual hours worked, and valuable billable time is going to slip through the cracks.
The best way to optimize your time tracking and billable hours is to automate these processes. By upgrading to an automated system, not only will your time tracking be more accurate, but you’ll save your employees a considerable amount of time that was previously spent on administrative tasks, and enable them to redirect those hours into client deliverables. Ensure that the automated solution you choose has a mobile app, so traveling and remote employees can access it whenever, wherever.
Not only will automated time tracking processes help foster your more detailed, accurate billing to help foster clients’ trust in your abilities and integrity, but it also enables you to quickly collate all the information you need to send out itemized invoices as soon as possible.
Maintain amicable relationships
There is nothing more important than your relationship with your clients — it informs all aspects of your projects, your work, and your client interactions, including the payment process. If you’ve fostered a relationship of mutual respect and trust with a client, then odds are they’re going to be naturally incentivized to keep their payments timely and accurate.
The best way to stay on good terms when it comes to billing is to ensure that you clearly stipulate payment terms in your initial contract. To remove the potential for miscommunication and relationship strain, your contract should include an overview of the scope of the services you’re offering, the broken down cost of each service (if you’re offering an estimate, the process for price adjustments should also be delineated here), and payment logistics, including late payment and nonpayment penalties. You should also have a specific policy for terminated projects — make it clear how much notice you need, and how much you should be compensated for.
If you have a good relationship with a client, it may be tempting to agree to payment terms with a nod and a handshake, but taking the time to clearly delineate these terms in writing beforehand can save you quite a few headaches post-project.