Bookkeeping on a 'per transaction' basis.

Bookkeeping on a 'per transaction' basis.

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This is a question about pricing for bookkeeping, in the context of my small 'out of hours' practice. I would like to know whether anyone uses a 'price per transaction' for bookkeeping.

I can see why no-one really wants to pay an hourly rate - as that is a bit open ended. - however to my mind the use of a fixed fee is essentially a 'bet', a bit like fixing your mortgage rate. We (as the banker) hope that the work will be less than we priced for, and the customer hopes to squeeze a bit more in the envelope.

I like the idea of pricing per transaction - as it is transparent in terms of you get what you pay for.

That way, in a quiet month, the customer doesn't incur as much cost.

I know this is going a bit against the prevailing grain, but wanted to discuss it anyway.

I haven't thought of a price yet, but was thinking of between 50p and £1 per invoice, with additional scheduled prices for dealing with a page of credit card transactions etc.

Happy new year to all,

Tom

Replies (21)

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the sea otter
By memyself-eye
31st Dec 2014 11:17

you want to charge

up to £1 to process each invoice..onto a computer (or even if not)?

Nice work if you can get it.

What about all the other stuff: reconciling, cash, cheques/Bacs/payroll/ chasing payments etc etc.

We always charge per hour, if it's a quiet day we do and charge for, less. 

 

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Replying to ireallyshouldknowthisbut:
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By tom123
31st Dec 2014 17:01

Thanks

memyself-eye wrote:

up to £1 to process each invoice..onto a computer (or even if not)?

Nice work if you can get it.

What about all the other stuff: reconciling, cash, cheques/Bacs/payroll/ chasing payments etc etc.

We always charge per hour, if it's a quiet day we do and charge for, less. 

 

Thanks for the comment - my thinking was that the cost per invoice included the subsequent components such as dealing with the payment, filing statements etc. Reconciling would fall into that category.

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By Taxhurts
31st Dec 2014 11:30

time spent invoicing

Your invoicing will take you hours to calculate!  Hourly rate is by far best option surely?

It takes approx 15secs to input an invoice if you've got the right software, you would be equating yourself to 240/hour as a bookkeeper!!

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By DKB-Sheffield
31st Dec 2014 11:51

Hi,

I've tried all three ways:

1. By the hour (which at the end of the day is my basis for fixed and per-transaction charges). Yes, clients don't like it but, I have managed to get around this in some cases by using Paymo (other options available) - a free app which tracks time .

There is also an add-on app (also free) which tracks screen time so you don't have to worry about stopping the clock every time you pop to the look or switch the kettle on. That way, if you spend 45 minutes on Sage in an hour, you can simply drag this across to the client record and it is recorded.

The client side works on a hierarchical structure of Clients, Projects, Task Lists & Tasks. You have to think outside of the box to allow the free package to work with your business as you are only allowed 3 projects and so I use my projects to list 3 basic client types, name my task lists as my client names and then list the individual tasks. Therefore, I would have the following:
   Client/ Project : Online Clients
   Task List : ABC Ltd
   Task 1 : 2012/13 accounts
   Task 2 : 2013/14 accounts

I now have Paymo open on my desktop at all times so that I can track effectively.

2. Fixed fee is more tricky and you are right... it's a game of cat and mouse. Either the accountant get's more money than they bargained for or (as is possibly more often the case), the client gets work for nothing.

When starting out, this is difficult but it gets easier with time. Unfortunately, it takes a few bad pricing decisions to get any level of improvement. Furthermore, it is often pointless trying to explain to clients why fees have gone up due to spending extra time on the reconciliation of the VAT Control Account as they have no understanding of what a reconciliation or a VAT Control Account is.

However, what I have started to do is give very specific guidance on how my proposal is formed. I mention transaction volume, turnover, profitability, payroll, VAT and anything else I see fit. That way, if the transaction volume is 300 in the year and I have based my proposal at 250, there is scope for an increase in rate.

Clearly, the above is possibly more suited to annual accounting. However, the principle can be applied to bookkeeping with an annual review. Hence, charge your £50 per month and then at the end of the year submit a balancing invoice.

3. Per-transaction... I tried this a few years ago (before I opted to concentrate mainly on annual accounting & tax) with some success. The clients that adopted this method understood where they stood and I go paid for every item I posted. The big problem however was getting clients who were used to traditional methods (fixed fee where they were or believed they were getting value for money in fees (cat & mouse)) to take on board this "radicle and new" pricing policy.

If you are to consider this type of pricing, I would advise always giving an idea of where the client will save against fixed fee or hourly accounting. Don't however pitch against your own fixed/ hourly fee offerings, check the market first.

Your charges however are probably too high (although, the suggested per-item bases look correct for single invoices, credit card schedule (e.g. 25 transactions), bank reconciliations etc...) and I would base this on your standard hourly rate. How many invoices can you raise in an hour, how many bank payments can you prepare in an hour etc. In addition, think about what you will do for bank recs, VAT recs, supplier/ customer payments/ receipts etc. Given this, if your expected rate is £15 and you can enter 100 invoices in an hour, the per-item rate needs to be around £0.15.

I wish you luck in the above. If you would like any further info, please PM me.

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By zebaa
31st Dec 2014 11:53

Band it

I have seen this used is where the book-keeper or accountant will offer one price for, say, up to 5,000 transactions, a greater price for up to 10,000 - and so on. The only difficulty with this is in how transaction is defined. For example is getting an invoice and paying for it one transaction? Or two? Or perhaps more? And what about mistakes, where a journal is used to correct an error?

So, yes it will work, but the price point is critical. 

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By duncanedwards
31st Dec 2014 12:17

What is an 'out of hours' practice as a matter of interest?

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Replying to Joe Alderson:
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By tom123
31st Dec 2014 17:22

some interesting comments

duncanedwards wrote:
What is an 'out of hours' practice as a matter of interest?

Thanks - I work as an FD in industry during the day. This is my 'hobby' practice if you like - although I guess you could call doing accounts for 'fun' a bit of an odd hobby.

Interesting comments about entering an invoice in a few seconds. I guess I need to recalibrate my thinking. In the 'day' job we have invoices to deal with are subject to three way matching against delivery notes and purchase orders - and also allocation to projects - so a bit more than 15 seconds.

Entering an invoice coded direct to 'purchases' with just the net vat and gross would obviously be quicker.

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By williams lester accountants
31st Dec 2014 13:11

Pricing

Think your pricing is way off the mark, we use (UK based) subcontract bookkeepers who charge per transaction...at a rate of 2p per transaction!

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Replying to atleastisoundknowledgable...:
By williams lester accountants
31st Dec 2014 13:51

2p

ShirleyM wrote:

williams lester accountants wrote:

Think your pricing is way off the mark, we use (UK based) subcontract bookkeepers who charge per transaction...at a rate of 2p per transaction!

That is very cheap! Pass their details to Tom123, and then he can recharge his clients at a higher fee. He can't lose. ;)

 

Apparently, they tell me this equates to approx. £10 per hour, so around the average (to high) price for bookkeeping.

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Replying to shan1234:
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By DKB-Sheffield
31st Dec 2014 14:18

2p

williams lester accountants wrote:

williams lester accountants wrote:

2p per transaction!

£10 per hour, so around the average (to high) price for bookkeeping.

£0.02 per transaction, £10 per hour = 500 transactions per hour and a transaction every 7 minutes and the standard reconciliations and balancing in to boot. That's pretty quick work for good quality bookkeeping.

I would be too concerned at that speed that they were entering all transactions correctly and not causing me the headache of checking and reconciling all transactions hence removing any benefit of outsourcing.

What about the clients who also wants their invoices typing up and sending (which I feel was where client was getting their £1 or £0.50 per transaction figures). Say a well-thought out invoice takes around 20 minutes and costs £0.60 to post, that would be a whole lot of work and cost for 2p.

I think we could all do with your bookkeeper's phone number! I can't get a decent final trial-balance bookkeeper for much less than £15 per hour nowadays and they certainly aren't able to provide with a full trial balance for a small business with less than 500 transactions for any less than 1 hour of work!

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Replying to Wilson Philips:
By williams lester accountants
31st Dec 2014 16:58

£15

DKB-Sheffield wrote:

I think we could all do with your bookkeeper's phone number! I can't get a decent final trial-balance bookkeeper for much less than £15 per hour nowadays and they certainly aren't able to provide with a full trial balance for a small business with less than 500 transactions for any less than 1 hour of work!

£15!!!! Wouldn't even consider paying that. Our in house bookkeepers are on £2.73 per hour.

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By qhas
01st Jan 2015 14:35

£2.73 an hour for in - house bookkeeper

williams lester accountants wrote:

DKB-Sheffield wrote:

I think we could all do with your bookkeeper's phone number! I can't get a decent final trial-balance bookkeeper for much less than £15 per hour nowadays and they certainly aren't able to provide with a full trial balance for a small business with less than 500 transactions for any less than 1 hour of work!

£15!!!! Wouldn't even consider paying that. Our in house bookkeepers are on £2.73 per hour.

j. How on earth do you get away with that ? You're not based in Bangladesh are you!
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By adam.arca
31st Dec 2014 13:40

Pricing point

Surely the pricing point mentioned was only for the sake of example? Doesn't the OP just want to have some steer on the principle before getting into the pricing?

I'd agree with others that pricing by transaction looks great for end users in a WYSIWYG sort of way but seems like a lot of work for you.

If you're using software for this, then surely a transaction would be each individual posting. So, say the client used ledgers, then posting the invoice would be one transaction and paying it off another. That seems a bit harsh compared to clients who just use a "cash book" so you might need differential pricing for invoices and cash book payments where analysis is needed as compared to ledger payments. That's more complication, though.

How would you deal with reconciliations and other "unseens" by the client: build the cost into the unit price? If so, you would need to know everything was clean before you started otherwise you'd be on for a bath.

Also, won't unit pricing disincentivise clients from doing their bit and keeping their paperwork in a rational order (or even just keeping it)?

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By andy.partridge
31st Dec 2014 14:31

Fixed and variable
There is obviously a fixed cost involved in servicing a client. I would seek to arrange a fixed cost up to x transactions per period, plus a variable cost of z pence per transaction thereafter.

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By DKB-Sheffield
31st Dec 2014 17:25

@ Williams Lester

£2.73 per hour . Okay, so they are clearly first year apprentices unless you are flaunting minimum wage requirements.

On the other hand, for someone who is experienced, provides a good service, has the knowledge to review transactions/ accounts, is not merely someone carrying out a data entry assignment and is unlikely to jump ship as soon as they are offered bar work paying 3 times their current rate, I would expect to pay more.

I believe the OP to be a professional bookkeeper who is able to perform most of the tasks of an accountant but is not quite there on the final accounting matters. As a result, he will perform data entry, balancing, reconciliation and provide a reconciled trial balance with supporting schedules. To then pay him only £10.00 because he only entered 250 receipts and 250 payments yet did 6 hours of reconciliation, scheduling and handover, I feel is borderline criminal.

Incidentally, I have just processed 6 sales invoices and 8 purchase invoices for a client using Sage (I had to in order that I may prepare their accounts). 
 - The sales invoices were simple entry as opposed to using the full invoicing system but, each contained 5 different lines for 5 different nominal accounts.
 - The purchases were like the sales invoices with between 4 and 8 different cost nominal codes
I have used Sage for 15 years and hence am quick at inputting data. Furthermore, I was a purchase ledger clerk for a large hotel company in a previous life. What I am basically saying is, I know my stuff.
However... it took me 30 minutes to analyse, enter and process the payments for the 14 transactions which by your reckoning is worth £0.28. In actual fact I processed 92 independent transactions plus considerable consideration as to the correct entry to the separate nominal codes.

I suppose the moral to my story is... anyone can use simple data entry to process accounting transactions but if only 7 seconds is allowed for reviewing, selecting correct nominal codes and posting the transaction (or multiple line transactions in my case), I would hate to rely on the data I receive as being correct and factual.

Having now gained a fuller understanding of your expectations of agreeable and going rates, I would suggest the OP take very little notice of your suggestions on pricing as it is as far removed from the norm as the (assumed but unlikely) hourly rate calculated by Taxhurts at the begin of this thread.

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Replying to meadowsaw227:
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By chatman
01st Jan 2015 20:25

He's an FD with a part-time accounting practice.

DKB-Sheffield wrote:
I believe the OP to be a professional bookkeeper who is able to perform most of the tasks of an accountant but is not quite there on the final accounting matters.

He's an FD with a part-time accounting practice.

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Replying to johnhemming:
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By DKB-Sheffield
01st Jan 2015 23:22

Crossed messages

chatman wrote:
DKB-Sheffield wrote:
I believe the OP to be a professional bookkeeper who is able to perform most of the tasks of an accountant but is not quite there on the final accounting matters.
He's an FD with a part-time accounting practice.

Yes, the posts actually "crossed in the post". When the OP stated the above fact, I was well on with my "reply".

As a result, the OP is clearly not the type of "bookkeeper" who would (or in fact should) be working for a rate anywhere need the £2.73 per hour "going rate" previously discussed. The going rate must surely be dependent upon the experience and knowledge and I believe the OP to be at the top end of the scale where rates and experience are concerned.

Furthermore, when rates of £2.73 and £10 per hour being "above market value" being quoted, I have to ask myself what rate the end client is being charged. If it equates to £2.73 per, fair enough. However, I would doubt the end client would be charged any less than £15 per hour!

Finally, to the OP. Please ignore unhelpful quotes regarding what I would hope would be deemed illegal rates. You must know the rate you wish to achieve. Base your transaction charges on that rate and you shouldn't go far wrong. Someone who believes complex sales and purchase transactions should be completed at 2 pence for 2 minutes work is neither the type of client your want nor are they playing the game fairly.

Good luck and best wishes!

Dave

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By cparker87
31st Dec 2014 18:17

Per transaction...
At £0.50 you'll be creaming it in (if as is generally suspected from the tone of this thread you are doing with smaller clients).

I you do go down that route you might like to keep abreast of 'OCR' software such as http://www.receipt-bank.com/pricing-single/uk/?geo_redirect_performed=yes.

Another interesting price point may be (for example) an ebay trader. Mass scrape of PayPal transactions to excel -> mass coding by transaction type -> import to accounting software... I'd suggest that might take, say 3 hours tops for significant volumes, each one a transaction in its own right. Could hit hefty sums.

If there is one thing I've learned during my first few years it's that clients want certainty. The skill comes in estimating how long something may take and then making it more efficient internally. In some cases our hourly rate can hit £300+/h and both sides are happy. £x is not appealing.

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By Ken Howard
31st Dec 2014 19:34

What is a "transaction"?

This is something I've often thought about, but when I've looked at current book-keeping jobs which I charge either hourly or fixed price, I see all kinds of anomalies.

Firstly, what if the bill is paid by two instalments.  Is it one transaction in total, or two, invoice and payment, or three, i.e. invoice and two payments, or 4, invoice, payment and reconciliation or 5 invoice and both payments and two reconciliations?

What about a van bought on HP.  Is it just 1, or is it 25 or 37, i.e. the purchase and then each payment?  What about the interest - is that another 24 or 36, i.e. the monthly interest posting?

It's something that sounds good in theory, but in reality it's not so simple and you probably need different "per transaction" rates for each type of transaction.

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Replying to Rgab1947:
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By ashwazeer
19th Feb 2016 07:19

Hi there,

This is a excellent question I need an answer my self?  Have you figured it out? Would really appreciate if you could share it with me. Thanks a lot

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By chatman
01st Jan 2015 20:20

Pricing per Transaction
Why not charge £1 to process a receipt/invoice, and £1 to process a cash transaction (assuming DKB-Sheffield's rate of two minutes per transaction)? Then it doesn't matter what you consider a transaction to be.

Then charge an additional fixed fee for year-end accounts, VAT returns etc.

Also, surely reconciliations will be very quick and simple if you're doing all the inputting properly, so no need to charge extra for them.

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