Richard Murphy's introductory tip on billing emphasised the importance of letting the client know what to expect. Creating expectation is one thing though, he writes. Delivering is another. Or, in other words, it's one thing to tell the client to expect a bill, it's quite another to actually bill them. This instalment tackles the nitty gritty.
Billing involves decisions on these issues (as a minimum):<BR><li> who to bill<BR><li> when to bill it<BR><li> how much to bill.
What to say on this bill will be tackled later, so that's not an issue for now.
Knowing who to bill requires accurate record-keeping. Three sorts are required for a billing system (and I'm assuming you have, as a minimum, a client list of some sort):
1. those who are billed regularly in fixed amount;
2. time records if you bill by the hour;
3. work done records if you're billing on fixed fee for agreed work done.
Regular billing
Accountants tend to over look the issue regular billing. Getting a client to pay by standing order is good. But to ensure that the cash recovered is properly recorded for both VAT and client money purposes is as hard. If the client agrees to be billed monthly and pay by monthly standing order ,both the VAT and client money obligations are met pretty much as a matter of course.
Otherwise expect problems because payment by a client in advance of a bill seems requires payment to a client account, always. You have been warned. Practice assurance monitors are unlikely to be amused to find payments in advance going to an office account. There’s little reason why they should now though. Since many small accounting packages such as Sage can now raise recurring fees, set them up to do so and this problem is solved.
Time based or fixed fee billing
This isn't the time to go into the time spent versus fixed fee debate of charging. I use both because both seem to have their place. Whichever of these systems is used two things are needed: records; and a trigger point to indicate billing is needed.
The practice that hasn’t got a database now is not serious about what it is doing. So, if you haven't got one, now is the time to do so. You cannot monitor client data, work flow, costs and critical deadlines without one. Nor can you hope to bill on time. So to put it another way, the excuse that you neither have time or the financial resources to create a database is a false one. You actually can’t afford not to have one.
Maximum satisfaction
But let's assume you have the records. In either case there is always one perfect opportunity to bill. That's when you send the client the work. When you're asking the client to do one thing, whether it be to sign the accounts or the tax return, ask them to sign a cheque at the same time. The reason is simple. When they've got your work in front of them is the moment of their greatest satisfaction with it. So that's the moment when they're most inclined to pay without argument or delay. There is no better rule to billing than this.
Holding your partners to account
That said, all rules are broken. If you're a sole practitioner and you don't bill at least you bear the consequences. I did however spend 12 years in a three-partner firm. If my partners didn’t bill I bore the consequences. That had the potential to bug me. As a result I developed a simple procedure. Once a month we had a billing meeting. The firm's WIP list was printed in descending order of value (yes, we did have that ability in 1989) and every partner was required to comment on every job that they were responsible for with WIP value over £100, whether it was a fixed fee job or not. They had to say when they would bill for the WIP and how much they would bill. This had two massive advantages:
1. Everyone was accountable. They had to bill. They were not given the excuse for not doing so;
2. Everyone had to own up to their WIP write offs. It also became a challenge to find WIP write ons, and we did. Overall we made about a 100% WIP recovery based on sensible charge rates.
Nothing guaranteed the cash flow of the firm better than that meeting. We all knew who was pulling their weight, or not. We knew who had too much work on to complete jobs, and reallocated resources as a result to get jobs finished. We prevented the tendency to be too weak when billing and write off costs by holding each other to account for doing so. Finally we knew which staff were recovering and not.
And if anyone had got behind with their billing for any reason, the very fact that we had the meeting seemed to solve that too. And setting such a low threshold for review was vital. The maxim that if you look after the pennies the pounds look after themselves may no longer be true, but like many smaller firms we had our fair share of apparently low value jobs. But by looking at every one of them when they had a value of £100 on them encouraged us to look for billing opportunities out of the normal course of routine work and so we turned routine jobs into profitable opportunities. That's why time-based systems are an essential addition to fixed price billing.
Just do it!
So the moral is, bill whenever you can, whenever the client is satisfied, and never let up on making sure you've done it. After all, you’re in practice to get the bills out.
Richard Murphy
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone
