This is the third installment of a series of articles that looks at the decisions firms need to make when they implement the next generation of time and billing applications.  The first installment presented an overview of the new capabilities you should expect to see in the tools of the future and the second in the series took a detailed look at the issues firms should consider as they developed new work codes to get more from their new systems. (To read part one and two of this article please use the links at the bottom of this page).

How Many Firms Produce Bills
The majority of firms I deal with produce bills on a monthly or semi-monthly cycle.  Billing sheets are printed and distributed to partners and/or managers who develop the verbal content and the amount of the bill.  This information is given to an administrative person who prepares the bills in the time and billing system (although you would be surprised at the large number of firms who prepare invoices in Microsoft Word).  These billing drafts are then reviewed and revised and finally sent to the client.   

There are several things wrong about this approach.  First of all it slows down the administrative processes of the firm and artificially increases billing stress.  In most cases, this approach requires holding open the firm’s accounting period until all bills for the month are completed. 

Another problem with the cycle approach is that it increases the time gap between the performance of the service and the issuance of the bill.  This has a negative impact on the client’s perception of the bill.  It also creates the slowest possible collection cycle for the firm. 

A Better Way to Bill
One of the most beneficial changes a firm can make to increase fees is to implement “event-based billing”.   Essentially, the client is billed at the point a service is completed.  This means bills are created daily, not on a monthly or other cycle basis.  Progress bills are still handled as agreed to with the client, and there are always a few exceptions to this approach. 

Event based billing produces more fees for a couple of reasons. Clients value the service higher at the time it is completed rather than later.  In the words of one CPA, “we want to bill the client before the tears of appreciation dry in their eyes”.  Billing sooner means you get paid sooner. 

Another reason that event based billing works well is that there is a tendency to bill more when billing services individually rather than grouping several services in a single invoice.  If you bill a “positive” service (tax planning, business valuation, etc,) with a “negative” service (tax return preparation) the overall invoice is considered “negative” and less is billed.   

Another recommendation is for the bill to be originated by the firm member who was primarily responsible for providing the service.  This person typically has the most knowledge about the specific service.  In this manner, some, but not all, of the task of billing is removed from the partner.  The majority of the bills will require review at a higher level.  This approach gets firm members involved in the billing process earlier in their accounting careers.  They learn earlier that in order for the firm to prosper it is important to provide clients high-quality services and to bill for them in a timely manner. 

Finally, almost all billing should be done on screen.  Use pre-formatted billing paragraphs to make it easier for team members to prepare invoices.  Also, emphasize to billers that they should keep the bill simple and do not provide detailed billing information to clients unless specifically ask for it.  When it is necessary to supply details, try to limit the information to the date and person providing the service, and a description of the work done on that date (from the time card note).  In most instances do not provide the amount of time spent on the detailed item. 

Challenges You Will Face
To bill immediately at the completion of a service, it is important to have all time and expense information associated with the service.  This means that firm members have to enter time and expense information ‘contemporaneously” as they do work.  The time and expense expended on a service may not reflect its value but it certainly records the cost of performing the service.  Also, accurately recorded time information can help identify change orders or variations in recurring services that may be important in determining the amount to be billed for the service. 

Moving to on-screen billing may be perceived by some firm members as turning professional staff into statistical typists.  Some firm members will be used to producing “War and Peace” length bills and will be concerned about having to type these lengthy invoices. Use predefined billing paragraphs (all time and billing systems have this feature) and keep the bills simple.   

Your existing clients will note the change in frequency and timing of the bills.  Most will never mention the changes and some will even appreciate getting more timely billings. For those that ask for an explanation of the changes, tell them that the firm has made changes to its time and billing system.  If a client objects to the new billing process, change back for that client – there will be exceptions.  

Part I: Time and Billing: Time for a Change

Part II: Time and Billing: Work Codes

Tom Davis CPA is owner of Tom C. Davis, CPA LLC and president of Knowledge Concepts, Inc., the developers of FirmWorks.  Contact him at tdavis@knowledge.org and at 229.247.9801. 

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