Banking

Why client invoices should go out daily

IT consultant Erik Eckel believes waiting to send invoices is a rookie mistake. He outlines the logic and benefits of daily invoice distribution.

is a slippery slope that, if you tread carelessly, quickly becomes a devastating avalanche of ugly. The easiest way to endanger an IT consultancy is to delay invoicing. If bills don't go out, payments don't come in and cash flow dries up. The solution is simple: distribute client invoices every business day.

Numerous studies indicate quick receipt of accurate bills improves customer satisfaction. Possibly more important is that timely invoicing helps reduce bad debt and increases the likelihood of receiving full payment within traditional remittance cycles.

Real-world lesson

I ran a one-person IT consulting shop for years before merging my business with a larger consultancy. One lesson I've learned is that, the more clients and technicians you have on staff, the quicker invoicing becomes an intractable problem.

Even when I was operating a sole proprietorship, it was tempting to skip invoicing for a day. What could be more pressing than writing up invoices and snail mailing or emailing them to clients? The answer's easy for any professional services business owner: billable hours. Even though most IT consultants recognize the importance of preparing and mailing bills, it's even more important to have billable hours, right? Not so fast.

Billable hours mean nothing if you're not getting paid. If you delay even two or three days, you begin to forget important details regarding the service call in question. You may remember you deployed a new desktop or repaired an email server error, but it might slip your mind that you also repaired a network printer queue and fixed a faulty Ethernet drop (which required replacing a 15' category 5 cable). If you get too far down the road, you'll probably forget to add those items, including the replacement cable, to the bill.

Best practices to avoid

Advice often comes in the form of best practices to adopt and implement; in this case, I think it makes more sense to review common billing errors I've seen and heard consultancies make so you know what rookie mistakes not to make.

  • Prepare and distribute invoices on the 15th and 30th of each month. This common billing routine is inefficient and dangerous. It artificially limits your cash flow by automatically delaying invoice cycles. Worse, firms following this model tie up their cash and credit lines. This is especially true for IT consultancies that purchase hardware up-front for clients. Following this model, such consultancies end up providing clients with interest-free loans. That's not a smart business model.
  • Bill hardware and software costs on the same invoice. This common billing error can seriously jeopardize a small consultancy's financials. When a client signs off on a project, the next step is typically for the consultant to order the required hardware. Consultants sometimes wait to bill for that hardware when the deployment completes; this is a mistake, especially when multiple systems or servers are being deployed. Bill for the hardware upfront (i.e., the day it's ordered) or receive a cash deposit before placing the order.
  • Complete billing tasks every couple days. Even if you take great notes, sitting down to catch up on billing and invoicing tasks every couple of days means you're still limiting cash flow. Worse, you're creating delays between the time service is provided and a bill is received. The longer that gap, the higher the likelihood that payment problems could arise.
  • Assign someone else to complete one's billing tasks. Whichever engineer completes a project, that's the staff member who should enter the billing information. While there's nothing wrong with having a director or a supervisor review client invoices before they're mailed, unless the actual technician performing the service prepares the bill, it's quite likely that an additional service the client requested and received may go unbilled. It's easy to commit this bad business practice.

Most IT consultants understand the power QuickBooks possesses, especially when used with third-party applications that enable field service billing. You should now understand the logic behind distributing invoices daily; to recap, daily invoicing benefits cash flow, improves client satisfaction, increases the likelihood of quick payment in full, and reduces the possibility of bad debt.

Hopefully, by preparing invoices daily and eliminating common billing errors, your organization can improve its financial standing with little pain.

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About

Erik Eckel owns and operates two technology companies. As a managing partner with Louisville Geek, he works daily as an IT consultant to assist small businesses in overcoming technology challenges and maximizing IT investments. He is also president o...

49 comments
Ron_Ellis
Ron_Ellis

We've never done it. Our objective since we started in 1990 has been to give clients a detailed MONTHLY invoice that would allow them to understand what services were performed and allow us to be sure that the charges 'stood-up' in the context of the passage of time. So I agree with the admonition to track time daily, but can't agree that deluging clients with 5, 10 or 20 invoices a month is necessarily the path to providing the best service or even the best invoice...

Oz_Media
Oz_Media

I have customers complaining if they buy something near the end of the month and get invoiced a couple of days! I have been in business development and business management for over 20 years now, and I have yet to see a SINGLE company of any size that doesn't send out invoices once a month. When you are offering people 30 days to pay invoices, you can't expect them to keep cutting cheques ever day or so because they have another invoice to pay. They hire staff who take care of things on a schedule that coincides with the company's banking schedule and payment schedules y all other suppliers too. If I started invoicing daily, I'd lose all of my customers as soon as they found out it was a new policy, every single one of them GONE instantly, which would happen as soon as they receive an invoice and call me to ask why the hell they got it already. I have never been invoiced that way by any company I've dealt with, I've never worked for a company that invoices others that way, as their customers wouldn't stand for it either. Sorry but that's got to be the most ridiculous, concept I have heard in a long time. Do people even think of how other businesses operate before coming up with such BS? Seriously! 16 of your suppliers invoice in standard fashion that also coincides with the company's bookkeeping, and one starts invoicing daily, how long do you think that company will have business to conduct? Even considering an IT home support role as a small independant, if I was to start invoicing clients the afternon I got back home, I'd lose all my clients pretty damn fast indeed. man, I have clients that buy on the 1st, they KNOW they won't be billed until month end and their receptionist pays the bill with a credit card, which buys them another 30 days to pay without interest, in fact a LOT of companies do that these days. The cost of invoicing and time it takes to invoice, even if only a few dozen per day is also an effort for many companies that simply have other daily tasks to get done. I just can't get my head around how insane that sounds, I wonder what my clients would think. I think I'll start tossing around the idea and see if it's just me that thinks it's nuts but if others do too, I'm sure I'll get laughed at a lot and will have to tell many others it's just hypothetical and nothing is actually changing. Man, I can just feel the repercussions now! DUCK!

santeewelding
santeewelding

...is as -- if not more -- important than the work. Equal if not greater attention to accounting is the thing: you need to be all over it. The work is an expression of accountancy; not the other way around.

JohnMcGrew
JohnMcGrew

In my case, I bill depending on the type of client. For the majority of my clients, I send bills monthly. Most of these are long-term regular clients. For the "hit-and-run" jobs that are usually rare or one-time clients, they get billed either immediately or with the regular cycle. Running most of the bills at once is relatively painless. Most businesses I deal with don't cut checks the day they get the bill, so sending them out immediately wouldn't make much difference. If you're having cash-flow issues because of this, I think your problem may be cash management; not the rate that people pay.

Rastor9
Rastor9

When running my personal business back in the 1990's, individuals that hired me for "one time" work were billed when the job was complete. If if the job required extensive hardware/software orders a 1/3 deposit was required to start the contract. If the customer was a regular business with regular required work I billed on a weekly basis. Every Friday, I would sumarize, write and mail the bill. When Monday would come around, the customer typically had their bill to process and pay by the end of that week. There were times I made exceptions, but those were arranged before the job was started, and terms were known well before invoicing would occur.

reisen55
reisen55

I learned a long time that no matter how I enjoy my work, getting PAID is the end of the day result - free does not exist and if you do FREE EVER it has to be on an occasional basis for a very very good client. Invoice as soon as you get home. Stamp Get it into the mail and include a return envelope. You would be amazed what a positive incentive that can be. I invoice when I complete a task. Period. Now a brilliant consultant I work with, now on a reduced capacity, never invoiced. I went to a major account in June and asked when was the last invoice they received from my colleague for joint work. Answer: March. Three months gone and a fourth invoice for a major office move too. Incredible. I took control of that situation fast. Gets better. He also put in $7,800 worth of time from January through August and NEVER EVER told the client what his costs were. JUST DID THE WORK and suddenly was left with a helluva financial bomb of his own making.

gherardini
gherardini

i think you forgot the most important reason to keep billing up to date...: if you don't do it every day, it stacks up!! and soon enough you are stuck behind a mountain of invoices that you *have* to get done and when it is *that* imposing, it becomes an increasingly difficult task.

s_jackisch
s_jackisch

What sort of clients do you have that will cut a check everyday? Our clients all pay on a monthly cycle. I suppose we could submit 20 invoices in one month, but they will be guaranteed to lose or overlook at least one of them.

gmcdonnell
gmcdonnell

I have made my living as an IT consultant for over 23 years. I have always invoiced monthly and both my clients and I have been very pleased with this cycle. Inundating one's clients with invoices increases their overhead and yours. It adds the risk of invoices being lost and can create discomfort on the part of the client by causing them to feel like they're being nickel and dimed to death. In addition there are plenty of times each month when a client needs remote support that takes only 15 minutes (my minimum time increment) - would the author of this article have me bill a client for 15 minutes several times a month? Or should I eat this time? Neither approach is fair or reasonable. Who among us would put up with getting an invoice from our credit card companies each day we charge something? Companies are accustomed to monthly billing cycles for any service they depend on, be it credit cards, electricity or IT support.

casey
casey

I've been an independent consultant and business owner for over 30 years. You and I don't determine billing frequency by ourselves, our clients do. Case in point, my current engagement is with a Fortune 20 company. I asked them what their standard payable terms were before I started the project. The answer turned out to be 60 days. I then asked if I invoiced weekly, could I expect weekly payment after the 60 days had elapsed; the answer was yes. This week I generated invoice #58 to that client and received payment for invoice #50. My client prior to this one had a 2-week invoicing cycle with payment in 30 days. Bottomline: if you want to get paid and paid regularly, sync up with your customer's accounts payable cycles. As for billing daily ... don't confuse good timekeeping with billing. I've counseled many a professional service firm who was using an hourly model to adopt as close as possible the timekeeping model of legal firms - most track activity in 6 minute increments and are responsible for turning in records (paper or electronic) daily. Anything looser than this introduces large variability in the work-hours relationship, usually to the detriment of the firm as people's memories are incredibly short, especially when busy. Casey Exertus, Inc. 978 853-3360

drowningnotwaving
drowningnotwaving

First, I think if you are in a short-job style of business (eg take phone call, fix hard drive - take PC back to owner) doing the bills daily is indeed critical. (I guess in most of those businesses it's a COD style of billing anyway, but not always). I think the idea of splitting the items into separate invoices has its pros and cons, but I do like the idea that the client can't hold back payment of EVERYTHING on the basis that you have mistyped one digit on one line item. I think anyone (well, certainly a small-ish single person consultancy) who actually BUYS stuff on behalf of their client and is responsible for the cash has rocks in their heads. I know that this can cause an argument in the early days of an engagement (my very real example: "[i]I thought you would pay for your own airfares and then rebill our company at the end of the month"[/i] No!!). In my experience it's better to have these arguments earlier than later. my tuppence worth ...

Oz_Media
Oz_Media

Now how about the issue of daily billing? Banks, accounts and businesses just don't operate that way. not takign care of accounts is a different story altogether.

reisen55
reisen55

This weekend I completed a 12 station upgrade total replacement of a medical office and pending a trip to Atlanta, I had to get it done FAST and right. So for four days I piled my life into this project and on Monday morning spent 2 hours on-site as they opened up to check for errors, problems, etc of which there were a few. I gave them a working statement and an invoice. Monday morning chaos ruled of course and I did not want to ask for a check under those conditions, so drove home and about 2 hours later they wondered where I was because they wrote a check on the spot!!!!! SO I had to laugh and drive back to my account to get the check, drive back to a bank branch that deposits FAST and leave for family trip. You never know sometimes!!!

Oz_Media
Oz_Media

You make daily invoicing sound like responsible business by comparing it to a guy who didn't invoice for months at a time? how about, instead of absolute extremes, get organized and bill monthly, just as any other company does and pays their bills. It must be fun tracking who's up to date, who's at 30 days, who's overdue etc. too.

Sterling chip Camden
Sterling chip Camden

I send my invoices via PDF attached to email these days, and I encourage electronic payment. Saves the stamps, and the "check's in the mail" syndrome.

eHC1019
eHC1019

I have several clients that although I may generate an invoice when the job is completed, it goes to their accounting firm. This usually results in a payment of only once a month from their accountants. So if the accounting firm processes on the 3rd of the month, and I do an "emergency" repair on the 4th, then by the time I get paid, via mail, the date may be the 10th of the next month!

Erik Eckel
Erik Eckel

You bring up a great point. One item that should be noted: those clients that are on retainer contractors or monthly maintenance agreements receive one invoice a month from our firm. There is one exception. When a maintenance or retainer client orders hardware, we bill the client for the hardware the day that hardware is ordered. But I agree. Clients that will experience multiple touches per month should typically receive just one invoice monthly, otherwise it turns into a paperwork nightmare!

zefficace
zefficace

First, if not daily, regular billing will help you find out early those clients who will be trouble and might not pay well. Second, regular billing makes your life easier by allowing you to plan your budget. Third, smaller, regular billing is usually better received by clients and avoids the shock of one big bill at the end of a job. The "big bill syndrome" is the single most regular origin of litigation which will cause wild claims of "incompetence" or "overbilling" and such. Strangely, they said they were satisfied right until the bill came. If you want to avoid having to hunt down your money in court, regular billing is the way.

Sterling chip Camden
Sterling chip Camden

on what type of consulting you do. There is no way that I could bill my clients daily. I'd be sending some of them 20-30 invoices a month! I just keep good records and bill once a month. But I don't do hardware, and most of my business is ongoing.

JohnMcGrew
JohnMcGrew

So in effect, you've become a source of interest-free financing for a Fortune-20 company. Certainly better terms than they'd get from a bank. It's certainly not the same terms expected from their customers. I've had several Fortune-500 customers, and have never had to wait more than 45 days; usually less.

Oz_Media
Oz_Media

I agree mostly, teh client determines payment cycles, so if I incoice daily and have 30 day terms, and the customer only pays every 45 or 60 days, then I have countless invoices over the length of term and gaining interest, the customer would stick around more than 60 days before finding sommeone that bills monthly or iwll accomodate their terms. Invoicing daily screws up banking for everyone, it'll push bigger business in the gutter while the little guys just pay out and cut cheques as needed. Not exactly a way to grow a business.

Sterling chip Camden
Sterling chip Camden

I much prefer if they'll pay airfare, hotel, etc. directly -- especially now that i don't use credit any more. It's out of my pocket immediately, so I don't want to wait for the client to reimburse.

Oz_Media
Oz_Media

You are speaking of a VERY small home based business. If it is a series of one offs, it's cash in hand. Even in that case, if you start working with a client who runs a business, prepare to invoice them monthly instead. You can invoice whenever you wish, they will only pay you at month when they cut cheques though, whether in two weeks or at month end.

santeewelding
santeewelding

Does not operate that way -- work an expression of accountancy; not work bringing about accountancy -- I don't see it as business. That is a fundamental lesson I learned early on. If work even gets off the ground, it goes everywhere and nowhere without accounting for it. You may, if you wish, substitute "intelligence" for accounting. Something like the (programmer) convincing you that all flows from what he does. That would put your volition downstream.

Oz_Media
Oz_Media

I know that smaller companies may cut cheques on teh spot, but when you work with a mix of companies, you need to accomodate the standard company policy of monthly or sometimes even bi-weekly cheques. I see a problem with that in my industry, many customers can't pay invoices on time, they also ride from job to job without the funds to fill customer orders unless they get paid first. I always worked on the basis that I'll get you an invoice at month end, it's due in 30 days, 45 days and I start looking for payment and charging interest. However, you have to have the credit line to take care of other business in the meantime, whereas I see a lot of small businesses fail there and need payments from the last client in order to get product for the next. They ususally run about 3 years run between bankrupcties.

ArnoldZiffle
ArnoldZiffle

This is why I bill every two weeks. I have been burned before but only as a subcontractor. I'm not going to be out on a limb for more than two weeks. If I don't get paid at the agreed to interval I expect a reason why (and it better be good) with a new drop dead date. Only then do I proceed.

ArnoldZiffle
ArnoldZiffle

I agree with you Chip except I bill twice a month. It seems to encourage the client to pay me with employee paydays. I keep a detailed timesheet of every day's beginning and ending time noting what I did that day. If I purchase APPROVED third party software or hardware I note it on that days activity and invoice for it with attached approval documents in the case of my purchasing. I also agree with the previous statement, "I wish I had your clients!" My would go right to the next contractor if I invoiced every day.

JohnMcGrew
JohnMcGrew

...that we'd be debating this idea: That the only practical way for large companies with billions spent on IT infrastructure for near instantaneous access to and processing of accounting functions is to pay vendors on 45-60 day cycles. Is it still 1955? Nope. They do it because they like interest-free financing, and because they can.

Oz_Media
Oz_Media

It's not a matter of them havign it their way and some may feel they lose out that way. Its amatter that they handle their accounts in that fashion, end of. If you don't want their terms, you can rightly ignore their business. Someone else will take it and acommodate it, how is that wrong in ANY way at all? It's no different than some small time, home based tech saying he wants to invoice daily, which is actually far more absurd than extended cycles. Sure soem companies may acommodate that but many won't especially larger businesses. So if you're happy working alone with small mom&pop companies or small enterprises, don't want to hire staff because you simply cannot work with others or don't trust others to work for you, then that's your choice to stick to small-time billing routines. Nobody has to acommodate you any more than you feel you don't have to acommodate others.

Oz_Media
Oz_Media

IN larger organizations, spread across a nation, it's generally easier to work with extended terms, ie. 45 - 60 days, it's actually quite common. For a supplier, if you can't afford to float an account, in this case multimillions monthly, you simply don't get their business to begin with.

Sterling chip Camden
Sterling chip Camden

Companies that pursue a "you'll get paid when we say you will" approach are paying a hidden cost -- they're turning away people who might do them a world of good in favor of those who have no better prospects.

JohnMcGrew
JohnMcGrew

It's SOP for these companies, because they've trained so many vendors to accept that as the norm.

JohnMcGrew
JohnMcGrew

Because so many suppliers line up for their opportunity to be taken. But there's nothing new about that tactic. In previous generations, I believe Sears-Roebuck operated in a similar fashion.

JohnMcGrew
JohnMcGrew

Had a client bankrupt on me once, although it wasn't nearly as blatant as yours. But I believe the guy knew that he was eventually going to stiff me. All you can do is know that one way or another, that's going to come back on them at some point.

santeewelding
santeewelding

Is, I don't knock on anyone's door. They knock on mine, whereupon, they are mine.

JamesRL
JamesRL

Yes way back in the 80s, when I had small customers and made 100% of my income from consulting, 60 days was vexing. But if you want to play with the big boys, you have to understand their processes. If I hire someone through one of our regular contracting firms, we have processes to pay them promptly. If you walk in off the street and don't go through one of our pre-selected firms, you get paid as fast as the phone bill. I approve it, admin keys it into the system, it gets sent from our region to central accounting, they review, approve, and some day a cheque gets cut. This can take well over 30 days. Its not a question of insulting you or mistreating you, its the way the business is structured. If you can't handle it, don't knock on my door. James

Oz_Media
Oz_Media

If you want to do business with them, you accept THEIR terms, end of. Just like WalMart's suppliers, WalMart tells THEM how much they are going to pay. When they can't meet teh demands, WalMart helps them outsource to foreign lands to get cheaper labour. If they still won't comply, they go somewhere else and, in most cases, that sinks the supplier instantly.

Oz_Media
Oz_Media

60 days terms are negotiated for several companies I've dealt with. If not, they pay in 45 by credit card and that buys them another 30 days anyway.

santeewelding
santeewelding

That signs for work in the morning, then declares bankruptcy that afternoon, knowing all the while they were, is dearest to my heart.

Sterling chip Camden
Sterling chip Camden

... don't stay my customers for long. I don't care if they're Google, Microsoft, or IBM -- that can't be condoned.

Oz_Media
Oz_Media

I've done it when asked to fly out and see someone, "fine, you prepay my airfare, hotel and car and I'll see you on Monday". But when you want to grow and start offering services to bigger companies, they'll just find a company that can afford to float costs instead.

Oz_Media
Oz_Media

I think that's expected of most companies today, the guy that works and bills is teh guy that looks like a tiny cottage business and doesn't garner crediility when it comes to bigger jobs, which they will usually farm out to someone with more professional presence. Seriously, I would invest a couple of hundred thousands in a company's product if I didn't think they could cover the upfront costs themselves. I've seen it where one small business just APPEARS too small, they get the little jobs and when a major need comes along, that same client goes out and seeks a bigger IT company to help. Act like a small, home based business and you will always be regarded as one.

Sterling chip Camden
Sterling chip Camden

Yes -- I have on occasion billed a supposed "one off" immediately, only to have them turn right around and ask me for something else. Not complaining, I love the business, but I learned to wait until the end of the month to bill, just for convenience. If you have a good accounting system in place and always remember to log your hours every day, then it usually isn't a problem.

Oz_Media
Oz_Media

Just as logical and easy to follow. Lorem ipsum dolor sit amet, rhoncus conubia penatibus in, et orci mauris gravida semper tempor curabitur, id ac nec, massa ut turpis. Elit labore, nulla sit cum mi nulla. Delectus non ut, sit molestie tortor nec senectus, aenean est turpis, non arcu ipsum aliquet at diam cras. Tempus quis suspendisse sed ut. Et faucibus mollis massa, eu felis, nunc mauris praesent in quia quam, risus vel nemo sit wisi. Maecenas cubilia mauris id a odio integer, nulla torquent at nec, duis ac in, neque dui et sodales nisl donec, vel massa nonummy malesuada amet sed sodales. Velit ac vel praesentium neque eleifend lectus, ultrices sem phasellus nisl. Nullam dui eu amet nunc fringilla, nonummy ullamcorper lorem ut nulla ante quis. Turpis nunc quam vulputate sed metus, dui massa scelerisque sit in, id mattis donec ligula ipsum aptent posuere. Eget purus massa mauris enim, tempor et risus blandit libero mauris, vestibulum augue parturient velit, orci laoreet. Elit pellentesque duis turpis amet tincidunt, per lectus fusce.

santeewelding
santeewelding

Which you appear in turns to get, is just as you said: "proper accounting" determines how you bill. Then, you also appear to say that how you bill determines "proper" accounting, which, it does not. Accounting itself, primordial, ordains propriety of billing, however that (work) may proceed. You appear instead to judge the propriety of business by nature of billing, as others here seek to judge propriety by nature of downstream work -- work that comes into being [i] only [/i] by virtue of business intelligence, or, "accountancy". That first principle of work -- intelligence -- may only amount (and in my case, often does) to a few words and a handshake. You sound like you have done it that way, too. Holds no less for enterprise: work is the tail, not the dog. Quit obsessing about just how the tail wags. Keep your eye on the dog. That dog ain't moot.

Oz_Media
Oz_Media

If yuo hve a good accounting system, which any real business should, whether just yourself or hiring staff, they have to also be prepared to work with other companies, suppliers and the customers themselves. Perhaps Joe Schmidt wouldn't mind getting an invoice after having his home PC repaired, in fact I get cash on the spot for that kind of work, but to operate a functional business there are accounting routines. Those routines include account collection monthly, just as all others expect their invoices paid. I couldn't imagine calling a client and saying, "yeah, I know it's the 7th but your account is due on the 6th and we didn't get a cheque yet." They are just going to say 'Fine, I'll pay interest and have my accountant cut you a cheque at the end of the month with all our other cheques.' That is the last I hear from that client. Certainly I don't need to explain business account banking and interest rates to someone as verbally astute as yourself. You can't change your rules when they inconvenience every other company you deal with, that's just handing business to your competitors. One thing I've learned in business is that every company has an excuse for what your competition does, as a reason not to deal with you. I've also learned that yuo can't always give the customer what another company does. So, instead of asking what competitors do for them that keeps their business, I always ask what "would you need to change in order to deal with the perfect company". You would be shocked hwo many times people don't like how the competitors accounting doesn't coincide with their own and the competitor is not willing to accomodate their accounting needs. The time that acccounting is done is as imperative as doing it to begin with. If you don't accomodate other accountants, they will not accomodate you. Your bills will always be overdue because you'd be waiting past your own deadlines in order to get paid. They are going ot bitch and whine to purchasing until they stop dealing with you. The boss will hate the changes in teh banking, as it throws all profit numbers and projections out teh window etc. Forget it, it's like running in a circle while others run the oval. Your eloquent speech about the importance of proper accounting is moot, proper accounting doesn't mean you have to invoice daily, just ensure it is handled monthly. If you are a slacker, print your invoices daily and mail them monthly. Lets find out how many accountants at Techrepublic/CBS are billed y their clients or invoiced on daily, that would get you some odd looks! They'd probably tell you to get out of their office and laugh at you on the way out.

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