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.
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.
Related TechRepublic resources
- Download: Automated invoice template
- How to manage invoicing and receivables as an independent consultant
- 5 ideas for secure invoicing
- Three tips for billing maintenance plans
- Is billing by the hour unethical?
- Billing IT consulting clients for travel time
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 of Eckel Media Corp., a communications company specializing in public relations and technical authoring projects.