Circle-Slash AR
One of the biggest benefits of a fixed fee billing model for my firm has been the ability to eliminate accounts receivable. When you bill by the hour, the usual process is to perform the work, and then send an invoice.
Invoicing may start on the first of the month, by gathering timesheets and notes (or filling them out) for work performed the previous month. Next comes the laborious process of creating invoices.
When you’re billing by the hour, clients want detailed invoices that accurately reflect both the time spent and the work done. Preparing and sending invoices consumes hours and hours of unbillable firm time every month.
And, of course, firms are busy doing client work for the current month at the same time they're preparing invoices for the previous month. Sometimes, invoicing gets pushed off a few days, a week, or even a month or more.
When the client finally receives the invoice, it often takes another 30 days for them to pay – if they pay promptly. Of course, even if they pay promptly, they may not pay the entire invoice. One of the problems with a detailed invoice is that it gives clients data points to argue about.
So you may get a check for 70 percent of the invoice with a message that they’re sure you didn’t spend X hours on such-and-such, so they’re only going to pay you for Y hours.
Eliminating receivables has benefits beyond saving time. It has improved our cash flow tremendously.
Circle-Slash AR
With a fixed monthly fee for standardized client accounting services, we've been able to eliminate the invoicing process. When clients sign up for our services, they agree to have their monthly fee withdrawn from their bank every month on the first day of the month in which we will perform our services for them.
The withdrawals are setup to occur automatically. Now all of those hours we used to spend preparing the invoices are available for profitable client work.
We still do a small amount of hourly work for our concierge clients with unique and variable monthly needs, but even that's paid for in advance. Consulting clients who want to schedule a “coaching session” pay at the time they book a session.
Eliminating receivables has benefits beyond saving time. It has improved our cash flow tremendously. No more waiting 30, 60 or 90 days to get paid – or having to write off bad debt.
We are paid on time, every month. And, since we're paid through automatic withdrawals, our clients don’t have the option of not paying or making partial payments. We now can forecast and make business plans based on a predictable cash flow.
If you’re wasting hours every month on invoicing and collections, think about working towards zero accounts receivable. If you charge fixed fees for your services, use a workflow management tool to standardize and control your processes and labor costs.
Control scope creep by clearly defining the services you'll provide for the fixed fee and by having a process for obtaining authorization to charge additional fees for out-of-scope new requests.
Laura Redmond new
Laura Redmond is a financial controller and IT manager turned cloud accounting advocate and app designer. She is a QuickBooks Online power user, Advanced Certified QuickBooks ProAdvisor and member of the Intuit Trainer/Writer Network. She also is co-author of Intuit’s award-winning QuickBooks Online training and certification programs for accounting professionals, as well as a regular speaker at national accounting technology conferences.
In addition, Laura is founder of Redmond Accounting Inc., a boutique cloud accounting and consulting firm in Silicon Valley that was awarded Intuit's "2015 Top 20 Firm of the Future" and a Top 10 ProAdvisor for "Leading QuickBooks Online Practice." Redmond Accounting's workflow is centered on QuickBooks Online and its eco-system of apps.
Laura co-created the Aero Workflow app used by accounting firms to manage service delivery by staff performing recurring tasks for multiple clients. The Aero Library includes step-by-step instructions and procedures for many of today’s most popular apps in the QBO eco-system.