Some clients of your accounting firm can be difficult to get ahold of. Some may not even make their payments on time. To avoid these issues it is possible for accounting firms to streamline time tracking and client billing processes. All of this can be made simple with practice management software. Here I will help you understand how your accounting firm can optimize time and billing.
Before we dive in, below are some key numbers from Intuit to help understand the accounting industry’s billing habits:
- Hourly billing in the accounting industry is on the decline. 57% of accounting professionals billed hourly in 2018, which is down from 68% in 2016.
- 50% of financial professionals bill using a fixed-rate.
- 70% of advisory services bill hourly.
Different Approaches to Billing
The two main approaches for charging clients are hourly and value-based billing. It is important to understand these approaches in order for you to determine how you can optimize time and billing software within your accounting firm.
While on the decline, most accounting firms bill with a fixed hourly fee. While this approach can be good for some accountants, there are a number of reasons why it may not be the optimal choice. Often, hourly fees can inhibit open communications. Clients may be reluctant to call their CPA with the worry of being charged for each minute. It can also be difficult for both parties to predict the cost of a project when completed.
When work is tracked by time spent on a project, there is often little incentive to innovate or improve processes. When your business bills hourly, time literally means money. And, as a lot of service providers are aware, tracking time can also be time-consuming. Plus, you may end up eating your time if you spend more time than originally estimated.
This approach bases the amount billed on the value of the service instead of the number of hours spent. This model can help improve client relationships and retention and can be highly beneficial if you are looking to offer advisory services.
Setting a fixed cost can allow you to price your services at a fair value for both you and your clients. The finished product of your work remains the same, whatever time it took to complete. This pricing model will also be attractive to clients who want to know upfront how much they will pay. Also for you, budgeting will be clearer and it can be easier to focus on profitability and mid- to long-term goals.
Invoice Best Practices
There are several best practices that can substantially improve the way you invoice.
Automating Your System
Manually keeping track of your accounting firm’s invoices can be time-consuming and above all, lead to mistakes. You may use spreadsheets in your business such as Excel and Google Sheets. Continuing to utilize these tools can seem like a natural choice if you have always done it that way. However there are a lot of the latest technology solutions that can remove hundreds of hours of admin work from your practice.
Staying Transparent With Your Clients
Billing should be discussed with a new client during onboarding for expectations to be clearly set on what you will be charging and how you work. Whatever your pricing model is, be sure the client knows and understands everything about it. You do not want to surprise them with an unexpected number on the invoice.
Your pricing structure and billing practices should be laid out in the engagement letter you will share with each new client. With regards to on-time payments, make sure to be clear on late payment policies.
Is there a warning period, or a fee for missed payment? Everything of this nature should absolutely be transparent and discussed before an issue arises. Transparency is key in order to optimize time and billing within your accounting firm.
Improving Your Organization
If you charge an hourly fee for your services, that likely means you are tracking each moment spent working on a project and then converting that into a billable invoice. That adds more tasks and time to a project when you could be more constructive.
Plus, it leaves the door wide open for avoidable mistakes to occur. Instead, consider investing in technology that does the work in your stead. No matter how organized you are, it can be overwhelming to precisely, and constantly keep track of your time. Software programs can keep track of your time at multiple levels and time entries can automatically become easy to file line items.
Tracking down an updated address for your client base can become a daunting and menial task. Transitioning to a 100% online billing system enables you to deliver electronic invoices to clients’ email addresses, which is easier for both the accountant and the client.
Optimize Time and Billing in your Accounting firm Now!
No matter what type of billing system or time-tracking processes you use, being on the same page as your clients are the most important part. Even if you need to adapt all of the above to the particularities of your own practice, these general guidelines should help you understand what to do to start improving your time management and billing system.