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Published:Jan 25, 2024

How to bill for professional services without the headache

Billing for your professional services doesn’t have to be a headache.

But issues like inadequate billing models, inaccurate time tracking, manual invoicing, and other problems can plague your billing process — and your whole business. 

In this article, we cover the basics of billing models and schemes, how to track and calculate your billable hours, and how to overcome common project billing challenges.

Types of billing models

Project billing helps define how a project’s costs are calculated and how revenue is generated. The type of billing model you choose can significantly impact your bottom line. Here are the most common types.

summary of upcoming information about core billing methods: project-based, time-based, and percentage-based, time-and-materials

Project-based billing

Charge a fixed fee for an entire project or specific milestones. The simplicity of this model makes it attractive for clients since they know upfront what the project will cost. 

The issue with project-based billing is that it can be inflexible, and if your cost estimates are off, you might end up making less profit.

Time-based billing

Bill based on the time spent working on a project. You charge an hourly or daily rate, which tends to be more flexible and‌ more profitable. 

It’s also more complex and less predictable. Carefully track and bill all working hours to prevent scenarios where the time spent exceeds the compensated amount.

Percentage-based billing

Charge a percentage of the project cost, value, or revenue. This model aligns well with project success, as your earnings scale with project performance.

The variable nature of this model can make it contentious and dependent upon factors beyond your control.

Time-and-materials billing

Bill for the actual time and materials (expenses) incurred on a project. This model is fair and transparent, reflecting the real-world costs of a project. 

However, it requires detailed record-keeping and can sometimes lead to disputes over what constitutes a billable expense.

Understanding billable hours and how to track them

Billable hours are the bread and butter of project billing, especially for service-based businesses. 

These are the hours you spend on tasks that directly contribute to project outcomes. Non-billable hours, on the other hand, are spent on tasks that don’t contribute directly to project outcomes, like administrative or training tasks.

Calculating billable hours can be done using a simple formula:
Billable hours = total hours – non-billable hours 

You can also calculate them as a percentage of total hours or use a time-tracking app.

Tracking billable hours

Keeping track of billable hours is a requirement for accurate project billing. Here’s how you can do it efficiently:

  • Track time as you work, not afterward, to ensure accuracy and eliminate guesswork.
  • Use a reliable time-tracking app to automate the process and reduce human error. 7pace is perfect for tracking billable hours because it integrates with your workflow and doesn’t disrupt your current setup and process. 
  • Categorize and label your time entries to distinguish between billable and non-billable hours.
  • Regularly review and edit your time logs to spot and correct errors promptly.
  • Periodically report and analyze your time data to identify trends and make necessary adjustments.
7pace offers automated, integrated, & professional time management

Billing schemes and invoicing

Invoicing and billing schemes are the backbone of your project billing process. They lay out how, when, and what amount you bill your clients. Not having a clear and consistent billing scheme can lead to confusion, delayed payments, and even loss of revenue.

Choosing a billing scheme

Choosing your billing scheme is an essential part of having an efficient billing process. One size doesn’t fit all when it comes to project billing schemes. Different projects might require different billing approaches:

  • Upfront billing: Bill the client before the project starts. It’s useful for projects with significant upfront costs.
  • Progress billing: Bill the client at regular intervals or milestones during the project. This is common for long-term projects.
  • Completion billing: Bill the client after the project is finished. It’s often used when the project scope is well-defined.
  • Retainer billing: Bill the client a fixed amount in advance for a period of time or a scope of work. It’s a common approach for ongoing services.
  • Contingency billing: Bill the client a percentage of the project’s outcome or result. This is often used in law and real estate.

Once you choose your billing scheme, it’s time to think about your invoicing setup.

Nailing down invoicing 

Nailing down your invoicing process will make sure your billing is accurate, timely, and easily trackable. Creating an invoice might seem as simple as putting some numbers on a page, but there’s more to it than that. Let’s break it down:

Step 1: Preparation
This is where you gather all the necessary information for the invoice. It includes client details, project description, billing method, billable hours, rates, taxes, discounts, and the total amount. An error in this stage could lead to disputes and delayed payments later on. 

Step 2: Sending the Invoice
Now that your invoice is ready, it’s time to send it to the client. While using traditional methods like using template sheets and sending via email is an option, it’s not optimal.

It’s often better to use invoicing software. It’s easier to track. You can automate follow-ups, schedule due dates, and see your entire invoicing history in one clean dashboard. This will come in handy in case of any disputes or billing disagreements. 

Step 3: Follow-up
Once the invoice is sent, your job isn’t done. Keep track of its status, send reminders if needed, and always acknowledge payments promptly with a receipt and a thank-you note. 

If you’re using invoicing software, you can set it up once and you don’t have to manually do it. 

Project billing challenges

Billing for professional services comes with its own set of challenges that you need to be aware of and prepared for. Here are the most common challenges that will typically hinder your billing process. 

1. Having too many schemes 

If you’re juggling multiple projects, clients, billing models, rates, currencies, and regulations, things get harder. Each variable adds another layer of complexity, making it increasingly difficult to keep track of all the moving parts. 

For instance, you might be dealing with a fixed-price project for one client, a time-and-materials project for another, and a retainer agreement for a third. Each of these requires a different billing approach, creating a minefield of potential errors.

Solution: Keep your billing as consistent as possible and if you need to be more flexible, then make sure to pay extra attention to the details related to that particular anomaly in your billing. 

2. Time tracking issues

Time tracking is essential for accurate project billing, particularly for time-and-materials projects. Making sure the accuracy, completeness, and consistency of time tracking across the project team and tasks can be a job on its own. 

Issues like forgetting to log hours and logging them incorrectly, spending too much time filling out timesheets, and other overhead tasks that makes time tracking a job on its own and mistakes very costly.

Solution: 7pace is designed to address these challenges. As an integrated, automated time management app, 7pace seamlessly works inside Azure DevOps, GitHub, and monday.com. This provides transparent time data that fuels detailed reports, streamlines billing processes, and supports better project planning and maintenance. It also helps set and achieve employee improvement goals.

While this level of time tracking sophistication may be more than individual freelancers or owner-operators require, it provides invaluable insights for optimizing time usage. 

Small to enterprise-level development and creative teams working on varied tasks can significantly benefit from professional, automation-focused, integration-optimized time tracker apps like 7pace.

3. Shared expenses 

Shared expenses, such as those for resources used across multiple projects or clients, can be another stumbling block. Allocating and dividing these costs fairly and transparently can be a tricky process, full of potential for disagreement or discomfort among the parties involved.

Solution: There’s no precise cure for this issue, but there are some best practices to keep in mind to avoid it:

  • Implement a clear method for allocating costs, such as usage-based, equal division, or benefit-received division.
  • Keep track of your records, including receipts and logs of usage or benefit, benefits or client.
  • Use ‌expense and financial management software that centralizes your cost and budget allocation.
a flow chart of how to create as software project budget to estimate resources, determine labor costs, all the way to finalize budget

4. Dispute resolution 

Billing disputes can be a huge drain on your time and energy. Whether it’s a dispute over an error in the invoice, a delay in payment, or a disagreement over the scope of work, resolving these issues can be a challenging process that strain your client relationships.

Solution: On top of the billing best practices we discussed, make sure to establish clear, written agreements outlining how disputes will be handled before they arise. This should include the allocation method for shared expenses and the steps to follow in case of disputes. 

Enhancing the project billing process 

Once your billing project process is in place, enhancing it becomes a critical aspect of improving project efficiency and effectiveness. Here are key methods to achieve this:

Use past data to improve quotes 

By analyzing your past project billing data, you can identify patterns and trends that will help you provide more accurate, realistic quotes and estimates for future projects. This can lead to a more efficient billing process and reduced discrepancies between estimated and actual costs.

Monitor and manage 

It’s important to actively track and control your project’s progress and profitability throughout the project lifecycle. This allows you to make the necessary adjustments and corrections, ensuring that the project stays within the budget and meets the planned schedule.

Make time tracking super simple

Using an easy-to-use time tracking app like 7pace that integrates with your project management software can simplify and automate the time tracking and billing process. This can save time, reduce errors, and increase billing accuracy and timeliness.

Have a change management process

Having a clear and consistent process for managing project changes is crucial. This process should clearly communicate how changes in project scope, schedule, budget, or quality will affect invoicing and billing. It can help prevent misunderstandings and disputes and ensure that all changes are properly billed.

Detailed invoicing 

Providing detailed and relevant information in your invoices can help your clients understand what they are being billed for. 

This can include the project name, number, date, detailed work breakdown, subtotal, taxes, discounts, total amount due. Payment terms, and payment methods. This can lead to faster invoice approval and payment.

Incentivize faster payments

Offering incentives for early payment, such as discounts, bonuses, or referrals, can encourage your clients to pay their invoices sooner. This can improve your cash flow, reduce the risk of late payments, and strengthen your client relationships.

Frequently asked questions

What is the professional service billing process?

The professional service billing process is the set of steps and methods that service providers use to charge their clients for the work they do. It involves choosing a billing model, tracking billable hours, creating and sending invoices, and following up on payments.

How do consultants bill their clients?

Consultants can bill their clients in different ways depending upon the nature and scope of the project. Some of the common billing methods are project-based, time-based, percentage-based, time-and-materials, and retainer billing.

What is the most common method of billing clients?

Project-based and hour-based billing methods are the most common methods of billing clients. However, there are different billing methods that have their own advantages and disadvantages. Some of the factors that can influence the choice of billing method are‌ project duration, complexity, budget, outcome, and client preference.

Professional billing done right

As you can see, billing for your services isn’t too complicated. As long as you lay out your billing scheme and process and use the right apps, you should be set.

Speaking of apps, you’ll need a reliable time-tracking app that integrates with your project management and accounting software. 

7pace is the perfect solution for this, as it seamlessly works within Azure DevOps, and monday.com. It provides transparent time data that fuels detailed reports, streamlines billing processes, and supports better project planning and maintenance.

If you want to take your project billing to the next level, try 7pace for free today and see the difference for yourself.

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