Getting paid is the most important part of providing a service. So what’s the best way to handle your billing? In this blog, we’ll break down some common terms and formulas for project billing.
What is Project Billing?
Project billing is the process by which professional service providers invoice their clients for the services rendered. In short, it’s how you get paid.
It's a financial transaction that reflects the value delivered, the time invested, and the resources utilized in a project. But project billing isn't a one-size-fits-all scenario. It comes in various shapes and sizes, depending on the nature of the project and the agreement between the service provider and the client.
Types of Professional Services Billing Models
Fixed Price or Project-Based Billing
In this model, the service provider and the client agree on a fixed price, or flat rate, for the entire project. It's straightforward and provides budget predictability.
Time and Materials Billing
This model bills clients based on the actual hours worked and the cost of materials used. It offers flexibility but requires diligent tracking.
Daily or Hourly Rates
Clients are billed according to the hours or days the service provider works. It's precise but can leave clients uncertain about how much a project will cost.
Milestone Billing
Payments are tied to specific project milestones or achievements. This form of billing aligns with how a project is progressing. It can be a helpful way to break things down into measurable goals.
Retainers Billing
Clients pay a recurring fee to access a set number of services each month or during a specified time period. This is a great way for you to be able to budget your projects out, knowing you have a set amount of cash flow coming in.
How do You Track Billable Hours vs. Non-Billable Hours?
Some hours are billable, meaning they are directly connected to a project that can be charged to the client. Others are non-billable, encompassing tasks that are essential to your company but may not directly generate revenue.
How to Calculate Billable Hours
Calculating billable hours involves a straightforward equation:
The total number of hours spent on billable tasks / The total working hours in a specific period
While billable hours can be a great way to keep track of budgets when you’re juggling multiple clients and/or projects, some of the hurdles include:
Tracking Revenue and Cost
Keeping an accurate record of revenue generated and the costs incurred is crucial for accurate billing. Miscalculations can lead to financial discrepancies, limited profitability, and poor client retention rates.
Time Tracking
Efficient time tracking is key for billable hours. However, manual time-tracking processes can be cumbersome, prone to errors, and time-consuming.
Admin Expenses
Administrative tasks tied to project billing can be overwhelming. They include generating invoices, tracking payments, and ensuring compliance with various billing models.
Is PSA Software Worth it?
The key to overcoming these challenges and optimizing project billing is integrating Professional Services Automation (PSA) software. With PSA software, you can:
Provide Accurate Project Estimates
PSA software helps you generate precise project estimates, ensuring that you and your clients are on the same page from the start. PSA software, like Forecast, is able to analyze your past projects to make accurate budget predictions that are customized to your organization.
Streamline Your Billing Process
Mundane or repetitive tasks, like re-entering data in a spreadsheet, are likely slowing down your finance team. PSA software automates billing workflows, making the process efficient and error-free.
Quickly Create and Review Invoices
Invoicing becomes a breeze with PSA software. You can create, send, and review invoices swiftly, ensuring timely payments.
With the support of PSA software, you can master the art of project billing to make sure you get proper compensation for the services you provide.
Forecast centralizes project management, resourcing, and financial data into one easy-to-use, native AI-powered platform. Integrating seamlessly with your existing technology stack, Forecast optimizes real-time planning, predictive analysis, and financial returns from your delivery teams and projects.
