2. How to manage the risks of budget overruns and associated invoicing?

Depending on the type of project invoicing, the risks of overruns are not the same and do not have the same impacts. In this article, we explore the impacts of project budget monitoring on invoicing and, above all, how to manage it. Discover the links to all the articles in the file below:

What are the risks based on each project billing method?

i. Fixed-price billing: significant risk

The margin risk is greater when the project is billed on a fixed price basis. But conversely it is also the invoicing method that allows for the best profitability.

The risk is linked to the fact that the amount which is invoiced to the client is not directly linked to the work carried out to deliver it.

If the time spent to complete the project is longer than expected, this will not change the billing or turnover. On the other hand, the margin will be penalized.

It is therefore important to monitor the project margin with visibility into the forecast to ensure that there is no risk of deviating from the budget.  

ii. Invoicing under management: limited risk but to be controlled

Cost-management billing corresponds to billing based on time spent. The customer and the seller agree on a rate per hour or per day. Time spent on the project is billed at the negotiated rate.

In theory, there is no risk of loss if the calculated sales price already includes a margin. However, sometimes not all time spent on the project is billed. Either at the customer's request as part of a renegotiation, or because the service required more time than estimated and the seller does not wish to include it in the invoicing for commercial reasons. When this situation occurs, the margin can quickly deviate from the target. It is therefore also important to monitor profitability when selling managed services.

 iii. Subscription billing: precise monitoring and necessary automation

Subscription invoicing most often concerns invoicing for the use of SaaS software for example, or for a basic service for which a fixed invoicing method per period has been negotiated. For example, a part-time financial director can invoice his closing and reporting updating services each month at a fixed price, invoiced monthly.

In all cases, this subscription billing must be automated, otherwise the loss of administrative time is significant. Project invoicing tools allow you to automate this invoicing.

Monitoring the time spent on the service to compare the associated turnover with real time makes it possible to validate the viability of the business model. Ideally, if the subscription is negotiated well, the margin increases as work is automated and the learning curve allows tasks to be completed more quickly. This effect leads to an increase in profitability.

An annual increase in prices is often applied to take into account at least the effects of inflation. Without this adjustment, there is a risk that margins will erode.

How to monitor project invoicing to limit risks

For fixed-price project billing :

• Stafiz gives full visibility on forecast margins by taking into account what remains to be done on the project. When a project risks deviating from its budget, managers are alerted to take corrective actions.
• Deadlines are prepared in advance, and notifications allow you to track the progress of project billing deadlines. In one click, the project manager can indicate to the teams in charge of invoicing that a deadline can be invoiced.

For billing based on time spent :

• Stafiz automates the validation of time spent so that the data is reliable, then automates the preparation and sending of invoices to save as much time as possible.
• Purchase orders are analyzed to confirm the ability to invoice and reminders are sent to salespeople when the purchase orders expire.

For subscription billing :

• Service rates can be set with a standard approach (but adjusted according to each project)
• Rates can be mass-adjusted to take account of price changes

The 9 problems of project invoicing and how Stafiz helps you solve them?

1. How to estimate costs, prices and billing type for a billable project?

2. How to manage the risks of project overruns ?

3. How to get paid faster by customers?

4. How to manage complex billing arrangements

5. How to take into account the invoicing of taxes? and multi-currency billing?

6. How to manage invoicing between different entities of the same company (interco flow)

7. How to simplify communication with customers?

8. How can certain parameters be modified during projects that will impact invoicing?

9. How to set up a project quote and invoicing tool?

The 9 problems of project invoicing