2. How to manage the risk of budget overruns and associated billing?

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

What are the risks associated with each project billing method?

i. Fixed-price billing: major risk

The margin risk is greater when the project is invoiced on a fixed-price basis. But conversely, it's also the billing method that yields the best profitability.

The risk lies in the fact that the amount invoiced to the customer is not directly linked to the work carried out to deliver it.

If the time taken to complete the project is longer than expected, this will not affect invoicing or sales. It will, however, have a negative impact on margins.

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

ii. Time and materials billing: limited risk, but needs to be controlled

Invoicing on a time-and-materials basis corresponds to invoicing on a time-and-materials basis. The customer and vendor agree on an hourly or daily rate. Time spent on the project is invoiced at the negotiated rate.

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

iii. Subscription invoicing: precise monitoring and the need for 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 timeshare CFO may invoice for monthly closing and reporting updates at a fixed price, invoiced monthly.

In all cases, this subscription-based invoicing must be automated, otherwise a great deal of administrative time will be lost. Project billing tools can automate this process.

Tracking the time spent on a service, and comparing the associated sales with actual time spent, helps validate the viability of the business model. Ideally, if the subscription is well negotiated, the margin increases as the work is automated and the learning curve enables tasks to be completed more quickly. This in turn increases profitability.

Annual rate increases are often applied to minimise the effects of inflation. Without this adjustment, there is a risk of eroding margins.

How to monitor project invoicing to limit risks

For fixed-price project billing:

• Stafiz provides full visibility of forecast margins, taking into account what remains to be done on the project. When a project is in danger of going over budget, managers are alerted to take corrective action.
• Deadlines are prepared in advance, and notifications are used to track the progress of project invoicing deadlines. With a single click, the project manager can inform the teams in charge of invoicing that a deadline is ready to be invoiced.

For time-based billing:

• Stafiz automates the validation of time spent to ensure reliable data, then automates the preparation and dispatch of invoices to save maximum time.
• Purchase orders are analyzed to confirm invoicing capacity, and reminders are sent to sales staff when purchase orders fall due.

For subscription billing:

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

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

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

2. How to manage the risk of project overruns?

3. How can I get paid faster by my customers?

4. How to manage complex billing arrangements

5. How do you handle tax billing and multi-currency billing?

6. How to manage invoicing between different entities within the same company (inter-company flows)

7. How can we simplify communication with our customers?

8. How can I change certain parameters during the course of a project that will have an impact on invoicing?

9. How do I set up a project quotation and invoicing tool?

The 9 problems of project billing