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

Depending on the type of invoicing of the projects, 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 especially how to manage it. Discover the links to all the articles in the dossier below:

What are the risks depending on each project billing method?

i. Flat-rate billing: significant risk

The risk on the margin is greater when the project is invoiced at a fixed price. But conversely, it is also the billing method that allows you to generate the best profitability.

The risk is related to the fact that the amount that is invoiced to the customer is not directly related to the work done to deliver it.

If the time spent to complete the project is longer than expected, it will not change the invoicing or the turnover. On the other hand, the margin will be penalised.

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

ii. Invoicing by direct contractors: limited risk but to be controlled

Invoicing by direct management corresponds to invoicing by time spent. The customer and the seller agree on a rate by the hour or by the 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 of the time spent on the project is billed. Either at the request of the customer as part of a renegotiation, or because the service required more time than what was estimated and the seller does not wish to include it in the invoicing for commercial reasons. When this situation occurs, the margin can deviate quickly from the target. It is therefore also important to monitor profitability when selling services on a direct basis.

 iii. Subscription billing: accurate tracking and automation required

Subscription billing most often concerns billing for the use of SaaS software, for example, or for a basic service for which a fixed billing method per period has been negotiated. For example, a timeshare CFO can invoice each month for his or her reporting closing and updating service at a fixed price, billed monthly.

In any case, this subscription billing must be automated, otherwise the loss of administrative time is significant. Project invoicing tools make it possible to automate this invoicing.

Tracking the time spent on the service to compare the associated turnover with the real time allows you to 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 allows tasks to be completed faster. This effect leads to an increase in profitability.

An annual increase in tariffs 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 mitigate risk

For fixed-price project invoicing :

• Stafiz gives full visibility on the projected margins by taking into account what remains to be done on the project. When a project is in danger of deviating from its budget, those in charge are alerted to take corrective action.
• Deadlines are prepared in advance, and notifications are used to track the progress of the project's invoicing deadlines. The project manager can tell the billing teams that a deadline can be invoiced with one click.

For time-based billing :

• 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 made to sales representatives when purchase orders are due.

For subscription billing :

• Rates for services 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 does Stafiz help you solve them?

1. How do I estimate the 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 do I account for tax invoicing and multi-currency invoicing?

6. How to manage invoicing between different entities of the same company (intercompany flows)

7. How to simplify communication with customers?

8. How can I modify certain parameters that will impact invoicing during projects?

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

The 9 problems of project invoicing