Professional services organisations traditionally struggle with cash flow and working capital management. While payroll represents a substantial and unavoidable cost, cash inflows are uncertain; with inefficient and outdated billing processes exacerbating the struggle to get cash in the door and paid fairly for the work carried out. Although this issue isn’t wholly unavoidable, by utilising a finance system with an automated invoicing function, many organisations can streamline invoicing and optimise cash flow.
Why it matters.
Invoicing for professional services organisations is fluid and inherently more complex compared to most industries. One fundamental issue is that invoices tend to consist of multiple elements including time, fixed fees and reimbursement of expenses.
The natural complexity of the invoicing requirements thus leads to a slow, complicated process with error-prone manual procedures, prompting queries and disputes from clients over the billed amounts. Seeing as professional services organisations rely on the respective cash being paid by the client, what they want to avoid is clients challenging invoices as it invariably affects cash flow. For instance, should an invoice be sent out late, not only will cash flow be affected, but the risk of write-offs likewise increases. This is because the time delay hinders an organisation’s ability to defend queries and challenges from clients.
Another critical issue is that without total transparency over the invoices, for instance, back up receipts for billed expenses; a client can easily say “I don’t remember that taxi journey” and there is no proof to contend otherwise. Sometimes, this lack of transparency is even seen as an opportunity by unfavourable clients to question and delay payment. And, without the ability to prove each transaction, you’re essentially setting your organisation up for disputes and delayed payments. Or in the worst case, no payment for work you have provided.
The solution is unquestionably an automated invoicing tool that combines the various invoicing elements including time, fixed fees and the reimbursement of expenses. By creating invoices automatically, there is a seamless integration between timesheets, expenses and recurring invoice modules, free from manual intervention and therefore errors.
Where appropriate, this also increases the transparency of invoices, providing clients with a breakdown of timesheets and expenses information. The expense receipt itself can even be attached to the invoice where required, so the breakdown is clearly visible. The client cannot, therefore, challenge the invoice numbers as they are fundamentally indisputable.
Here are the key functions to look out for in a finance system to streamline invoicing and optimise cash flow:
To ensure accurate invoicing and maximise billing, time must be recorded correctly. As timesheets need to be completed on a timely basis to facilitate this, a finance system with an integrated timesheet module that is both user-friendly and requires limited output from the end-user will be hugely beneficial, from both an error and time spent perspective.
For organisations with on-site workers, a user-friendly mobile application would also be advantageous.
No client likes surprises. So, an inflow of late expenses reimbursements at the end of the project does little to support customer goodwill and satisfaction. Like timesheets, an expenses module needs to be user-friendly, mobile-ready and automated to ensure that expenses are captured and recharged to a client on a timely basis.
In terms of automation, look for a finance system that can automate the input of expense receipts, and, if required, ensure there is geo-location tracking to calculate mileage claims automatically.
Recurring billing module
A recurring billing module automatically includes fixed fees on client invoices to cover ongoing work.
However, be aware of overbilling, as an automated system can continue to invoice a client when a service has finished. To avoid angry clients, look for a system with built-in safety nets.
Setup and maintenance of projects and activities
By nature, a constant stream of new projects with various tasks attached exists in professional services organisations. So, a finance system where the setup exists centrally and seamlessly interacts with the timesheet, expense and invoicing modules will ensure you steer clear of errors.
Many job roles contribute to ensuring that invoices are accurate, including consultants, project managers and commercial leads. Therefore, when selecting a professional services automation tool, make sure that it has a flexible, configurable workflow, so appropriate sign-offs exist for all elements of an invoice.
Automated debt chasing
Some customers have a late payment culture. Some are disorganised with poor payment processes when others simply don’t pay suppliers unless they shout. Automated debt chasing ensures that late-paying customers are chased regularly, prompting payment as invoices are due.
But, as not all customers are the same, ensure that automated debt chasing modules are customisable. This allows the appropriate correspondence to reach a client at the right time.
Written by: Peter Hucker
Senior Consultant, Xledger UK.
Get in touch with Xledger
Ovi Stici, Business Development Manager, Xledger UK
+44 (0)7486 946 029