On the surface, invoicing for professional services organizations seems like a simple concept.
For services organizations just starting out, oftentimes it’s as easy as downloading an Excel invoicing template for consulting services, punching in your hours and rate, rendering a services invoice, and sending it to the client.
However, as services teams grow past 25 consultants, firms begin to focus their attention on streamlining the invoicing process. But quite often, even some of the largest professional services organizations are still approaching the vital task of invoicing incorrectly. Given that invoicing directly affects cash flow for a business, it seems like something that organizations should dedicate time to getting right, yet to this day perfecting the invoicing process continues to be put on the back-burner by many services teams.
Excel Invoicing Templates Are Not Enough
There’s a time and a place for Excel – but invoicing is not it. A key trait of any growing services business is the ability for top management to solve problems quickly and efficiently. Talk to anyone who has spent time managing a professional services organization and they will tell you that they spend most of their time “putting out fires.” As a result, Excel becomes a manager’s go-to fire extinguisher–it’s easy to understand, it can get the job done quickly, and it’s flexibility allows you to make things look the way you want. When it comes to invoicing for services work, however, that is where the benefits of using Excel end.
The invoicing process can be a tedious one. Even one small mistake could cost a business tens of thousands of dollars, often without anyone even noticing. And, the process can occupy a lot of time and resources if not done efficiently. With Excel, every step of the process – creating, proofing, approving, adjusting, and sending invoices – introduces inefficiency.
Not only is using Excel for invoicing labor intensive and error prone, but the manual processes can also reduce visibility and transparency for senior management who need insight into the performance of the business.
If Not Excel, Then What?
When it comes to replacing Excel templates, invoicing software seems like the obvious answer. But for professional services businesses, invoicing software isn’t usually offered as a standalone solution. Most commonly, it is part of a financial management solution, a time and expense tracking tool, or a professional services automation (PSA) suite. A typical and costly mistake that many services teams make, is selecting a type of invoicing solution that is unable to accurately support the needs of their business.
Financial Accounting Software
When thinking about generating invoices, financial accounting solutions seem like a natural starting place. That said, for professional services organizations invoices are more about people and projects than they are about simple debit and credit transactions.
If a services team plans to grow past just a few consultants, or is already well past that size, it’s probable that the organization will outgrow their accounting system quickly and won’t be able to rely on it for generating invoices and tracking project progress.
This doesn’t mean, however, that invoices for professional services work will not need to find their way into an accounting application to track receivables, cash flow, and outstanding balances. To accomplish this, it’s best practice to leverage a solution outside of an accounting application to generate invoices that can be integrated back to a business’s financial accounting solution. Robust solutions will have pre-built integrations to some of the most popular accounting packages, allowing data to flow seamlessly from one application to the other.
Time And Expense Software
Software designed for time and expense tracking is a much more natural fit when it comes to the invoicing process for services teams. These tools are better developed to manage people and projects and make it easier to translate activities into the financial components of an invoice.
However, time and expense software is not without its limitations. Missed or forgotten transactions, for example, can be problematic with a time and expense tracking tool. If the software a business is using is not able to recognize when a billing milestone has been achieved, it can go un-invoiced for quite some time, creating revenue leakage and reducing cash flow as a result.
Professional Services Automation (PSA)
For services organizations achieving growth, the only real answer when it comes to the right tool for invoicing is a professional services automation software.
A PSA software is a project management and resource management software rolled into one easy-to-use platform. The value that PSA software brings to the invoicing process can be seen in both reduced revenue leakage, and increased efficiency.
Reducing Revenue Leakage:
Consolidating invoicing and time tracking into the same system helps to eliminate revenue leakage. PSA software takes the process a step further by focusing on collecting all of the time that can be billed, and ensuring it reaches the invoicing process. Robust PSA solutions will have a detailed understanding of how much time is anticipated in a given period. Based on project schedules, a PSA solution will alert project leaders when things aren’t going according to plan. More importantly, a PSA solution will understand the difference between earning revenue and sending an invoice. This helps to recognize revenue properly on fixed price work.
A PSA solution will also allow project managers and finance teams to model exactly how they would like to bill their clients up front. With so many different contract terms available, this allows the organization to seamlessly complete the invoicing process in whatever manner suits them. Finance teams can complete the invoicing workflow quickly without the headache of manual processes. More importantly, this structure drives accountability throughout the entire invoicing process. Finance Managers and CFOs are provided a detailed view of exactly what has been billed, how it has been adjusted, and what is still being waited on. This helps streamline the business’s month-end processes and frees up valuable time and resources to focus on other important projects.
Perfecting the Invoicing Process With PSA
Through leveraging a PSA solution, organizations can reduce errors and increase efficiency, while also ensuring that cash flow follows closely behind work being performed. And, as the business grows, they offer a scalable invoicing process which means fewer fires to put out.