Accounting professionals and CPAs (Certified Public Accountants) are engagement-oriented. They refer to ‘projects’ as ‘engagements’ and manage them just like the engineers or IT consultants. Again, BillQuick Online is engagement-centric software that meets or exceeds all their expectations.
Engagements can involve budgets, fixed fee contracts and milestone billing. Accountants closely monitor budget spent and contract burned. Often, they schedule this information for automatic delivery or print it on-demand, as needed.
Other engagements are less complex but even then, you should manage them well for profitability. Such engagements include:
Tax preparation (Fixed Fee)
Monthly, quarterly and annual accounting services (Recurring)
Payroll forms services (compliance) (Hourly)
Payroll processing (Fixed Fee)
Software consulting services (Hourly)
Specialized consulting services (Hourly)
Special financial analysis (Hourly)
Loan application assistance (Hourly)
Traditional billing arrangements (contract types) with clients are hourly or recurring for accounting and consulting services. For tax services, they bill clients on a fixed fee or hourly basis. Some engagements contain a maximum fee, resulting in Hourly Not To Exceed contract. In less formal situations, accountants communicate a maximum fee verbally or associate a ‘shadow’ contract amount with an engagement.
Typically, managers review hours worked and expenses incurred before billing. Accounting companies refer to this as ‘pre-billing’ or ‘reviewing the WIP worksheet’. Depending on the value of the work done, client, and formality of billing procedures followed by the partner, this stage could take an hour or days. Work-in-progress represents potential revenue to the company (some accounting companies treat WIP as revenue). Hence, time and expense entries must be accurate and complete with the right bill rates applied to hours. Bill rates can be standard or special, depending upon the type of engagement or person doing the work.
A key pain point is asking questions about work done. The distance between the time when you worked and when you reviewed it for billing can be a few days or months. The more distant in time or the busier an employee has been, the harder it is to remember the details. This ‘fuzziness’ affects billing decisions. Thus, companies prefer that timekeepers add notes (memos) to their entries.
When reviewing WIP and deciding what to include on an invoice, the billing person must balance various factors such as the revenue earned for the work, reaction of the client and the likelihood of timely payment.
While billing, a partner or a billing manager can write-off specific items (the bill value is reduced to zero), make items ‘no-charge’ (include on the invoice as a zero-charge item), or adjust the bill value of the entire invoice. You need to monitor all these decisions to gauge the impact on the company and client relationship.
Accounting companies closely watch the ‘realization rate’ metric. This is the average bill rate achieved by a person on an engagement (billed) for a specific period. Some companies use this rate to measure the effectiveness of staff and managers. Realization rate is often a substitute value for profitability. Increasingly, companies look at profitability reports for clients, engagements, employees and task codes.