Bad billing practices not only cost you money, they give clients a license to kill your profits. Here is a list of 5 bad billing practices that every business should avoid not only to protect their business but also to grow profit.
1) Hiding ‘No Charge’ Items on Invoices
In addition to clearly indicating that you’ve done the client a favor, displaying a no-charge line item to your invoices makes it easier to justify charging for the same services rendered later, after you’ve already performed the service numerous times for free.
2) Beginning Projects without Retainers
Think of this as just getting the last month’s rent. If you start working on a project without a retainer and something happens to your clients or their company, those hours you and your employees worked since last invoice will be lost.
To avoid this possibility, charge a ‘deposit’ (retainer) for the last’s month’s bill upfront. Simply calculate the monthly fee you’re going to charge them, and bill them one month upfront. This is similar to how rentals charge you the last month’s rent in advance. Don’t make the project status Active in your system until you have the retainer money in hand.
3) Not Adding Mark-ups to Reimbursable Expenses
Add 10-20% mark-up to the reimbursable expenses for the time your team has to spend in managing it. For example, if you’ll be traveling, your team needs to book you a flight, room, and rental car, all of which will come out of your pocket initially. The 10-20% pays for your team’s effort while they planned your trip.
4) Not Charging Interest on Late Payments
Charge a penalty for paying late; otherwise, clients will not make paying your bill a priority. Charging interest on late payments is good for two reasons. First, when an invoice indicates the payment is late, and that you’ll be charging interest, clients are more likely to pay promptly. Second, if they don’t pay on time, you’ll make extra revenue when they do pay. Win, win.
5) Not Sharing Your Budget on Lump Sum or Fixed Fee Projects
Instead of simply charging the client a lump sum, include a list of tasks with associated hours that the fixed fee covers. That way, if they start taking a mile when you’ve only given an inch, you can justify charging them extra for the services. Additionally, the client will know exactly what is included in the fee and what is not.
If you implement these five tips (or avoid these 5 bad practices), you will see a difference in your revenues, which ultimately builds up your profits. By being professional and honest in your dealings with the clients, you will be able to justify your costs, time and other resources spent on their projects.