When working with clients, you have the option to bill them a fixed amount or compile your time and bill them based on staff use. Although you end up getting paid either way, the amount you get billed, time required to prepare the invoice, and hassle given by your client may be different under the two methods.
Benefits of Time Sheets
Using time sheets to report hours in the most accurate way to bill for your services. After all, you end up billing for exactly the work performed and for the exact personnel that were involved. This approach makes it easier to recoup the time of more experienced staff members who bill at higher rates. There is also less need for strict contracts. If your client wants additional service, you simply add hours and bill more. This same flexibility can be difficult to maintain under a fixed-fee contract.
Downsides of Time Sheets
As additional services are requested or anticipated work is no longer needed, the amount you get paid changes. This uncertainty makes it harder to plan and make strategies for the future. There are also additional administrative burdens in maintaining time sheets. Instead of putting your time towards actual accounting services, you have to allocate some of your time towards record keeping. You must keep detailed records about when you worked, what was completed, and who completed the work. Otherwise, there is not enough information to pass along to your clients when you produce your invoice. Unfortunately, because of the intricacies of keeping time sheets, clients may dispute the figures you report back.
Benefits of Flat Fees
Implementing a flat-fee structure eliminates many issues with billing your clients. Since the final dollar amount is known, you can develop a payment structure upfront, and your client knows the exact amount due on certain dates. Because your clients agree to rates upfront, there is little room for disputing the charges. As long as you cover you bases about the specific services you provide for the fixed fee, the contract with your client is straightforward. This approach also helps you forecast cash flow, as you should have a pretty good idea of what you will collect when.
Downsides of Flat Fees
With fixed-fee billing, unforeseen events may result in more work for you. To explain, imagine you initially meet with a client and propose a quote based on the information provided. Unfortunately, the work takes much longer than expected. As a result, the initial quote is no longer suitable, and you earn less than you need to cover your time and expenses.
Making the Transition
If your firm is considering shifting from one method to the other, be mindful of your customers and give them sufficient notice. The shift has a greater impact when going from time sheets to flat fees. Flat fee agreements require heavier communication and contract development upfront. You must also ensure you foster trust with your clients, as the proposition to pay a set amount for services may drive some clients away. On the flip side, if you switch from fixed-fee billing to hourly billing, you need to find and integrate software to help with time tracking.
There are noticeable differences between billing a client using time sheets and flat fees. Although time sheets grants you a certain level of flexibility, flat fees tend to be more efficient for smaller firms. While making your decision, weigh the pros and cons of both options. In some cases, you may want to take a hybrid approach.