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4 Ways to Advance Your Billing Process

Gary Dwyer
GaryDwyer
Product Director
BST Global
One of the most critical processes for any successful business is billing. To advance your own AEC firm’s billing processes, it’s important to understand four key ways that can help. The Billing Process Getting your billing to run efficiently, is an important step in optimizing your firm’s cash collection. But if you have a poor billing process that takes too long to get invoices out the door, that makes it difficult to collect the cash you need, when you need it. While it’s very possible for you to fix your firm’s billing issues, you can’t think of it as a one-and-done process. It takes time, and some trial and error, before you can get it right. By setting the expectation that billing cannot be fixed overnight and that it requires constant effort from all persons involved, you’ll make the chances of fundamentally improving this process much higher. How to Improve Your Billing Process There are four key elements you must pay attention to when working on your firm’s billing process. Let’s investigate each. Know the terms of the project: The more clearly defined your invoicing terms are in the contract with your client, the less likely you’ll be to have misunderstandings. And by “invoicing terms,” I not only mean how long your client has to pay the invoice, but also the layout and the content of the invoice. What goes into an invoice and what it looks like may be different for each project. But, by introducing standards to limit the number of varying invoice formats, it makes it easier to ensure your team is using the correct format from project to project. Schedule frequent billing reviews: Project billing reviews should be scheduled throughout every month. Because too many AEC firms still consider it a monthly event, this causes bottlenecks when trying to do a billing review of all projects in a compressed timeframe. Instead of doing it all at once, try spreading it across the month and doing a few projects each week.For example, say you have 100 projects going on at once, you can review 25 a week instead of 100 at the end of the month. And even if you’re not billing your client each month, it’s still a good idea to review the charges you’ve billed on a regular basis to make sure they’re allocated to the right project and the right task. Monitor the billing process: Project Managers, Project Directors, and Project Accountants are usually involved in the review process of the draft invoice or prebill. Because several individuals need to be involved, this can make it easy to lose sight of when each person is working on the bill.Ask yourself this: your Project Manager is done with their review – do you know if the bill moved to the Project Director, or is it back with the Billing department? If you don’t have the answer, then you should consider finding an ERP solution that allows your team to have a clear view of this process. Being able to see what stage the billing process is at helps alleviate confusion and eliminate the extra time it takes to track down prebills. Store documents electronically: Project billing typically requires copies of reports and receipts as backup for charges on an invoice. The problem is, many AEC firms still use paper-based backup systems. This involves a manual effort to find backup documents in filing cabinets, making photocopies of those documents, and then combining the copies.Instead, all documents should be stored electronically in a document management system. That way you can find them faster and you can combine them into a single PDF to send to a client with the final bill. The Impact Now you know the four ways you can improve your billing process – but what does all of this really mean for your firm? Well, it means you can expect a positive impact in two key areas: Work in Progress (WIP): As WIP represents what has not yet been billed for a project, billing on a regular basis helps reduce the amount of WIP your firm shows on its books. This makes the reverse true as well – inconsistent billing causes your WIP value to increase.Not billing regularly can also lead to your profit or loss taking a hit when needing to write off outstanding WIP that can no longer be billed. Essentially, if you’re billing a client too long after the work for that bill was completed, it’s possible the client may deny that charge. But if you bill on a regular basis, you can avoid this potentially uncomfortable back and forth with clients altogether. Days Sales Outstanding (DSO): One of the most important KPIs used to benchmark cash collection is DSO, and the part of billing that impacts DSO is your invoices. If your invoices are accurate and complete, then it makes the process of a client’s approval for payment much quicker and easier. Faster approvals lead to getting paid sooner, which decreases your outstanding receivables, and positively impacts DSO by reducing it. Conclusion While improvements in your billing process can help lower your firm’s WIP account balance and reduce DSO, it can also lead to a better relationship with your clients. When your client’s Accounting department can rely on the accuracy and timeliness of your billing practices – that’s going to make one happy client. Don’t underestimate how much of a factor that will play in their decision for awarding future project work. The impact on client satisfaction alone should be a good enough reason to improve your firm’s billing processes. Interested in learning more about the billing process? Check out The Ultimate ERP Glossary for AEC Firms, which includes 150 terms that will help you learn not just about billing, but about the entire project lifecycle. Download your free copy by clicking below! DOWNLOAD GLOSSARY NOW

Invoicing 101: How to Improve Your Invoice Process

Gary Dwyer
GaryDwyer
Product Director
BST Global
The foundation of a successful billing process? Your invoices. Learning how to improve your invoices? Simple. The Invoice Problem Invoicing has the potential to make or break your AEC firm’s billing process. Why? Because if your invoices aren’t right, it means more work. More work going back and forth with your client to resolve a late payment, and more work for your Accounting team to correct inaccuracies and issue credits to clients. Not to mention, the client can lose confidence in your billing practices. Essentially, you can’t improve your billing process without making sure your invoicing is under control first. In this post, I will go through the fundamentals of invoicing and how you can focus on these areas to get your invoicing in check. The Fundamentals of Successful Invoicing Successful invoicing has two fundamental elements: accuracy and timeliness. Getting these two elements right, will set the foundation for your firm’s billing process. Now, let’s examine each of them. Accuracy Whether it’s the layout, or how you need to arrive at charges based on the contract type used for a project – the accuracy of your invoices needs to be exact.   Layout Each contract type used in the AEC industry, along with a client’s requirements, dictates the way information must be presented in an invoice. For instance, a contract may require you to show values for the project fee, billed to date, amount being billed, and fee remaining. How that information is summarized can also vary. The contract may require invoice values to be grouped based on phases or based on specific tasks of your project. To avoid complications down the line when billing, make sure your contract is clear when it comes to the specifics of how invoices need to be formatted.   Values In addition to the layout of an invoice, contract types also influence how to arrive at the invoice value and when you’re allowed to send that invoice to your client. Here’s an example: A Fixed Fee contract only allows billing when a certain amount of progress is made on a project, whereas with a Time and Material contract, you may be expected to bill your client on a monthly basis. For calculating the detailed charges on an invoice, a Time and Material contract’s charges are based on a pricing schedule or a markup, while a Fixed Fee contract’s charges are based on the percent complete of a project. The bottom line is that an invoice must be fundamentally accurate and complete. Whether it’s the amount charged for an employee, properly summing up detailed charges so they equal the invoice value, or including the appropriate tax on an invoice – you need to get all these values right, every time. Timeliness The faster you get invoices out the door, the sooner you can collect money from clients and use that cash for your business. So, the biggest thing you can do to improve the timeliness of your invoices is to make sure charges are posted to projects on a regular basis. For instance, how often have your employees not submitted their expense reports on time? If this happens, and you wait too long after a project is complete to bill the client for those expenses, they may question or even reject those charges on the invoice. Think of it this way: the closer you bill to the project’s timeframe, the smoother your client’s approval will go, and the sooner you’ll get paid for completed work. Conclusion Getting your invoicing practices right is synonymous with improving your billing process. Otherwise, when your invoices are inaccurate, or the layout doesn’t meet the contract specifications, it leads to conversations with clients to fix those issues. And if these conversations happen on an ongoing basis, you can expect clients to lose faith in the quality of your invoices. This can cause further delays in payment as clients may now further validate, or question charges every time you send an invoice. So first, get the layout and the values right on your invoices (make sure the project is setup according to the terms of the contract with your client). Then, once you have those right, make sure to review charges and bill your client on a regular basis. Now, with these changes, your firm will have the foundation it needs to start focusing on how it can take its billing process to the next level. Interested in learning more about invoicing and billing? Check out The Ultimate ERP Glossary for AEC Firms that’s packed with 150 common industry terms spanning the entire project lifecycle. Download your free copy by clicking below! DOWNLOAD GLOSSARY NOW

Cash vs. Accrual vs. Work in Progress Accounting: Which is Best for AEC Firms?

Evelyn March
EvelynMarch
Group Director
BST Global
Cash basis and accrual basis are two different methods of accounting. Each method tells a different story about revenue, but neither method gives the whole story – that's where the work in progress (WIP) method comes in. It’s an important question: which accounting method is most effective at providing insight into your firm’s revenue? Some say accrual basis accounting is more effective than cash basis accounting. But many times, if architecture, engineering, and environmental consulting (AEC) firms only leverage accrual basis accounting, they miss out on an even deeper level of insight of revenue that can only be achieved with the accrual based WIP method. While each method provides a snapshot of your AEC firm’s income, the WIP method provides the most accurate representation. The impact of this? Your team is able to get a clearer picture of your firm’s revenue journey. Before we dive into how WIP gives the level of revenue insight your AEC firms needs to be successful, let’s review the more commonly used cash and accrual basis accounting methods first. Cash Basis Accounting The end goal of any profitable business is to monitor cash flow. That’s why for the cash basis method of accounting, income is booked when money is received, and expenses are booked when money is paid. In other words, items are booked when money changes hands. While this makes the value of your firm’s revenue extremely accurate, it can also paint a misleading picture. If a large sum of revenue is received and recorded before bills are paid, your firm may falsely appear more profitable, as assets will be greater than liabilities. Of course, the reverse is also true. If a firm pays for expenses prior to receiving the money and recording this revenue, it can make a company look like it’s headed in the wrong direction. In this case, your balance sheet would show the value of your firm’s liabilities as greater than the value of its assets. Accrual Basis Accounting While cash basis accounting records the actual movement of cash, accrual basis allows for the prediction of revenue. With this method, if an invoice is received for completed services (expenses), or a bill is submitted to a customer (revenue), both are booked at that point to predict future revenue and expenses. So, while items are booked when money changes hands with cash basis, items are booked when an invoice passes hands with accrual basis. This prediction allows you to see the cash flow that’s already in motion once an invoice is sent – but what if you could predict revenue even before invoices are sent to the client? That would be the holy grail of data analysis. And yes, it’s possible… if your enterprise resource planning (ERP) software can calculate WIP. Work in Progress What is WIP? Accrual-based WIP is the value of work completed, but not yet billed. Since there are parameters that determine the contractual amount that you can bill, what if you used those parameters to figure out the value of work before you billed it? This additional layer of accrual allows you to book the revenue that comes from work completed in the month it occurred. By booking revenue at this point in time, it provides the truest picture of your firm’s forecasted income. Let’s explore this concept a little further. Since the accrual method means you book expenses when your firm receives an invoice or timesheet, you have a clear picture of your cost for a given month. No matter which accrual method you choose (accrual basis or accrual-based WIP), your expenses will always be booked in the month it occurred – this will not change. But with WIP, you have an additional option for booking revenue: your AEC firm can now book revenue in the month work was completed. We know it takes money to make money, so booking your revenue in the same month that you booked your expenses gives the truest picture of your firm’s financial standing. But by taking it a step further with the WIP method, the WIP value on your financial reports will show the value of work before you bill it in the future. So, how is this added benefit helpful to your AEC firm? We’ll take a look at that next. The Revenue Story with WIP In a scenario where WIP is not used, and expenses are booked in a given month yet billed months later, your picture of expenses versus revenue is skewed. The month of the expenses would appear with no offset of revenue, and when the invoice is sent, the revenue would appear with no offset of expenses. Because these values were booked in two separate time periods, it would be challenging to make the connection of how much expense it took to earn the amount invoiced. On the other hand, if the WIP method were used, you would accurately depict the revenue earned in the same month the expenses were booked. Seeing that this value was booked as WIP, it alerts you that this is your future billing amount. Are you starting to see the extra layer of analysis your firm would receive? Because WIP is a statement of what you expect to bill in the future, when an invoice is sent, that value is offset from the WIP account. By booking that value in WIP, you are now able to evaluate how long it took from completing the work to billing it. That same principle applies when cash is received. Noting the date of the invoice, and the date that cash was received, it shows how long it took for a client to make a payment. Thus, WIP gives you a complete timeline from work completed to billing, and then from billing to cash collected. Here’s another way to look at it: Say your team completed work in January. According to the WIP method, you would book that work in January. Then, if you were to review your firm’s WIP balance (reminder: this is work you’ve completed, but are waiting to bill) in March and saw there was a balance for WIP that was booked in January, this would immediately alert you that the work completed in January had not been invoiced yet as of March. Your firm can now proactively review WIP and give attention to projects that have fallen behind in invoicing, thus, having a positive impact on your firm’s cash flow. Conclusion While your AEC firm can choose to use any of the three accounting methods, it’s important to understand the added benefit of WIP in its ability to enable your firm to proactively analyze and maximize its profits. By incorporating WIP into your accounting practices, it opens communication between your Finance and Project Management team to discuss the time lapse between work completed and work billed. Opening this dialogue allows the project team to join in the ownership of a healthy cash flow and also aids in the dialogue with your clients as you manage the time from billing to payment. Want to learn other important AEC industry terms? We’ve created a glossary packed with 150 terms that covers the entire project lifecycle, all in the context of an ERP solution. Get your own free copy of The Ultimate ERP Glossary for AEC Firms by using the link below! DOWNLOAD GLOSSARY NOW

Going Glocal: Making Money

John Mathew
JohnMathew
Product Director
BST Global
Ultimately, going glocal for a design consultancy isn’t just about expanding reach and impact – it’s about delivering positive results to the bottom line. Achieving profitability in a foreign market can be quite a challenge for firms who don’t have prior experience doing business abroad. Entering a new market often requires a different operating paradigm, but inexperienced firms can overlook this and end up impeding their return on investment. Let’s examine one last common afterthought as part of our Going Glocal blog series: making money. Common Afterthought: Making Money When consultancies are expanding internationally for the first time, it can be tempting to count on an effective collections process as the key to making money. But in reality, financial success in a new market requires a more holistic approach that considers the entire project lifecycle, beginning with how projects are initiated. Below are some tips to help you get started: Review Contractual Terms: Review how contracts are written for projects in a new market, and consider terms that can help mitigate risk. For example, look at leveraging fee types that share risk with clients and seek to bill the project in a stable currency. In scenarios where volatile currencies can’t be avoided, you may want to look into a foreign exchange hedge to protect against exchange risk. Also, payment terms should be realistic and reflect the payment culture of the market you’re entering. Assess Project Setup: Look at how you internally resource and setup your projects for execution. When delivering a project in a new market, you may bring together multiple operating units to deliver the work, including organizations that you’ve just added in your new market and more experienced organizations that live elsewhere in the firm. Some firms hit a limitation with their internal business system, in that they can’t setup up a single project that spans multiple internal organizations. They then have to setup multiple internal projects to represent the single project they’ve contracted to deliver for their client. This adds administrative burden to project management, impedes visibility into overall project status, and can lead to otherwise avoidable schedule delays and budget overruns. If this is something you’re dealing with, consider switching to an industry-focused business system that accommodates multi-organization, and even multi-company projects. Distribute Budget Accountability: As you setup projects for a new market involving multiple internal organizations, give consideration to how these working organizations have responsibility for the overall budget on a project. Some firms will hold the lead organization on the project responsible for budget performance, while other firms look to distribute budget accountability to each organization performing work. By doing the latter, you are in a position to get better insight into where project variances might arise during delivery. This often occurs in specific working organizations that spend more than budgeted and need more attention to keep the project on track and profitable. Digitize Vendor Invoices: Projects in new markets can also bring about new cash cycle challenges. For example, as you engage subconsultants and other vendors to assist with a project, it can be difficult to keep track of their invoices – particularly when the project is happening in a location that may have a new office or no office at all. Look for ways to digitize your vendor invoice routing process, whereby invoices are scanned and electronically routed around for review, approval, and ultimately vendor payments. This way you can rest assured that vendor invoices don’t go unaccounted for and lead to surprise downstream costs on the project. Anticipate a Different Payment Culture: As I mentioned earlier, entering a new market can entail getting acclimated to a new payment culture – a culture that unfortunately may be longer and have more steps than your existing markets. For example, you may now have to send out a pro forma invoice to a client and get approval before sending out a final invoice. And, you may be expected to personally visit a client in order to receive payment. Understanding the payment culture of your new market is essential to managing expectations internally and externally, as well as sharpening the business case for cash cycle improvements. Automate, Automate, Automate: If you are facing lengthier payment cycles in a new market, one way to offset them is to further automate your internal billing and collections processes. Look at streamlining the process for generating internal pre-bills that go to project managers for their review before sending an invoice to a client. This can be supported by a business system that supports electronic pre-bills that can be edited and annotated online by project managers. Also look to implement a collections system that drives and captures collections activities in support of getting paid, so that there’s better transparency and accountability, and ultimately lower accounts receivable. Making money in new markets can be challenging, not only because of longer payment cycles in some geographies, but also because of internal inefficiencies and bottlenecks that are only exacerbated by more far-reaching projects and more distributed project teams. To successfully go glocal, you must take the time to look at how you structure your contracts and projects, and manage your cash cycle, and then make the necessary improvements. Do you have any financial lessons learned from an international expansion? Let us know in a comment below! Author’s Note: This is the sixth article in a series on glocalization as it relates to the architecture, engineering, and environmental consulting industry.