The March of Time & Billing

September 01, 2014, 9:08 a.m. EDT 12 Min Read

It sounds almost like a cliche -- "Phone call with Mr. Smith, 6 minutes, discuss office visit agenda." Yet in many practices, line entries like this, created many times a day, are de rigeur. Time and billing is one of those applications that just seems to be part of everyday practice.

In the decades that these applications have been used -- and it was one of the first legal and accounting functions to be computerized -- the why of using time & billing has been argued and debated. For the most part, staff utilization and revenue generation have been the major justifications for implementing and maintaining a time-tracking system. Sure, the bottom line is the need to make sure that the practice gets paid for the services it provides. But is the practice being fully and fairly compensated for the time spent on the client's required services?

The relative importance of staff utilization varies from firm to firm and is also somewhat dependent on the size of the practice. In a larger practice, timekeeping is one way to measure productivity. Is the right staff member being used for the service being performed? Do you have a senior accountant performing tasks that should rightfully be done by a junior member of the staff? And if so, is this work being billed at the right rate? Additionally, is all of the work being performed and all of the related expenses incurred being accurately charged to the client?

These are the kinds of questions that most time & billing systems are designed to answer, to provide the managing partner with the answer to two simple questions: Are we using our resources efficiently, and are we being fair to our practice given the amount that we bill clients for our services?

But while utilization is an important question for many practices, the "billing" portion of the application is as important, if not more so. If a client isn't billed in a timely and accurately manner, your firm's cash receipts are likely to be just as erratic in arriving. You can't wait three months to bill for work, and expect to receive payment within 30 days.

To try and provide answers to some of these questions, we surveyed a sample of vendors who offer either stand-alone time & billing applications, or applications built out with more comprehensive practice management features. Our survey list included AccountantsWorld, Big Time Software, BQE Software, Chrometa, ImagineTime, Office Tools Professional, and Sage.

Value Received for Value Given?

One of the current debates centers around the concept of value billing. Value billing seems like something new, but it really isn't. Basically, it argues that tracking time is an archaic way to run a practice. When a practice adopts value billing, they determine what a service actually costs the firm to produce and what the desired profit is on that service, and the sum of the two is a fee that the client is charged.

That really isn't as revolutionary as it sounds. Many smaller practices have been using the equivalent of value billing for decades. Take write-up as an example. While a midsized or large practice might bill a client for write-up services either by number of transactions or using an hourly rate for data entry, many small firms simply charge a client a fixed monthly rate for write-up. If, at the end of the year, the practice determines that more time has been spent than anticipated, they will most likely either renegotiate the fee, or simply inform the client that the fee for this particular service has increased.

Regardless of whether a firm uses time and rate billing, or value billing, one of the things that any good time & billing system must provide (especially if it's a component of a more comprehensive overall practice management application) is information on how efficiently and profitably the practice is being run.

In many practices, management determines that answer from the realization rate. How much revenue does each of your staff generate, and is it commensurate with what it costs (salary and benefits) to employ them?

Billing for time and expenses is one way to establish the realization rate for a staff member. One popular argument against value billing is that it doesn't provide the realization rate. It actually does, except by establishing a fee for a service, rather than an hourly rate, you are in effect setting the realization rate, rather than computing it after the end of the engagement or billing period. Taking this approach, however, requires that you have a very good idea of how much time the service is going to require, and what staff and practice resources will be required to fulfill the engagement. Many practices that rely primarily on value billing have come to that approach after a significant amount of time and experience with more common hourly rate time-based billing and, as such, have a decent amount of historical experience on which to base their pricing model. ImagineTime chief executive Fred Lindsey is emphatic about this: "Fixed-fee invoicing used in conjunction with time-keeping provides the only effective tool to determine if the pricing structure for fixed services is profitable."

Mark Sandor, director of national sales for BigTime Software, agrees that a comprehensive approach is necessary. Speaking about the vendor's Big Time IQ application, he pointed out, "We view time & billing as a vital component of the firm's overall activities. A firm's utilization rate, billability, WIP, and engagement status are all indicators of the firm's health. BigTime provides a holistic view of the firm's overall performance which includes the time and billing activity."

Don't Forget the Rest

One real problem with many time & billing systems is that they present themselves as a complete solution to the problem. That's only true if your definition of productivity is very narrowly defined. More likely, time & billing is just a component in an overall practice management workflow. Expense tracking is a necessary evil regardless of the size of the practice. Even if you're not billing some (or all) of these expenses, you need to be able to determine and detail them to accurately report revenue and income.

Some time & billing applications allow you to track and apply expenses, some don't. And there are stand-alone expense management applications if you need to add this capability into an already existing system. Office Tools Professional president Michael Giardia believes that a stand-alone time & billing application isn't the solution: "With very few exceptions, firms need far more than simply time & billing, and therefore many are moving to practice management."

There are other tasks in the management of a firm that are important to the practice's overall efficiency. Client relationships comprise more than just doing the work, sending the bill, and getting paid. Client relationship management applications often tie into time & billing, and let you send clients updates on the status of an engagement, remind them of information they need to provide, and track due dates for contact, deliverables, and often just provide a means of staying in touch.

If your practice maintains a blog, a popular alternative to the client newsletter, a CRM system can give your client base (and a base of potential clients that you've built) a heads-up on new staff, new capabilities, and new services that you offer.

Integration with other applications and the overall practice workflow is another important consideration. This can take place in a number of ways. According to James Reese, product manager for Sage Timeslips, "Timeslips integrates with other practice management applications such as Time Matters." In this example, data is flowing into Timeslips from the other applications. Timeslips can also export data. "By integrating with accounting software, including Quickbooks and Sage 50 Accounting, we make it easy for our customers to keep their accounting and time & billing data in sync."

Others, such as AccountantsWorld, design their offerings to implicitly join with the vendor's other applications. "While Practice Relief can function as a stand-alone product, the billing can be integrated with both our Accounting Power and Payroll Relief products to make it much more powerful," said Dave Munnell, director of product development at AccountantsWorld.

Don't Forget the Cloud

Time & billing itself has changed very little over the past decades. It's still a matter of defining time (and expense) spent by specific staff members on specific tasks and for specific clients. Invoices and/or statements are prepared from this collected information, sent to the client, and hopefully paid.

The way this is accomplished, however, has been greatly affected by technology. Having mobile devices such as smartphones, tablets and laptops that connect to the Internet makes it much easier to record time and expense-related events in real-time. And that makes the data collected much more likely to be accurate.

And billing clients and receiving payment electronically, through a service such as Bill.com, can improve the timing of your cash flow. Clients are much more likely to pay in a timely manner when you make it easier for them to pay you. On extended or ongoing engagements, you may even want to hook up with a service that will autobill the client every month.

There's also a growing trend with time & billing, as with other applications, to move the system entirely into the cloud. For example, BQE's BillQuick is joined with BillQuick Online. "BillQuick Online integrates with BillQuick on a desktop/network," according to channel manager Bob Wolf. "This hybrid design offers more flexibility for firms. Synchronizing between a local BillQuick database and the cloud is automatic."

And the Answer Is...

There's no simple or definitive answer to whether time & billing is still a relevant application. It depends on what you want to accomplish with it, how your firm is structured, what kind of clients the practice has, and what services you provide to them.

For many accountants, time & billing is simply a component in an overall practice management workflow. For others, it's all about the numbers.

Jim Bourke, a well-known technology advocate and partner at Top 100 Firm WithumSmith+Brown, defines it succinctly: "CPAs are all about the numbers, so the ability to extract and report on financial information [from a time & billing system] is huge. Many good practice management systems today come with features such as dashboards that allow real-time and instantaneous reporting of partner-specific metrics."

Regardless of whether you bill clients on time, value or both, the important thing is that you choose an application that gives you information you can actually use. Fancy reports and beautiful dashboards don't mean anything unless they are going to provide you with a way to make more money, become more productive, or increase your practice's bottom line substantially enough that it makes more sense to use the application than to forgo it. And it's just as important to give the practice tight control over the accounts receivable process. Far too often, a practice gets so tied up in the metrics that they forget that the realization rate means nothing if you don't actually receive it from the client!

Finally, keep in mind that your engagement letter needs to reflect your billing approach. If you are using a time-based hourly billing system, your engagement letter should spell out your hourly rate for specific services, an estimate of how long those services should take, and a "wiggle room" clause stating that unforeseen circumstances may affect the duration (and cost) of the engagement.

Many firms using value billing or fixed-fee billing use a slightly different format of engagement letter called a statement of work. This lays out the parameters of the engagement, the fee for specific services, the deliverables, the timeline, the total cost of the engagement, and payment terms.

When signed by the client, this becomes both the engagement letter and a contract. SOWs are also very commonly used in response to a client's formal request for proposal, and should define the responsibilities of both you and your client. An example of this is the timeline, which is generally dependent on receiving data or access from the client. If the client is tardy in providing information, the SOW should point out that the timeline on deliverables will shift.

Very few of the vendors we surveyed had applications that produced these kinds of documents, but templates with boilerplate wording can be found on the Internet. Microsoft has a number of basic SOW templates in its Office download section that can serve as a basis of your own.

in the Crystal Ball?

The two most significant changes in time & billing during the past few years are most likely the push into more practice management-oriented features and embracing the cloud as an integral component of the application.

Disruptive technology is usually impossible to predict, but Chrometa provides one possible direction. "We capture time in real time by passively monitoring what the user is doing on their computer and/or smartphone," co-founder and chief executive Brett Owens told us, "Then, we use keyword-based rules to associate these time entries to the right client and project."

Whether Chrometa's approach is embraced by the user community and/or other vendors, improving ease of use is a priority of all application developers.

And regardless of whether time & billing remains available as a stand-alone application, or morphs totally into a more comprehensive practice management system, the needs of the firm, and the goals of generating revenue efficiently and effectively, and collecting it in a timely manner, aren't going to change in the future.

T&B vendors

AccountantsWorld

Practice Relief

www.accountantsworld.com

Beyond Software

Project Management (includes Client Billing and Expense Management/Reporting)

www.beyondsoftware.com

Bill.com

Accounts Payable/Accounts Receivable

www.bill.com

BillQuick

BillQuick Online and BQE Software