Several small accounting firms have been talking about moving to monthly billing lately. Maybe it’s part of ‘let’s get fit for purpose’ after January. Maybe they’re thinking about MTD and cloud accounting. It might be me knowing that a lot of successful small firms have made the change in the last couple of years. What is the allure of monthly billing and what are the problems in getting towards this allegedly hallowed status?
Why monthly billing?
Automatically sending out monthly bills, getting paid by DD and reconciling it automatically saves time and can make a dramatic improvement to cash flow. Last year Heather and I helped several small firms (through our academy and other coaching) improve their profitability, monthly billing was common in their success journeys.
All professional service firms have always wanted to reduce WIP. The focus has often been improving the time between ending the client work and getting the (one) annual bill out. This can only help cash flow so far. Switching clients from one annual bill to regular payments of 1/12th of that amount makes a lot more difference, even if you don’t put every client onto monthly billing.
What part does cloud accounting play?
A key phrase in the last paragraph was “automated monthly billing”. Your own accounts production being on a cloud platform such as Xero makes the billing and reconciliation easy. Technology is a big enabler in improving your firm’s profitability. The problem is implementing the new process.
The biggest four problems in moving to monthly billing
Accountants have many fears about moving to monthly invoicing and changing their processes, including:
- How do I get clients to agree? Many firm worry “clients don’t want to move to monthly payments”. In 2016 over 80% of firms Heather and I worked with were billing monthly and their clients hadn’t raised major objections. Giving clients sensible reasons (it will help your cash flow, planning, etc.) is important. You may consider inducements (no fee increase if you move over, or you add a low cost high value service). Eventually being bold enough to say “it’s the only way we work” might be needed. I’m assuming your clients already get great service from you and love you. Key points – be clear why you want to do it then discuss with clients in their terms.
- How do I move clients over onto the new system? It depends on how you bill clients at the moment and over what period you want to get to significant level of monthly billing. It doesn’t have to be all done at once. Some firms have simply put all new clients onto monthly billing and dealt with others as they see fit (when renegotiating new services etc.). Also consider how you charge (flat fee versus per hour), some firms that charge variable rates have got clients onto monthly billing with a balancing payment at year end. A key point may be moving your own accounting to a system that can easily do monthly billing!
- What’s the best time of year to make this change (my year, client’s year)? Consider how you interact with your clients and your workload. One firm is currently billing quarterly and moving a tranche of clients over each month, in line with their current billing cycle. Another is making the switch each time they complete (and invoice) a client for the previous year’s work, so next year’s work is paid up front. This per client basis will take them longer, but less to do in one go. What’s likely to work for you?
- What about small clients that only get simple year end accounts? What percentage of your income derives from them? If it’s very low you might not bother, or you might not be bothered about tough conversations. A high percentage may mean look carefully at your offer and consider other inducements (strategic partners you could work with, where all three of you win?).
Making monthly billing magical
- Be on, and familiar with, an accounting system that can handle the billing and reconciliation. Is this finally the time to move systems?
- Realise the size of your prize. Being clear on why you want this is going to help you deal with the hard work of getting there. Your prize may include cash flow, lower overdraft, dividends, saving time through automated billing, easier to implement future fee increases, strategically positioning your firm for your future (maybe you’re looking at how to make compliance less relevant and advisory services much more relevant).
- Client mindset: Think of positive reasons for your clients to change. How will you have the discussions (not via email or letter)? Your team also need to understand these reasons, they probably handle more client queries than you!
- Your timeline: Over what period do you want to get there, and what stages make sense for you? You might just put new clients onto monthly. Maybe you target limited companies this year, or all sole traders before MTD.
- Clear process: Ensure you and your team have clear processes for the change over, but also how things will be handled in future. Don’t underestimate the training for your own team.
What is going to help you move to monthly?