Accountants sell their time and expertise by sending invoices to their clients. First, make sure to capture all time, both billable and non-billable, using a reliable system; second, write persuasive invoices that communicate the value of your services; and third, send the invoices and get paid.
Here are five tips for writing invoices that clients want to pay:
- Record all of your time in real time – Write ‘final draft’ time entries as soon as you finish a task.
- Be specific – Avoid using ‘block billing’ of one or more hours. Describe each task separately.
- Be VERY specific – Describe all of component steps and allocate your time to each step.
- Use value words like analyzed, determined, calculated, and evaluated and avoid words like reviewed or researched.
- Send the invoice immediately and make it easy to pay online.
Practice good time and billing and your clients will be happy to pay your invoices.
5 Tips for Writing Invoices that Get Paid
Every correspondence with a client, including invoices, is an opportunity to strengthen the accountant-client relationship. Smart accountants use billing to increase the value of their services. When you complete an engagement, remind your client what you did and why it is worth what you are asking to be paid.
First, if you haven’t already, train yourself to be a great time keeper. Good time keeping practices are a habit that will serve you throughout your career.
Here are five tips to help you write persuasive invoices that clients are happy to pay.
1. Record all of your time
The quality of any invoice depends on the quality of the time entries. Anything you do for or on behalf of the client is potentially billable. High quality time records capture the true time spent on a client project. Record all your time, both billable and non-billable.
Create a time keeping system and stick to it. For example, add five minutes at the end of every task and use it to immediately write a time entry before moving to the next task. The description should be written just as it will appear on your client’s invoice so the time entry can be billed without having to revisit it.
Where you record your time is a matter of preference. Most recently, I’ve used timers built into my practice management software. I’ve also used Excel spreadsheets and online time and expense services.
Early in my career, however, I kept a hardbound notebook next to my phone and made handwritten notes throughout the day. It was by far the most successful method because I used it consistently. It is important to set up a system – any system – because the best system is the one you use.
Finally, use routine events as time keeping action triggers. For example, when you hang up a phone call, hit send on an email, or close a program, ask yourself if you need to create a time entry. Then take a moment to mentally check whether you’ve missed any other time entries since the beginning of the day.
Well written time records are the basis for well written invoices. However, thorough time keeping is also necessary for tracking performance metrics like WIP, utilization, and realization. For solo firms, tracking non-billable time is just as important and keeping track of billable time.
2. Be specific
Imagine you pick up your car from the repair shop and get a bill that says, “Car Repair – $1,000”. The technician says he fixed your car, like you asked. But what did the shop really do?
You expect that the shop will list each service that was performed, the amount of time or labor charges and the price of any replacement parts.
Your invoice should have similar detail. Let’s say it took you two hours to complete an individual income tax return and your rate is $250/hr. Imagine sending your clients this:
Your invoice should be at least as detailed as a car repair bill. You should show all your time and any direct costs or expenses in detail. Here is an invoice for the same two-hour tax return that shows all the steps needed to complete the engagement:
This invoice clearly shows all of the time on the engagement, both billable and the non-billable work. Non-billable time like administrative tasks or sending the engagement letters are noted as ‘no charge’ to the client.
All things being equal, clients are much happier to get – and to pay – a detailed invoice like this one, even though is it $210 more that the first.
There is another lesson from comparing the two invoices. First, direct costs are billed to the client instead of absorbed into overhead.
Second, although the time spent preparing the return is the same for both invoices (2.0 hours), the second invoice shows that the total time needed to prepare the return is really 3.8 hours.
The $500 fee, less $35 costs is $465 dollars. Dividing the fee by the total time of 3.8 hours means that the accountant’s $250 hourly rate is an effective rate of only $122 per hour.
3. Be VERY specific
The first goal is to show the steps that the accountant takes when working on a client project. This requires separating tasks into parts with individual time entries.
The next step is to allocate time to each component of the project. Most tax software will generate an invoice or a list of forms and schedules that are included in the tax return. Look through the list and find any task that could be called out separately, like preparing a depreciation schedule. The additional detail shows what it is you do for your client and allows you to show your time using specific time increments.
Tax return preparation is tremendously complicated. By listing each task and its subtasks, you are showing your client exactly what it takes to prepare the return, and why your fee is a bargain in comparison.
4. Use value words
You have probably sent an invoice that has a time entry like “reviewed client’s prior year income tax returns.” Or perhaps a time entry for “tax research.”
In my experience, clients are not happy to pay these invoices. Instead of vague words like ‘review’, get a list of words that communicate the value of the task instead of merely a description of the task.
For example, instead of ‘reviewed client records,’ consider:
“Examined client’s schedule of medical expenses and calculated the medical expense deduction reported on Schedule A.”
Words like analyzed, evaluated, determined, and calculated seem to sparkle in comparison. Search online for a list of resume words or sales words that you can use as resource.
5. Send the invoice and make it easy to pay
At the risk of overstating the obvious, nobody gets paid unless they send an invoice. WIP or unbilled time is worthless until it is billed and the client pays.
The best time to get paid is before you start the work. Read How to Use Engage to Collect Advance Fees.
Otherwise, if you’ve developed the habit of (a) keeping all of your time, (b) in real time, using (c) detailed explanations, in (d) small increments, then preparing an invoice will be quick and easy.
Review your WIP at least weekly. For ongoing work, it may make sense to send bills before there is too much time charged to an engagement. Don’t wait until the end of the month. It’s easier for clients to pay several small invoices than it is to pay one large bill.
Finally, make your invoice easy to pay. Most time and billing software can send digital invoices. Make sure you include a link to pay your bill online through a payment processing service like CPA Charge, Stripe or PayPal.
Because paying your bill shouldn’t be harder than buying something on Amazon.com.
In summary, the first step in writing invoices that get paid is making sure that you have complete and accurate time records, written in small increments of time, with detailed and compelling descriptions. The result can persuasively demonstrate the value of your services. And, instead of monthly billing, consider sending your invoices on an as-needed or just-in-time schedule with easy options for online payment.
A closing thought: if no one is complaining about your fees, then you aren’t charging enough for your time. Don’t be afraid to raise your rates. A little push back means that you have found your price point.
For example, a colleague was getting tired of the tax season hassle and decided to double her fee. Even if she lost half of her clients, she reasoned, she would still make the same amount of money – and would only have to work half as much.
Instead, to her astonishment, she lost only one client.
Bill what you are worth and get paid.