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PROJECT MANAGERS ROLE IN BILLING
AND COLLECTION
Howard G. Birnberg
Many design firms hinder the collection
of accounts receivable even before signing a contract. They fail
to ask the client fundamental questions concerning how they are
to bill for services and how they are to be paid.
In most design firms, it is the principals
and project managers who should be responsible for improving the
accounts-receivable collection process. Unfortunately, they often
do not consider regular billing and collection to be an important
issue and only become concerned when the checkbook balance is low.
As a result, many designers pay insufficient attention to the billing
and collection process prior to or just after the contract signing.
Basic questions must be answered that later will improve the collection
process:
- What is the client’s payment cycle?
If, for example, the client regularly processes invoices on
the 25th and the firm does not bill until the 30th, the invoice
will be delayed at least 3 weeks until the client’s next
payment period.
- Does the client require a special billing
form? Failure to use the client’s form will delay payment.
In many situations, the design firm may not even be informed of
this reason for delayed payment for several months, thus several
invoices back up.
- Is an audit required on each invoice? Some
clients, on larger projects, will require an in-house audit of
each invoice. Failure to anticipate and prepare for an audit will
often delay processing of the invoice.
- Does the contract call for inclusion of supporting
material? For example, should copies of time sheets or vendor
bills accompany each invoice? Failure to enclose this backup will
not only delay the invoice, but will create additional work for
the firm’s support staff who must reassemble this material
from files. Anticipating this need would allow for assembly of
a billing copy during normal processing of these items.
- Who should receive the invoice? Many
clients, particularly on larger projects, separate the invoice
approval and processing function from the normal project administration
functions of their staff. Sending the invoice to the client’s
project manager, if not the approval authority, may significantly
delay payment.
- What are the late payment penalties? Before
signing the contract, negotiate interest penalties for delayed
payment. Many clients will agree to this after 30 days, and in
the case of the U.S. government, federal agencies must pay interest
on past-due accounts (over 30 days) if certain billing conditions
are met.
- Whom should the client contact regarding
questions on invoices? It is usually best to have all questions
addressed to the individual in charge of the project, who may
need to consult with the bookkeeper and call the client back.
There are many other techniques to
improve the collection part of the process. For example, a personal
note from the project manager along with the invoice may help create
the feeling of a personal obligation on the part of the client.
This technique, however, will have little effect where the project
administrative and approval individuals are different.
Regular follow-up on invoice is vital.
The first contact should be made within a week to 10 days after
mailing to ensure an invoice has arrived and to respond to any questions.
Regularly prepare accounts receivable aging reports to keep informed
as to the status of billings on projects.
Regular billing allows the client to
perceive the firm as a business-like organization that expects to
be paid on time. There is, however, no substitute for proper front-end
planning and follow-through. Table 1 (below) provides a suggested
billing checklist form.
Table 1 - Billing Checklist
In situations where the design firm
is unable to promptly collect accounts receivable, there are actions
that must be taken. Many firms do not negotiate interest penalties
for slow-paying clients. For most well-run businesses, this would
seem an obvious precaution.
Unfortunately, many design firm managers
believe that, since interest may not be collectible, it is not worth
charging. This argument is absurd, in that interest charges should
be used as encouragement for prompt payment and thus becomes a device
to stimulate client action. In addition, in litigation, where an
interest rate is not stipulated in a contract, the court may dictate
an interest rate. With fluctuating interest rates, the court-ordered
rate may not be satisfactory to the design firm.
In a recent Birnberg & Associates
survey of design firms, less than one-third of firms regularly charged
interest on delinquent accounts receivable. The most commonly charged
amount was 1.5 percent per month, with the range being from 1 to
2 percent per month. Firms most commonly began charging interest
after 30 days.
Howard Birnberg is the Executive
Director of the Association for Project Managers.
Return to the List of Articles
Return to the Association
for Project Managers Main Page
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for Project Managers
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