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Time and billing software grows up.

TIME AND BILLING

Accountants constantly strive to monitor, control and analyze their most important asset--time, and software has been marketed for this task since the advent of the first office computer system. In the beginning, most firms simply wanted an automated way to keep track of time spent on a client. Today's sophisticated firm, however, requires software which truly helps manage its practice--from flexible time entry, to analyzing overall productivity, reducing the billing cycle or preparing for peer review.

Tracking Time for Billing

The introduction of minicomputers in the 1970s led accounting firms to search for more efficient billing methods. Early time and billing software was designed to collect time and expense information for the main purpose of billing. Time sheets were manually prepared and submitted to data entry personnel for input on a weekly, biweekly or monthly basis. When entered, this time sheet information flowed into the system as work-in-process (WIP) for the current period. From this collection of data, billing summary information could be reviewed by the billing manager or partner.

Although most early time and billing software printed computer-generated invoices, they offered only a few fixed formats from which to choose. Accountants soon desired the flexibility to customize invoices for specific clients. Many firms eventually found themselves preparing the invoices manually and entering the amounts in the computer simply for tracking purposes.

When billed, the amounts in work-in-process were relieved and accounts receivable tracked for each client. Invoices, payments, credit memos and debit memos were entered and a standard aging analysis report was available.

This basic time and billing process is what some accountants still have in mind when automating their practice. Other firms, however, began to see the need for more in-depth analysis and reporting capabilities. It was from this input that the time and billing software evolution began.

Time Analysis

Time is money in an accounting practice, therefore the need to monitor employee productivity is the next logical step in automation. Time entries currently being tracked for billing purposes form the basis of new reports analyzing billable vs. nonbillable time. To be most effective these reports allow a manager to look at individual employees, departments, offices or the overall firm. Time frames may vary from current period and yearly to historical comparative reports against prior years.

Another area for time analysis is work codes. Proper staff planning depends on knowing to which work code time is being charged as well as the trends associated with each work code. If a practice is in a declining stage for client write-up, a decision could be made to either seek additional clients or shift personnel expertise to another area, such as tax. Work code analysis reports help point out these business trends.

Planning is important to the success of any firm. For accountants, goals and budgets for billable time need to be established. At the highest level, a firm will set a billable goal for each month and track the progress toward this target each time period. As budgets become more detailed, targets are set for each employee and can optionally be designated to specific clients or work codes. Variance reports can be utilized to monitor the progress toward these goals, highlighting critical areas before they become a problem. Budgets that take skill levels of employees into consideration can also be critical to the peer review process.

Realization and Write-Downs

It is great to monitor the billable time, but how much of that really ends up in the bottom line? If the time cannot be invoiced, the billable hours mean very little. The next area of opportunity for firm automation deals with this very problem.

Analysis of client billing is important for reviewing standard billable dollars, billing adjustments and actual invoiced amounts. Billing adjustments may be more meaningful if viewed as the difference between standard rate and realized billing rate, rather than just as an overall billing adjustment amount. Billing analysis should be available for the client as well as for individual tasks within the client.

The other angle to review is trends in employee contribution to billing. If a task takes longer to complete than expected, the time may be logged as billable but may not be realistically invoiced. Tracing this by employee can be automated via the proper allocation of billing adjustments to the employee level. The most explicit method allows the responsible biller to allocate any adjustments to the employees involved. This requires specific knowledge of each project and may not be practical in all firms. An alternative is to prorate the adjustments based on either hours worked or standard billable dollars to the employees involved. Although specific instances may be lost with this method, trends will become noticeable. Billing statistics can become as valuable as time statistics during employee reviews. As with clients, these statistics should be available in both a total dollar format and as a realized billing rate.

Not to overlook the partner or manager responsible for billing the client, billing statistics should also be traceable back to the person responsible for the account as well as the office.

Improve Cash Flow

Money sitting in accounts receivable looks good, but not as good as it looks in the bank. It is a proven fact that collections are increased as the billing cycle is reduced. Clients are more apt to pay for a service that is fresh in their minds than for one performed 45 days ago.

Again, a firm can look to a combination of office procedures and technology advancements for reducing the billing cycle. Daily time sheets can be the first step to increase billable hours since employees log projects as they go rather than recapping a week from memory. Technology advancements have made it affordable to place a terminal on every employee's desk, and this allows employees to enter their own time directly into the system, bypassing a data entry operator. Changing to daily time entry alone can increase work-in-process by up to 15%. Of course, some of this will be written-down at the beginning before clients become oriented to the higher amounts, but the bulk of it will get billed and collected.

Daily posting of time to work-in-process allows a firm to move from a monthly billing cycle to demand billing. Utilizing demand billing, an invoice can be prepared and delivered with each tax return or financial statement as the task is completed. This reduces WIP and moves the fees to A/R for quicker collection. Demand billing also assures that partners remember the job, write-down less and actively collect A/R better. Daily time entry and demand billing can account for a typical 7% increase in net realization.

Technological improvements may also be found in the area of invoicing. Most software packages today offer flexible invoice formatting and/or integration with word processing as well as laser printing. Other useful features include the ability to pull in standard paragraphs for editing and the retention of prior invoices for online review and modification.

Software packages have also made improvements in the area of collection control. Clients with A/R balances older than a given number of days can be placed on a due date schedule from which follow-up contact is made. Collection control does not stop there; tracking of write-offs may also allow some portion to be realized through future billings.

Maximization of the

Practice

By this point a firm should be feeling pretty good about its management information and its usefulness . . . or should it? Time has been analyzed, write-downs reviewed and the billing/collection cycle shortened. Now the firm has the time to consider some of the following questions:

* Are decisions based on up-to-date information?

* Which aspects of the firm are most profitable?

* Is staff mix planned properly?

* Do we want to retain all these clients?

* Are they profitable?

* Do they generate other profitable business?

* Are we prepared for peer review?

Daily time entry and demand billing can provide more than increased cash flow. On-line information at your desk allows management of situations before they become a problem. Through up-to-date inquiry, jobs can be better monitored and controlled without having to get in a car or on the phone to check the status of a large audit project. Current statistics combined with electronic mail will bridge the interoffice communication gaps found in most offices.

Profitability was addressed to some extent through the analysis of time and write-downs by task or job. Now the whole picture needs to be reviewed. One method is through departmentalization of activities and employees. Actual revenue (and collections) can be matched against costs for profitability. Interdepartmental personnel usage can be tracked and utilized in determining staff mix. Firm direction can then be reviewed based on historical trends.

The job of coordinating personnel skills with the jobs at hand can be a full-time task. The trick is to minimize nonproductive time, utilize employees at their highest billing rates as frequently as possible and assure that due dates are met. Due date and scheduling packages assist the office manager in juggling all of this information. One of the most important keys is to be able to review and alter this information from many different viewpoints--employees, skill levels and due dates--to name a few.

Clients are not all created equally. Some have more profitability built in, as reflected in margin analysis. Others are retained for the business they bring in through other contacts. The trick is to know which clients belong in each group or if they belong at all. Most packages give client billing statistics for pure profitability, but how do you track the intangible profit? One way is by grouping related clients and then analyzing the overall group for profitability. Of course some intangibles, such as name recognition, cannot be tracked through statistics. This is where client comment fields can be useful to the new employee.

Peer review preparation should not bring an office to its knees. Much of the information required can be found in a comprehensive practice management system. Classifying clients by work performed, type and industry classification allows a firm profile to be pulled from the system. Once engagements are selected, reports based on work codes and employee skill levels can quickly show budget to actual hour variances for the designated time frame. The key to easing the peer review preparation time is found in the collection of historical data and the classification of clients and employee skill levels for the desired reports.

The Computer as a Profit

Center

As clients become more independent the firm will look for ways to alter services and maintain a billable relationship. For the traditional client, this can be through on-line services, remote entry combined with firm processing or MAS services.

Why not turn your time and billing system into a profit center? With on-line processing abilities and data security you could help other professionals automate their businesses. The engineering firm, consultant or law office down the street could benefit from your experience in managing your practice through automation while you generate additional revenue. to A/R for quicker collection. Demand billing also assures that partners remember the job, write-down less and actively collect A/R better. Daily time entry and demand billing can account for a typical 7% increase in net realization.

Technological improvements may also be found in the area of invoicing. Most software packages today offer flexible invoice formatting and/or integration with word processing as well as laser printing. Other useful features include the ability to pull in standard paragraphs for editing and the retention of prior invoices for on-line review and modification.

Software packages have also made improvements in the area of collection control. Clients with A/R balances older than a given number of days can be placed on a due date schedule from which follow-up contact is made. Collection control does not stop there; tracking of write-offs may also allow some portion to be realized through future billings.

Maximization of the

Practice

By this point a firm should be feeling pretty good about its management information and its usefulness ... or should it? Time has been analyzed, write-downs reviewed and the billing/collection cycle shortened. Now the firm has the time to consider some of the following questions:

* Are decisions based on up-to-date information?

* Which aspects of the firm are most profitable?

* Is staff mix planned properly?

* Do we want to retain all these clients?

* Are they profitable?

* Do they generate other profitable business?

* Are we prepared for peer review?

Daily time entry and demand billing can provide more than increased cash flow. On-line information at your desk allows management of situations before they become a problem. Through up-to-date inquiry, jobs can be better monitored and controlled without having to get in a car or on the phone to check the status of a large audit project. Current statistics combined with electronic mail will bridge the interoffice communication gaps found in most offices.

Profitability was addressed to some extent through the analysis of time and write-downs by task or job. Now the whole picture needs to be reviewed. One method is through departmentalization of activities and employees. Actual revenue (and collections) can be matched against costs for profitability. Interdepartmental personnel usage can be tracked and utilized in determining staff mix. Firm direction can then be reviewed based on historical trends.

The job of coordinating personnel skills with the jobs at hand can be a full-time task. The trick is to minimize nonproductive time, utilize employees at their highest billing rates as frequently as possible and assure that due dates are met. Due date and scheduling packages assist the office manager in juggling all of this information. One of the most important keys is to be able to review and alter this information from many different viewpoints--employees, skill levels and due dates--to name a few.

Clients are not all created equally. Some have more profitability built in, as reflected in margin analysis. Others are retained for the business they bring in through other contacts. The trick is to know which clients belong in each group or if they belong at all. Most packages give client billing statistics for pure profitability, but how do you track the intangible profit? One way is by grouping related clients and then analyzing the overall group for profitability. Of course some intangibles, such as name recognition, cannot be tracked through statistics. This is where client comment fields can be useful to the new employee.

Peer review preparation should not bring an office to its knees. Much of the information required can be found in a comprehensive practice management system. Classifying clients by work performed, type and industry classification allows a firm profile to be pulled from the system. Once engagements are selected, reports based on work codes and employee skill levels can quickly show budget to actual hour variances for the designated time frame. The key to easing the peer review preparation time is found in the collection of historical data and the classification of clients and employee skill levels for the desired reports.

The Computer as a Profit

Center

As clients become more independent the firm will look for ways to alter services and maintain a billable relationship. For the traditional client, this can be through on-line services, remote entry combined with firm processing or MAS services.

Why not turn your time and billing system into a profit center? With on-line processing abilities and data security you could help other professionals automate their businesses. The engineering firm, consultant or law office down the street could benefit from your experience in managing your practice through automation while you generate additional revenue.

The Future

Competition in the accounting profession is increasing as many firms become more specialized. The systems of the future must not only help to analyze past performance but must also point out future trends. Firms are placing more emphasis on marketing efforts and in developing referral sources.

Referrals from bankers, lawyers and other professionals may prove to be an accountant's best source of new clients. It is important for marketing efforts to know who these influencers are and to further cultivate the proper relationships. Just as it is important to link clients for analysis purposes, it is important to link clients to referral sources. When a prospective client is referred to the firm, the referral source should be noted and considered in all follow-up efforts. It is no longer sufficient to belong to the club; active marketing through many resources may be required to land targeted clientele. The next generation of software will place considerable attention on prospects and client retention, rather than merely reporting the numbers for current clients.

The evolution of time and billing software has mirrored the changing accounting profession as it matures in the age of technology. If utilized to its full potential, today's time and billing software can be a profitable tool which truly helps manage a practice.
COPYRIGHT 1990 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Leonard, Deborah K.
Publication:The National Public Accountant
Date:May 1, 1990
Words:2819
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