Invoicing disputes

[Adam Randall]

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I need to ask other businesses out there these questions because I am at a loss as to why this occurs.

I explain the following to a client:

Our hourly rate is $$
If we do an hours work we bill for an hours time.

Sounds simple eh!!

We send someone out last week and he is out onsite for 6 hours, the client knows he is onsite for 6 hours.

We have a meeting today that starts of “we are not at all happy with this invoice” We know that you said the time was billable and we know he was here for 6 hours and we know he was busy during this time, and was under our supervision and direction but the invoice is still a bit over the top they explain.

My question, if you knew what the hourly rate was, and you were not happy to times that by 6 then why did you not sent him away after 3 hours?

This sort of thing happens all the time, and our invoices are ultra detailed sometimes running to 15 pages of what was done, so there can be no excuse.

Is there a reason other businesses do this?
Do others engage in negotiation after their particular problem or requirement has been solved even though the terms were made clear prior to the job being completed?

I am at the point where I may start having to get work authorisation forms setup and have them signed prior to work being undertaken.

[MissieK]

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Some people are just like that… getting something signed isn’t such a bad idea.

Good luck.

Melissa

[bmatthews]

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Adam,
Whilst in a different field to you, we sometimes charge by hourly rate. This scenario of Clients disputing invoices or asking “how could it have taken that long“, is one reason that I chose to move our business into a fixed fee model. This can have disadvantages, however for us, once the fee is set we can get on with the job and not worry about time. We just want to deliver a good result.

Your suggestion of using authorisations is worth looking at. You may also consider having a service agreement with larger or regular clients. This details all of the tasks you may do on-site and what category they come under, i.e. support, installation, warranty etc. You may alresdy have this.

Also, you may suggest each site has one or two people that are authorised to order and instruct your people. That way, you are no taking instructions from general staff who don’t know the cost of your service or are experts at dragging you around the office fixing every little thing.

Have fun!

Brian.

[Flying Accountant online]

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Hi Adam

this is a very common problem in time based businesses. I run an accounting firm and am in the business of selling time. The accounting services are second to what we actually do.

Any service based business is in the business of selling time. Once time passes you never have the opportunity to recover that revenue. It is not like selling widgets of shoes or clothes etc. If you don’t sell the widget today, not too worry – you might sell it tomorrow and still make your $$.

I had a very interesting discussion with someone and we concluded the following:

Females in general are used to paying for services or using time based businesses. ie hairdresser, beauty salon, waxing etc.

Males typically don’t use many service based businesses and when buying something generally go out to buy a physical tangible product. ie flat screen tv, car etc

So when a male gets an invoice for a time based service – he wonders to himself how it could possibly take so long.

I would suggest giving your client and estimate of the time expected and get them to sign off on this – that is how I run my practice and it works well. After a while you get to know your business so well that you can quote fairly accurately on the time expected to complete the job.

I think we are going to see more of this type of behaviour from clients as the economy contracts and spending or $ become more scarce.

Hope this all makes sense.
THanks
Martyn

[Ric Willmot]

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This is quite simple … businesses are very clear about articulating exactly what their costs and fees are, but vague and ambiguous on the ROI the customer receives.

Pricing by the hour is, in my opinion unethical, or at least inappropriate to the clients’ best interests.

What is in the client’s best interest?
To get the work done as well as possible in the least amount of time.

How’s the only way a “charge by the hour” business can make more money?
To take more time.

Retainer fees, menu style fees, project fees, value-pricing are alternatives that are based upon the business being paid well for the good work they do, and the client making a single investment decision, up-front, so they know how much it is costing and can assess the ROI from the outset.

WIN – WIN.

If you would like to read more around my opinions, take a peak at the following pages on my website:

For the Professions: http://www.executivewisdom.com/For-The-Professions-pg4379.html

Free Articles: http://www.executivewisdom.com/Free-Articles-pg1932.html

Rgds,
Ric

[Adam Randall]

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Ric Willmot, post: 790 wrote:

Pricing by the hour is, in my opinion unethical, or at least inappropriate to the clients’ best interests.

What is in the client’s best interest?
To get the work done as well as possible in the least amount of time.

What I think is unethical is to have an agreement in place where all parties agree and then reneg once the work is complete and the invoice is sent.

Getting the work done as well as possible in the least amount of time is not exclusive of the hourly rate system.

I agree with some aspects of what you are saying, set monthly fees etc do assist the client in managing the cash flow and ROI.

But to say hourly rate work is unethical means you are stating that a fair chunk of businesses trading today are unethical when most are hard working and will bend over backwards to help their clients, however they still want to get paid.

[Ric Willmot]

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You’ve missed my point.

Hourly rates do not guarantee value to the client.

Adam, you and I are in the same profession, let’s pretend.
Your charge $100 per hour.
I charge $75 per hour.

Because of this, I undercut you (obviously) and get the business.

However, what the client never has the chance to experience, is that you are exceptionally efficient and incredibly good at what you do. You would deliver rating A outcomes in 5 hours. $500 + great client results.

I deliver rating A- outcomes in 8 hours. $600 + not quite as good client results.

Hourly rates help the client, nada!

If you respect and care for your clients; if you respect and care for yourself; tell the client:

* I will deliver to your objectives, as we agreed
* We will measure our success with these metrics, which cover both tangible and intangible factors
* The value to you of this will mean … (as explained to you by the client)
* And, the single investment you need to make, no matter how long or short it takes me to deliver to these standards, is $X.

If it then takes you 5 hours or 8 hours or 30 minutes, it doesn’t matter.
The client is protected, they have the results required achieved to the quality-level necessary – and you have been paid well for you efforts.

Hourly fees work against both the professional and the client. Why should the professional have her income capped?
Which it is, if you charge by the hour. There are so many hours in a day and so you have automatically placed a limit on the income you are able to generate.

Project fees, menu pricing, retainers and value-pricing are in the best interests of both parties.

Rgds,
Ric

[DavidK]

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Hi Adam

As a lawyer, charging many (but not all) clients on an hourly basis, I used to experience your problem regularly. But I find there are a few steps you can take as the business owner to minimise the problem you are experencing.

1. I always give a fee estimate. In addition to the hourly rate, I always say “I think this will take us x hours and so your totall bill will be in the region of $y”. Martyn picked up on this.

2. I have my solicitors tell me when they are about half-way through the work. I then tell the client whether we will be within estimate or whether we will likely exceed the estimate. I give the client an opportunity to amend his/her instructions in light of the revised estimate.

3. Before I invoice, I touch base with the client to explain again what we have delivered and what I propose to bill. I give the client the opportunity, at this pre-bill stage, to raise any objections and discuss them with me. Interestingly, they rarely do. But they often do if I just render an invoice without first making this contact. Just psychology perhaps, but there is something to be said for engaging the client in the billing process, rather than just sending out an invoice. Perhaps it is taking away the surprise factor.

This amounts to more work for us than should be necessary if we are delivering value for money….but sometimes you have to prove to your client that what you are delivering is value for money.

I find the above 3 steps really minimise my invoice payment problems. Many clients routinely now pay my invoices with only a cursory check.

Hope this helps.

DavidK

[Jexley]

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Mate, I see how you’re all about looking out for the client in that scenario and such, but I still think the statement about hourly rates being unethical is a bit over the top.

I do both, hourly and fixed, and base all of my fixed quotes on my hourly rates and the estimated amount of hours I think it will take me to complete each task. I tell the client this, and they know that they’re paying for my expertise and my time and they’re getting good value because I’m good.

If somebody out there wants to undercut me on hourly costs, the client has to be educated enough to see which vendor will possibly bring them the better ROI, not just who’s cheaper. If I’m more expensive, they’ll know to go with me because I’m better. If I’m cheaper, they know they’re getting great value because I’m still better.

To be completely honest, I don’t know that I’d want a client that went with me solely because my hourly rate was cheaper than somebody else’s. There’s much more to it than that and I want to work with people that are smart enough to see that on their own.

As far as Invoicing Disputes (to pull it back on topic), that’s complete bullsh*t for them to try and complain after an agreed-upon price and time frame. They’re either a whinger by nature, or think that you’re acting suss in some other area and think that they can call you out on it in the invoice thing. Have a good long look at them as a client, learn from the situation, and watch out for their type in the future.

Good luck mate.

[Lisa Murray – Biz Coach]

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Jexley made some good points. Look, some clients will just try it on to see what you’ll let them get away with. Be firm – your work is valuable! If price is their only criteria, they are always going to be trouble – best set them free sooner rather than later – it’ll save you lots of trouble (how many hours has it already taken to go back and forth about the invoice??)

I like to finish a session by checking that the client is happy with progress. This seems to ensure that the relationship stays on a good footing and gives them the opportunity to raise any concerns at the time.

[Adam Randall]

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Thanks for all the responses, vigorous debate is what its all about:)

Ive picked up some good tips especially talking to the client at the half way point of the estimate, this is something that I have not done in the past.

I suppose to lead on from that then, what happens if the client says “no I want to pay what you quoted me” do you:
A) leave the job half finished
leave out bits
C) Complete the job and accept a pay cut.

What I think I would do in this situation is to maybe give each client one C each, at that point explain in detail invoicing procedures, if the same problem crops up, seriously look at them as a client.

[Adam Randall]

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Ric Willmot, post: 799 wrote:

I deliver rating A- outcomes in 8 hours. $600 + not quite as good client results.

Hourly rates help the client, nada!

If you respect and care for your clients; if you respect and care for yourself; tell the client:

Which it is, if you charge by the hour. There are so many hours in a day and so you have automatically placed a limit on the income you are able to generate.

I agree with some of your sentiment but I just cannot see how that will work with clients who only ring up (and will not go on managed services) when they have a problem.

Much of our work involves trouble shooting and problem solving, how can you estimate and fix a price when you dont know what the problem is or how long its going to take to fix?

If you do fix a price then you are gambling in a way and if you try and normalise the fixed price across all clients like PC Doctor and the other big franchises, what happens is that the people that have their problem fixed fast end up subsidising people who have major problems.

If someone rang you up and said “we have a problem with our exchange server, can you fix it” Now you have never seen thier setup, dont know the hardware they are running or the 1,000s of other variables.

How can you predict the time its going to fix? The value to the client is that you get their email up and running in the shortest time possible, and most of the time especially with email until its up and running many business owners can be found curled up in a fetal position. words like “I dont care what it costs, we need it now” start to fly around.

Its only after the problem is resolved and its all working and the invoice is sent that questions are raised.

[wfdTamar]

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Either method of charging is open to abuse by the unethical. Some skills or professions are more suited to one method of charging than the other. The more variables there are in your field, the more likely hourly rates are appropriate. If you can be reasonably sure of what is involved, the more likely a fixed rate will work.

If you’re charging by the hour and you’re unethical, you could string a job out to increase the bill as Ric suggests.

If you charge a fixed price you would tend to over quote, either deliberately, or to cover yourself in case the job is a ‘worst case scenario’ (I’m thinking of my field here – IT support).

Personally I think if a job takes less time it’s unethical to charge more than the time/skills/experience it took to fix it. If I agreed with a client a price of $200 to sort out a computer, I would feel very unethical charging that for one of the classic ‘turn it off, then back on again’ fixes (bit of exaggeration there). I wouldn’t think it would do much for my reputation either. I think this is particularly the case when you’re dealing with Home, SOHO and Small businesses. Larger organisations may be more oblivious.

In the past I have tried fixed price and it has backfired on me badly. A job I thought would take a few hours, took more than ten – and it turned out to be the clients fault.

[Ric Willmot]

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This is a wonderful discussion, and it’s great that we have these diverse opinions which allow us to stretch our thinking.

I will write to just one of the specific concerns, so as not to hijack the thread and have everyone bored with me. Although I’d love to answer all the questions and points of difference.

Adam: “… I just cannot see how that will work with clients who only ring up (and will not go on managed services) when they have a problem.”

Let’s separate this as there are two points being raised. Firstly, clients who ring up when they have a problem:- I have established “retainers” for my clients as a way of handling these types of clients.

For example, “Mr Client you have some options on how we can work together and you choose which one makes the most sense to you.

1. You would be used to dealing with professionals like us on an hourly basis. And, you can work with us under the same arrangements; our hourly rate is $200. Of course, the concern for you is that every time you have question, a small query or a minor problem, you become worried about how much this is going to cost you.

And so, you have an alternative …

2. You may choose one of three levels of retainer, whereby you gain certain benefits for an all inclusive investment:

a) Green $2,000 for 3 months support which includes unlimited access by telephone and email. Any major projects and parts are invoiced as incurred.

b) Red $3,000 for 3 months support which includes … (yada yada increase the value proposition for the client)

c) Blue $5,000 for 3 months support which includes … (yada yada increase the value proposition even more for the client)”

Second point: and will not go on managed services.
This isn’t do or die. Give them the option and let them choose for themselves. Explain the difference and allow them to make an informed decision. No need to be an Aztec! However, the first sale is to yourself … and if you don’t believe it, the client never will.

Just one final point that Bill made (and I was in Hobart and Launceston just three weeks ago working with some of my clients in the accounting and recruitment professions on this very issue) – and it’s an excellent comment because he is so right and this is where amateurs make such a mess of value-pricing, retainers, project fees, etc.

“… If you charge a fixed price you would tend to over quote, either deliberately, or to cover yourself in case the job is a ‘worst case scenario’ …”

Value-pricing is designed in concert with the client helping you to establish the investment fee for your services. And, as professionals, you need to be acutely aware of what you can do and in what time frames, so that you never need to over quote, etc. Thirdly, to establish a clear “scope of project” so it doesn’t backfire on you.

I suppose I’m grateful for the machinations of why this requires some clear and unique thinking, and that it doesn’t necessarily fit in a square box easily – that’s what makes me so valuable to my clients when I consult to them on this methodology and process.

When I had my tax practice & financial planning business back in the 80’s and early 90’s I started working with retainers, project fees and value-pricing. So, I’ve had quite some time to totally understand and perfect the thinking. Fortunately, my clients get the value of not having to make all the same mistakes I did. And, I did make a few really dumb mistakes!

Rgds,
Ric

[BrightSpark]

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I have found that now I invoice on completing of the job and before I leave the job site I am not having these problems because they have been there while I have been doing the work and I give them the option to pay by credit card or cheque.

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