Professional Services- Billing Dilemma

24-09-2019 CA Madhukar N Hiregange

It is common even among the older firms that the clients pay the dues in a delayed manner. At times it takes years for the fees to be paid!! The practice of billing only when payment is expected would lead to non-compliance under the GST law leading to interest and penalty. It may also lead to further delays as well as incentivise clients to delay. The other age old lump sum fee concept was probably needed 2 decades back other than form small clients. However, today with the plethora of services demanded by clients and provided there is a need for modular billing based on time, expertise and effort involved.

The small and medium practitioner could be said to be one who employs 20 to 100 employees including the interns. A few decades back our profession was a gentleman’s game with enormous amount of respect accompanied by assured economic returns for the professional.

Today it is becoming more and more competitive with technology automating the routine, Government looking at automating processes which obviate the need for a knowledgeable intermediary in majority od services being offered.

The expectation from the clients has increased manifold with us being looked to provide business insights, specific and relevant business advice immediately, more advise on generating revenues/ reducing costs while ensuring compliance.

Clients are often comparing the final cost without looking at the scope or level of expertise costed or needed to deliver at the time of negotiating fees. However, once the fee is fixed the needs of certain levels of quality, additional work and other expectations come in to be included. The environment being dynamic, the shifting of goal posts, need to work on short deadlines, uncertain continuation of clients business are added challenges.

The additional universal challenge is get trained employees with a good work attitude and retaining them for longer period of time. In normal course such firms may not be able to grow unless they have an in house training program at all levels of staff starting with induction training. Trained staff leaving for better opportunities in industry or bigger firms is also a reality. The cost of providing services has increased substantially and many professionals now work on cost + model. 

Types of Billing

1. Lump sum billing – The client only pays one consolidated fee for all services from the professional. They maybe small or big but may have continued the old practice. Most of the professionals in moffusil area and some even in cities follow this practice. This maybe the main reason for the delays and consequently lower quality of services.

2. Work completion billing – This is modular billing concept where billing is ensured once work is complete. Popular now a days and suited for a professional who provides a basket of services with different time and expertise requirement.

3.Time based Billing- Quote given as per man hour rate for different resources. The MNCs use this model frequently. The time sheets of the professionals who have worked on the project are collated and billed out. The clients may not be comfortable and at times suspect that excess hours are billed. Not very popular in Indian businesses.

4. Milestone Billing- Internal audit, advisory retainers, work which would take longer periods are those which require periodic payments. Complex disputes may have milestones of reading, draft reply, adjudication hearing, 1st appeal, tribunal as stages for payment of fixed amounts. Retainers would be monthly/ quarterly.

5.Billing based on results – The ICAI bars billing based on results for all types of work except for some forms of management consultancy where one is allowed to bill based on cost saving. However, for refund ( Income tax or GST or Customs), export benefits ( MSME, FTP) etc the practice of converting a percentage into a larger sum payable on conclusion is also used to bye pass this archaic restriction. Some professionals have started private limited companies doing only management consultancy who charge a percentage.

6. There could be other types as well as hybrid depending on clients comfor..

Practices to Improve Recoverability

A. The age old proverb- you reap what you sow is there in every language on earth. This is a universal law just like gravity. Learn to give ( serve) to receive.

B. The first requirement would be to see the client as an opportunity to serve but not to provide free service. If one is doing it for the 1st time then the learning could be an additional benefit to factor in. It is imperative that after a few years- free work is totally avoided.

C. Establish the value of service provided in terms of optimising the taxation, maximising the tax credits, suggestions to deal with the uncertain law to avoid disputes in future, long term strategy rather than short term.

D. Establish and communicate the saving in the client cost, time and resources.

E. Get an estimate of the time needed. Now with automation inexpensive software is available for tracking the time for each job. The thumb rule could be the cost of salaries multiplied by 3 to 5 depending on the type of work- routine or complex.

F. Depending on the client profile the need to quote higher or lower is the call of the professional. However once the job is accepted the work has to be done with due care and the fact that one has quoted low should not come in the way of quality delivery in time.

G.Get all offers on record ( email is now used by most). Once the fee is finalised the scope inclusions and exclusion should be communicated and confirmed. At this point of time the scope of the client as well as the professional should be made clear. It should also be clarified that additional time beyond what si reasonably expected would be billed based on man days extra.

H. The discount for early payment and interest for long overdue payment could be part of the offer and invoice as the professional should respect his own time/ effort.

I. Whenever there is change in the terms- communicate the change in fee. Do not wait for the end to discuss this aspect. 

Hope this article triggers professionals to start off following some/ all of the above actions to empower themselves and also have less of collection issues. Further that it leads to a debate. We observe that in online sharing, feedback is not sufficient though the likes may be in 1000’s.

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