Here’s how to make a ‘turn’ for the better

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This article first appeared in The Zweig Letter (ISSN 1068-1310) Issue # 838
Originally published 11/16/2009

Accelerating your invoice drafting process improves cash flow.

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” In this economy, we’ve responded to tightening cash flow by slashing weeks from our invoice-turn.”
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I recently had a conversation with a subconsultant friend (Bob) about our aggressive “invoice-turn.” I define invoice-turn as the time it takes to close the month, issue draft invoices, collect invoice mark-ups and supporting documents from project managers, create final invoices, and send them out for payment. I told Bob he needed to send an invoice to our office within the first few days of the month, to get it into our system and to our client. In this economy, we’ve responded to tightening cash flow by slashing weeks from our invoice-turn. Bob was amazed to hear we are sending out final invoices three to five days from the end of a billing cycle. I was equally surprised his firm regularly waited a month for project managers to complete invoices.

Before getting further on, I need to give credit where credit is due. I’m not currently responsible for the accounting functions of our business. One of my partners (the current managing partner) drew that short straw earlier this year. As it turns out, he is particularly effective at wringing waste from our business systems. Of course, he is supported by an effective accounting manager and a diligent administrative team. I should also admit I’ve often bristled at the focus we’ve placed on turning invoices. However, I cannot complain about the results, and I appreciate the improvements these measures have made to our bottom-line.

Turning invoices quickly is important for several reasons:

Invoices = Cash. Lingering invoices represent your firm’s capital sitting on the sidelines. You wouldn’t leave cash sitting randomly on your project managers’ desks. Get those invoices out so they can be collected. We spend a lot of energy collecting outstanding accounts receivables, and eliminating any time wasted by fiddling with invoices. Shortening your invoice-turn is low hanging fruit in the battle to improve cash flow.

Quickly turned invoices are better invoices. Conversely, slowly turned invoices often indicate problems. Problem invoices sit on project managers’ desks because they are missing contracts, waiting for change order approvals, or because the PM doubts (for some reason) the collectability of the invoice. Use lingering invoices as indicators for project issues and immediately approach project managers to diagnose problems.

Clients reward prompt invoicing by paying those invoices quickly. The client more easily connects prompt invoices and fees to recently completed work. Don’t make your clients think back five to six weeks when evaluating the services described in your invoices. Enough said.

The following are four steps your firm can take to shorten your firm’s total invoice-turn:

Step #1: Put the right people in charge of your invoice process— I already said this, but it’s worth repeating. It takes a bulldog (or two) to change habits related to slow invoice-turn. There’s always a good excuse (I know, I’ve used them all). Also, enlist detail-oriented administrative assistants to help track invoices for departments or branch offices.

Step #2: Have a good project setup process— A good AEC-specific accounting system can automate your invoice drafting process. However, those systems are worthless if projects aren’t setup correctly. Put in place the forms and processes necessary, so invoices correctly show the billing address, categorized task fees, contract budgets, etc. A good timesheet approval process also speeds invoice-turn by reducing the invoice corrections required to final invoices.

Step #3: Pick an aggressive final invoice target date— Pick an audacious goal for turning your invoices and then communicate it clearly to the invoicing team. Try a two- or three-day turn goal. Make sure project managers and principals block out their calendars to complete invoices. Firm owners should commit to staying in the office on Tuesday (for example) until all invoices are drafted. Ripping off the invoice “band-aid” will result in less wasted time. Invoices were once a task I’d start-and-stop over the course of a week or two. This wasn’t efficient. Under our new constrained timeline, we quickly compile invoice drafts, identify and resolve issues, send the invoices out, and then get back to servicing our client’s needs.

Step #4: Put a solid invoice tracking system in place— Implement a solid invoice scoreboard and communicate the score several times a day during the invoicing process. This keeps everyone accountable and helps managers identify where assistance is needed. Our invoice scoreboard identifies completed invoices, project holds and write-offs, actual billed fees, and fees by project manager. You can’t improve this process unless you measure it.

Of course, invoice quality can’t be sacrificed when attempting to accelerate your invoice-turn. Invoices must be complete, descriptive, and must communicate the value delivered during the billing cycle. Invoices also shouldn’t be used as a primary tool for communicating project progress. Regular verbal client communication, written project updates, and solid contracts will reduce questions (or worse, surprises) in your invoicing. That having been said, firms that implement these four steps to fast invoice-turn will take an important step toward improved cash flow management.

Derrick Smith is a senior vice president at MacKay & Sposito, Inc. (M&S) (Vancouver, WA). Contact him atdsmith@mackaysposito.com.

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