- February 19, 2015
Little Wins: Monthly Invoicing
When I joined Happy Cog there were whispers about the elusive holy grail called monthly billing. It was hardly a new concept, but it was new to us. In theory, monthly billing would keep a regimented stream of cash coming in the front doors, and steady cash flow is almost more important to running a business than overall revenue. But we’d never made the move. We structured contracts so that our deliverable-based invoicing occurred at reasonable intervals, but if deadlines shifted, our payments did too.
In the end, our move to monthly billing wasn’t attributable to any grand change management scheme or carefully crafted business plan. I just did it. Armed with insight and accounting validation from our General Manager Dave DeRuchie, I started writing proposals with monthly invoicing, following a ⅓ up front reservation payment. And clients kept signing them. Occasionally a question would crop up, and I’d answer with conviction. After 18 months, most of our clients are on monthly billing, with only a couple of exceptions. On the first of each month, invoices fly, regardless of what’s going on in the project.
This allows us to forecast really clearly. For example, I know in February what kind of cash flow we can expect in May and June. I know how many more gigs we want to win. I know when they’d best start. I can project what year-end revenue will look like, but the biggest, unexpected benefits had little to do with cash flow, and a lot to do with project flow.
We found that moving invoicing away from deliverables, milestones, or (heaven forbid!) approvals, resulted in less stressful deliverable reviews. Previously when clients knew that an approval resulted in an invoice, the stakes felt much higher. Once the check was mailed, clients felt like they had no recourse. As a result, they were a little more reluctant to grant approvals. A little more hesitant to move ahead.
Once we decoupled invoicing from milestones, once approvals were no longer tied to invoices, approvals were granted more readily. They were granted more frequently too. We could approve each deliverable. There was no need for phase approvals. For a company founded on a waterfall process, that had moved into a much more blended and cross-disciplinary approach, this was a huge ancillary benefit.
Moving into monthly billing also allowed us to be much more flexible in our project approach. In a milestone-based approach, we have to define those milestones, and when they occur relative to one another, in our initial contract when we outline our fee schedule. If a payment is due “upon delivery of initial HTML wireframes,” we better damn well deliver HTML wireframes. If we don’t deliver them, our partners could make the case that they needn’t pay for them.
The problem, in this case, is that we have to determine our entire approach, and then stick to it, based on the information we glean out of the sales process. We are infinitely better informed about our clients’ needs, especially what types of artifacts or adjustments to our process they’ll respond best to, at the conclusion of project definition (you may call this research or discovery). We know at that point whether HTML wireframes are a better tool than static annotated wireframes, page description diagrams, or another artifact. Monthly invoicing gives us the freedom to pivot. To decide one type of artifact makes more sense than another, sometimes well into the project timeline. The invoices aren’t tied to a predetermined process, and now neither are our proposals. We leave our approach open to diving into a tackle box full of 15 years of options.
This flexibility also became the best case we could make to the few clients who were hesitant about the prospect of monthly invoicing. Monthly invoicing ensures the flexibility a custom-crafted project approach requires.
Practice Makes Perfect
There are a few risks in monthly invoicing, principal among them the need to stick to your described project duration. If we underestimate in months, and our project shifts for any one of a variety of reasons, we’re either issuing a change request or working for free. Neither of these options are very appealing. If we overestimate, we’re invoicing clients for work long completed which can present additional risks. It’s a Goldilocks situation where we have to aim for getting it “just right.” Fortunately we can leverage our team’s experience to make those calls accurately.
We’re still identifying all of the requirements and opportunities this new model provides us, and how those changes ripple out and influence other aspects of our business. Monthly billing was an idea born in the hopes of realizing operational improvements, but the real power has turned out to be the fluidity and flexibility our clients and our industry require.