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Professional Empowerment Series - Chapter 7: Appropriate Billing

Madhukar N Hiregange 
Updated on 02 November 2020

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In the earlier articles we covered professional goal setting, gaining the knowledge edge, adequate skilling, getting the experience needed, the people focus, and communicating persuasively. Now the very important aspect of how to quote, negotiate, and bill appropriately by the Small and Medium Practitioner following the ethics is examined in this article. None of the sharing done by me is the last word that may need customization. It may most times only validate the professional thought process and in some cases give a possible alternative.

Professional Empowerment Series - Chapter 7: Appropriate Billing

Background

The professional starting off his/her practice would have many myths and may either charge too much and work not fructifying or too little to be able to invest continuously in technology, knowledge, and people. Some who have been in practice for some time may find themselves stagnating even though they are busy all the time. It may be kept in mind that the objective of the professional is to establish the value of services, keep learning, and delivering beyond the client's expectations. This may require a considered structured approach.

Valuing One's Service

The most important questions to be answered are: how much do we think our time is worth & how much that client is willing to pay. This would also be dependent on when I started my practice, the extent of specialization, and the extent of delegation. This decision also needs to factor in how much we wish to be charging tomorrow as ideally, we need to have clients for the longer term. If it is a long term client, I may get stuck with low fees forever. We need to know that an unorganized way of working could result in unnecessary friction as well as disputes with the client. Tu tu me in mein – does not go well with professionals where let the buyer beware principle is not applicable.

The other various relevant aspects and the background work one can do for effective and adequate billing are the following:

1. List out the clients and prepare a client profile with turnover, profit, future prospects of client, group/ related businesses. The industry profile would also help with the evaluation of the inherent risk of poor compliance. It can be ensured that one is not dependent on 1 industry/ trade or 1 group. For example, those who focused only on the hospitality sector are going to find the next 2 years very challenging in terms of collections as well as work available. Just like share investment, try and have different sectors being serviced and no undue reliance on a few groups.

 

Bifurcate clients based on the above from the point of their willingness to pay reasonable professional fees as well as their capability. ABC analysis.

2. List out all the services being offered along with what is the benefit which would accrue to the client. [saving in resource cost, including in house expertise}. This could be how much they would save by sourcing the work from you rather than getting it done in house. The fee fixed should be a multiple of the in house cost in normal circumstances. Starting with a multiplier of 1.5 going on 5 times appears reasonable.

3. List out the time required in normal circumstances of the partner, qualified, semi-qualified, and other executing personnel with the approximate cost. [It needs to be remembered that one may also be involved in administration, educating self, traveling, etc.]

Prepare an excel with minimum salary cost derived for each of listed services at metros where most of us practice: routine work- Rs.1-2k/ day for unqualified and 3-5k/ day for qualified, partner/ expert level- 7-10k/ hour. This can be tweaked for differences in the metros. The non-metros can arrive at the same between 40- 60% to get a figure. This resultant figure could be multiplied by 1.5 for those who have just started to 3 for those with the established value propositions.

4. In profession many times one comes across big opportunities at which time an initial lower quote may be forced. At this time quoting for a pilot project at nominal cost and requesting for decision post that could be a possible way out. Possibility of quoting for the subsequent year at a higher fee subject to satisfaction of the client could also work with larger clients.

5. The billing in India for the SMP can be quite complex and depends on many factors. Some options/ alternatives and tips are set out below:

i. One may bill yearly ( which is in my view the most prevalent + inefficient as it does not factor in the smaller services provided as requested due to change in law, a new law, increase in turnover. It also undermines the value of the professional)

ii. Project or assignment based which are shorter-term where clients would normally pay more as it is not routine. These would also be subjected to scrutiny by the regulators.

iii. In case of continuous engagement {internal audit, filing of returns) , it could be a 1-time fee + monthly/quarterly retainer. Milestone billing is also preferable – for example, could be in case of 9C GST assignment, one would do a quarterly verification (useful in optimizing tax as well as ITC) for which 20% of the total would be charged on submission of the report. On certification, 20% could be charged.

 

iv. It is very important to list out what the offer includes and excludes as well as the obligation of both the client as well as the professional. This would avoid additional work being added and since it is “free” not being given due time and effort.

v. The other ways of billing are time and material [ google],

vi. The alternative could be a result/completion based (can be counter-productive other than in refunds/ FTP benefits in the long run for both)

vii. Personally, I had in the first 20 years increased my fee when the work coming in kept me up later than 6 PM every day. Of course, it so happened that it only increased except in this pandemic year.

viii. Other models including a mix of the above as found to match the ground realities.

6. All of the above have to have 1 important rule- the client has to win without breaking the law and working within the 4 corners. The clients are the wealth creators and if they do not do well then we cannot expect to do well.

Other Tips on Billing

a. In the initial years (2-3) it is the period to establish the knowledge, skill, and contribution to the client. In this period we need to be thankful for every client who provides us an opportunity. All works should end with a report on what is the value provided in terms of avoiding future issues, as well as in the present. Remember the GMCS and the fact that today - presentation is the key. 50 page reports are no, no. Short, concise communication by way of pdf or ppt using informatics.

b. Unfortunately, negotiation is part of a professional's life. Therefore, some ways are to build a

bit of buffer initially depending on the type of client. One could also look at explaining the increased scope or the value addition provided in earlier assignments. Here the standing of the firm makes a difference. Building one's brand can provide comfort to clients that while they are complying with the law, they would have a profit center (you) working for them.

In case of agreeing to the client's lower fee need, the payment terms could be 50% in advance or immediately on work completion. The need for documenting the offer and final understanding is imperative.

c. Very often anxiety on closing the work allotment ASAP can lead to heartburns later when we realize that we have underquoted. Clients are known to shop around for the lowest price which cannot be faulted in today's world. One way can be that you accept the quote with a caveat that if not satisfied, the fee would be fixed by the client at his amount. It works most of the time.

d. When comparisons are made, one way would be to compare apples with apples and not with oranges/guavas. Focus on the past deliverables from your side as well as the scope of the other person. One good way is to say please keep the quoted fee level, tell me what more I can add to the scope. This may work.

e. It is common that additional scope is needed. It would be good to ensure each and every one of them is quoted for though the work was taken up without delay, trusting the clients. We have found that job-wise quotes indicate that the professional values his time and also it does not get clubbed into the yearly fee. An example could be that we were billing Rs.250/- in the early '90s for a reply to SCN. Now the minimum is Rs.20K and it can go up to Rs.250k or more.

f. It may also be seen whether a discount can be provided for payment early and interest after a fixed period. ( say 60 days) Constant communication on overdue and applicability of interest would yield results in managing working capital optimally.

g. Billing needs to be done immediately on completion of work and sending of the report. The most effective follow up is in the 1st 30 days of billing.

h. It may be a good idea to have as a part of the professional firms MIS, a few ratios on a monthly quarterly basis such as total cost/ total billing (type-wise), staff cost/ net billing, contribution per qualified/ partner, etc. This would provide the areas to focus on where the contribution is lower.

i. Most professionals do not evaluate the quality of deliverables and also whether it is in a quick time. This focus would ensure moving up in the value ladder to command/get more fees.

In this exercise of adding to my thought process the IFAC publication on SMP which is available in 8 different modules can be invaluable though it may not exactly fit the Indian context.

Hope that this short article has been able to add any value/ direction to empowering one practice by getting an adequate reward for the effort, knowledge, and experience of the professional. I feel it may require enhancement and additions.

The author can also be reached at madhukar@hiregange.com.

Read the next article in the series - Chapter 8: Professional Ethics for Success


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