How Automation Cuts Your Billing Cycle from Days to Minutes
Learn how automated invoicing software for consultants reduces Days Sales Outstanding (DSO) and improves cash flow.
For many consulting firms, the first week of the month is “billing week”. Timesheets need to be tracked down, checked, and cross-referenced with contracts. Then comes the data entry and document formatting, all before a single invoice is ready to send. Meanwhile, days or even weeks have passed, and your cash flow suffers as a result.
The Cost Of Invoicing Delays: Days Sales Outstanding And Cash Flow
For consulting firms, the most important cash flow metric is Days Sales Outstanding. This measures the average number of days it takes for you to collect payment once an invoice is issued.
If your contract terms are net 30, you send invoices on the first of the month, and your clients all pay on time, your Days Sales Outstanding (DSO) will be 30 days. But if you take 15 days to issue the invoice, your DSO jumps up to 45 days. This means you are effectively financing your customers using your own cash.
If your cash is trapped in excessive DSO, you do not have access to it to pay salaries, invest in resources, or endure market fluctuations. This is the most common cause of failure in consulting firms. Reducing DSO is not just about administrative efficiency, it is crucial to the survival of your business.
Manual Invoicing Is The Source Of The Problem
Data fragmentation is the main cause of invoicing delays. If your accounting software isn’t connected to your time tracking, you must manually verify and enter all of the data, every month. And one mistake can lead to an invoice dispute, which resets the payment clock entirely, tying up your cash for even longer.
How Billing Software Reduces Days Sales Outstanding
Fully integrated PSA software like Projectworks eliminates the data fragmentation problem by combining time tracking, budgets, invoicing and billing in a single unified platform.Your end of the month billing takes one click because your invoices have been building themselves over the course of the month with up to date project data. And your approved invoices will sync automatically with your accounting software to eliminate double-entry, saving even more time from your DSO.
Sending an accurate, detailed invoice on the first of the month signals to your client that you are a highly professional organization, and this will lead to faster approvals and greater client trust. It also is crucial to the survival and growth of your consulting firm.
You can get your invoicing process down to one day starting now, with a free trial of Projectworks. Or, let us demo Projectworks for you, and you will see how switching from spreadsheets to software will reduce your Days Sales Outstanding and greatly improve your cash flow.
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Let’s say a consulting firm signs a $30,000 engagement in July and invoices the full fee upfront. The client pays quickly and the cash lands, but the work runs from July through September. By the end of July the firm has completed about one-third of the engagement - the project’s on track but the finance team have some work to do to match revenue with the costs incurred (the “matching principle” of having costs and revenue in the same period is a key accounting concept). Only a third of the project’s fee has been earned (because only a third of the work has been done), and the remaining $20k of revenue is deferred to a future period.