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Consulting refers to a type of service rendered by experts in a particular field regularly and for the long term, unlike a freelancer. Their job entails advisory and execution of services, such as legal or information technology, in exchange for a fee, either one or multiple clients.
These types of professional services can consist of huge transactions, while profit margins are higher. Hence, consulting services, like other businesses, also require good accounting. If a consultant wants to run a successful consulting business, he or she needs to keep track of billing hours and invoice the client for the hours worked. To get reimbursed for their job, each consultant should keep accurate records of the time they spent on the project and invoice the clients regularly.
Invoices should be made correctly with all relevant information, whether as a small business owner or a consultant. An invoice is a critical accounting and can be a legal document that evidences the consultant’s services. The consultants must streamline invoicing or billing to avoid inaccuracies leading to delayed or lower payments.
Consultants have to create professional invoices that precisely list down their services, hours worked by them and the amount payable for the invoice. The following points guide the consultants on how to raise invoice effectively:
Keep track of consulting hours for every client
The consulting sector mostly operates on an hourly basis, and several consultant companies bill their clients by the hour. If consultants intend to follow the same procedure of tracking work hours for all clients, they must maintain a specific workflow. The decided tracking and recording process must be convenient for the consultant to follow regularly.
Instead of showing a grand total at the end of the invoice, a consultant can break down the costs into smaller totals alongside the hourly rate. This makes it easy for clients to understand the list of services they are paying for and the number of hours to deliver the service.
Consultants who are just starting off can track hours worked in a simple document such as excel or worksheets. Those consultants who have considerable transactions regularly have all-in-one time-tracking applications that allow them to manage their schedule with timesheets.
Comply with the tax laws applicable to your consultancy business
Goods and Services Tax (GST) involves elaborate specific invoicing and bookkeeping rules applicable to businesses and service providers registered under the law. The consultants who are registered under GST must ensure to report all those mandatory fields in the tax invoice prescribed as per law. Wherever e-invoicing applies to the consultancy business unit, it must be duly complied with. Further, invoices must be raised and issued by the specified timelines. Any failure to comply will attract penalties of up to Rs.25,000 per invoice document.
Assign invoice number and Invoice date for every billing document
When it comes to payments, an invoice without a unique number is easy to overlook for clients. Hence, every invoice must bear a unique number and date of issue at the time it is raised by the consultants. The invoice numbers act as references, making it simple for consultants and their clients to cite in the future. Invoice date holds relevance for invoice due date helping in deciding the deadline for payment as well as for accounting purposes.
For a better understanding, one must assign the invoice numbers in sequential order. There are several methods for assigning numbers, one of which is to use the financial year along with the serial number as the invoice number.
Apart from general business parlance, there are additional rules prescribed under the GST law. GST law requires its taxpayers to restart invoice numbers afresh from the start of a new financial year. If the GST registered consultants do not follow any rule for invoicing such invoices raised will not be valid under the eyes of law.
Use business or professional header
A new consultant drafting his or her first consultant invoice must start with the header. He or she must design a standard header that can appear on every invoice raised in the future. It must include the business name and logo if any being used.
Additionally, it is important to mention information such as name, address and contact details, as given in the business contracts executed with the clients. Consultants must also address the document as ‘Invoice’ as a heading. All this information will help the clients understand for whom they need to pay.
Add the details of client and contact
There must be a specific place on the invoice below the header to fill in the client’s contact information. On every bill created, the consultant must double-check that the correct point of contact is mentioned. If clients are big corporations, invoicing will most likely be on someone from the billing department rather than the regular business contact.
So, the consultant must enquire before addressing the invoice to a particular person to avoid any payment delays. Adding contact information of both parties can help either of them to contact each other in case of any emergency or for queries.
Define payment terms clearly on the invoice
Before the consultant finally sends the invoice, he or she must make sure to mention the payment terms. It involves the payment methods he or she accepts, the due date of payment or invoice due date, and any late fee or penalty or interest for any delays. Ideally, the time limit to make payments towards invoices raised by small businesses as per the MSME Act is 45 days.
The late fee to be charged when the invoice amount is paid beyond the due date must be mentioned in this portion of the bill. List your late charge so that clients are aware of any fees that may apply if they miss a payment deadline.
Consultants have particular accounting requirements that influence how they bill clients. These practical suggestions can help them optimise billing process and be paid for their consulting job more quickly:
Use automated solutions or softwares for invoicing
The consultants can use suitable softwares for invoicing that allows automations and supports creation of master data for faster invoice creation. They need not worry about creating invoice templates from scratch and can choose from a wide range of templates. Most importantly, such invoices will be less prone to errors. The consultants need not bother about the invoice number, as it gets automatically assigned in a serial order. Moreover, the invoice data is stored on cloud and accessible from anywhere at any time, with no fear of data loss or security.
Try ClearOne Invoicing Solution by ClearTax. It allows intuitive, professional and comprehensive GST invoicing. It allows one to create customised professional invoices and one can be compliant with all the regulations with GSTN and regular software updates with the latest changes.
Raise invoices more frequently
Consultants must make it a practice to send customer invoices as soon as a project is completed to guarantee prompt payments for their services. When a consultant sends an invoice quickly after finishing a job, the work will be fresh in his or her mind, and less likely to forget a project assignment and leave it off the invoice. It will ensure a steady cash flow too.
Consulting professionals generally choose to get paid at the end of each month. It is normal practice, especially when it comes to hourly consulting and involves billing for the expenditure incurred. However, consultants may bill more frequently such as weekly or as soon as a project is finished.
Take deposits for long-term projects
Consultants can request an upfront deposit for any long-term projects that demand a considerable amount of work. They can protect their business and ensure that they receive at least partial payment for the services provided. As per general business practice, they can demand a deposit of 25-50% of the payment initially agreed. It will lessen the risk of accepting long-term projects from new clients or clients they haven’t met yet by doing so.
Send invoices immediately to the clients
Consultants must raise and send out the invoices to clients as soon as the job is finished. This not only ensures that they get paid faster, but it also means that they are less likely to make billing errors. They can recall exactly what they accomplished and how much time one spent on individual activities when the project is fresh in his or her mind.
Provide some discounts for on-time payments
Consultants can charge clients a fee if they pay invoices late, so they may offer them a cause to pay quickly. As an incentive, consultants can offer a tiny discount (anything ranging between 0.5-1%). The clients can get a discount, and consultants also need not worry about late fees or waiting weeks for the money.
Give multiple payment options to clients
Why would one accept a single payment method in today’s digital world? When consultants offer a choice of payment options, it is more convenient for the client. Consultants can set up an online payment service or UPI instead of merely taking bank transfers, making payments flexible. The more options they provide to their customers or clients, the more likely that they are paid on time.
Stay professional and courteous while following up for payments
Consultants may occasionally work with disorganised clients. Unfortunately, there’s no way of knowing whether or not their customers will pay on time. If this does not occur, they may need to contact the company to find out what is going on. Consultants must keep a professional attitude and not lose their cool because they haven’t been paid.
If consultants have written and signed a legally binding contract for their services, they have the right to go to court if necessary. Instead of using an abusive tone, consultants could phrase their questions respectfully. If clients don’t appear to be paying them soon, consultants can personally contact them with a payment reminder email or a phone call.