How Architects should handle billings for clients

Importance of Billing

 Without monthly billing…

Running a firm is like driving without a gas gauge.
You don't know if you'll make it.

Payroll, rent, and insurance hit every month.
But your invoices wait for X percent complete?
That mismatch is why firms float cash and borrow against the future.

Culture of Billing  Close each month fast

“You have to create a culture of billing,” says Bernard. “You need to create a structure which will allow you to collect fees. You don’t have to be shy about it. It’s what keeps your business moving forward.”

“Be rigorous in billing every month.” Bernard was emphatic. “Some firms delay up to three months, but they’re losing money by doing that.” It really takes commitment from the principals, not just hiring a bookkeeper and putting the problem in someone else’s hands.

This culture should extend to all of your employees as well. “A typical office might issue something like 20-50 invoices a month. Your staff needs to understand how the work they do supports the well-being of the firm. Part of this is to understand that completing their timesheets accurately and on time is what helps the office to get paid on time.”

Invoice monthly, even on fixed fee

As it turns out, fee disputes are often the first symptom of weaknesses in the architect-client relationship that had gone undetected, and one of the biggest weaknesses is not clarifying relationships and expectations at the very beginning. The early stages of engagement are a delicate time and many architects tread lightly to avoid frightening off a potential client. After all, if the clients are that leery of spelling out commitments on paper, do you REALLY want to work with them?

“Use the contract to convey established billing practice,” advises Bernard. “The contract is the memory of the project, with all parties signatory.” The contract spells out who the parties are, their roles and responsibilities vis a vis one another, the scope of the work to be performed, a proposed timetable, a fee structure, and billing practice as well.

Define a Billing Timetable

Along with format, the architect must set forth clear invoicing timetables with both the owner and the sub-consultants in a way that allows them to mesh together smoothly. These timetables should be written into the contract which is agreed upon and signed by all parties.

For example, suppose that the owner establishes that he needs to have the invoice by the 7th day of the month in order to send remittance within 30 days. You might determine that your bills need to be done, approved, and sent out by the 5th calendar day. Your sub-consultants, in turn, will need to get their invoices to you by the 2nd or 3rd calendar day of the month. If it’s too much of a hardship for them, then you, the client, and the sub-consultant will need to propose some mutual arrangement that works for everyone.

A simpler practice might be to make a point of getting your invoices out within the first 5 calendar days of the month. “By establishing clear timetables for all parties, you won’t be late because of lagging sub-consultants,” notes Bernard. “You don’t want to be held up in your billing and end up holding the bag for everyone else. Every day that you delay will cost you money because you’re essentially giving the client a loan. Don’t do that.”

If you delay billing on your end, but the sub-consultants bill YOU on time, you’ll be on the hook twice.

Communicating with your clients helps shape their expectations and their understanding of value. Your invoice is one part of an ongoing communication whereby you demonstrate the value of your services.

Keep billing cycles tight (15-30, not 60) 

Fee as percentage of construction cost. Some architects like this, some don’t. Basically the architect’s total design fee is specified as a percentage (which can vary) of the construction cost. In early design phases, the cost of construction is of course an estimate. Upon project completion, this estimated cost is reconciled with actual construction costs. It’s up to the architect to figure out how to allocate and track this fee across the project so that the design budget doesn’t get consumed too early.

Hourly fee only. For some projects an hourly Time & Materials agreement with a fee schedule for different types of staff is acceptable.

Hourly fee with not-to-exceed limit. The architect is responsible for monitoring fee usage in order not to exceed the budget. Part of this is keeping the project within scope, and informing the client immediately when some requested design change would impact the design fee, or other project costs.

Getting the right level of detail on an invoice is important. Too much line-item detail just invites a nickel-and-dime approach on the part of the client, who may dispute hours worked without understanding the design need for those hours. Part of this is conveying the principle of design as a service rather than a product. Another part is telling a clear story, so that it’s easy to follow how each subtotal figures into the invoice. And, finally, the invoice should present clear instructions for remittance – how much and when.

“Avoid tying the release of deliverables to your fee,” advises Bernard. “Don’t lose control of the link between services and fees.”

Billing Timetable

Historically, architects have operated much like other professionals – accepting traditional forms of payment for their services, including cash, check, and bank or wire transfers. In the case of projects, payments are usually made in multiple installments, defined by specific time periods, such as the delivery of stages or on dates that are pre-established in the contract. Today, newer, faster and more convenient payment methods are gaining traction, putting the ability to pay directly into the hands of customers. Online payments are simpler and faster, allowing customers to plan financially. By combining this with a schedule that is exclusively designed for the project in question, one can start to see the advantages pile up.

For example, when each project milestone is reached and the next payment is due at specific moments, designers can use an online payment solution to quickly send an invoice to the customer's inbox that can be paid immediately (as opposed to the time-consuming process of sending and cashing checks). The more you can promote a frictionless experience with your customers, the more likely they will be to go into business with you again and recommend your company to others.