In this week’s Flooring by the Numbers LIVE! Show, (watch the replay here) we discussed how important it is to have lean mean balance sheet machine and minimizing working capital.
A key component of working capital is underbillings. Specifically this work that has been performed but has not yet been billed. Hence the title of this blog- Overworked and underbilled! We see this a lot.
Here are some ideas to reduce underbillings.
Firstly, best practice is to separate underbillings from overbillings.
This helps you to improve the bad and keep the good.
Secondly, track the ratio of underbillings to total billings for the month.
A good goal is 15%, we often see it running at 25%. You want to see it moving down.
If it is bouncing up and down there are probably multiple causes. We hear these types of conversations:
- Acme Contracting is a big offender! My billing people tell me we can only bill what Acme allows us to bill
- The amount we billed is what the salesperson told us to bill.
- Not sure why that one was underbilled?
- The customer did not allow us to bill stored materials
- We did not anticipate the correct costs for the period from bill date to moth end.
- And some other reasons that I can’t even remember.
It is astonishing that the accounting department has to literally beg for their salespeople to bill.
You would think billing should be something joyful, a celebration that good work has been done. But it often gets forgotten by sales who are busy submitting their next bid.
We would be curious to lean what best practices that you use to
- Get your people to bill on time
- Get your underbilling’s below 15% on a consistent basis
Let us have your feedback. We’ll collect the ideas and then share them with you.