Best Practices on How to Bill Clients as a Consultant
- There are different billing methods for consultants, such as hourly billing and project-based pricing, but each comes with its own challenges, such as uncertainty about project scope and changes in requirements.
- Clearly define the project scope, set payment terms for various scenarios, and consider the milestone approach to maintain a steady cash flow and avoid chasing clients for payments.
- Automate payment tracking to make things easier for you, and offer multiple payment methods to clients for their convenience.
There are many ways to bill your client, but when it comes to consulting services, not all of them are the best choice. Choosing the wrong way might lead to you doing more work than you get paid for, clients being unhappy, or even asking for a refund.
How to bill clients as a consultant without causing any issues, financial loss or unhappy clients? This is a question many consultants are asking themselves before making a choice. Some are billing by the hour, others make use of the value-based pricing method. Which one is the best, though, and which hurdles await?
In this blog post, I’ll take a closer look at the different pricing methods a consulting business should consider.
Challenges of invoicing as a consultant
When it comes to client invoicing, there are many different ways to get paid on time for your consulting services. You can opt for hourly billing, project-based pricing, or cost-based pricing. Some consultants think charging based on an hourly rate is the easiest and most transparent method. After all, their clients can easily project the costs. But that’s not always the case. Even if they know how much you’ll charge per hour, they don’t know how long you’ll spend on a given project. Even more, the scope can change.
Is the project-based billing method the best one, then? Not necessarily, it has the same issue as the hourly one. Once the scope changes, you’re required to either charge more, or to reduce the amount of time you spend on your project. In either case, you’ll have to give your client the bad news. Plus, it looks unprofessional if you weren’t able to scope a project properly.
What is the best way to invoice as a consultant in that case? A mix of all available pricing methods is usually the best. Define the project scope as clearly as possible, add payment terms to it for every possible scenario. For instance, if the scope changes, or your calculations were simply off, charge by the hour to reach the promised end goal. You can also take the milestone approach and invoice after hitting certain goals. The biggest advantage here is that you have a solid cash flow and don’t have to chase clients for payment.
How to invoice clients as a consultant
With the challenges of invoicing consulting work out of the way, let’s take a look at the practical side of things with the following invoicing tips.
Track your hours
We have a blog post on time tracking for agencies, introducing you to multiple tools you could use to track the hours worked. The software mentioned can also be used by consultants.
Tracking the billable hours is not only a good thing to do, it’s a necessity for a variety of reasons. Besides knowing how much to charge a client, you also learn how much time it takes you to do certain tasks. This is very helpful information that will make you a better consultant. You’ll be able to estimate projects more accurately, and therefore you’ll be able to create better proposals.
Depending on the invoicing method chosen, you can list the number of hours you spent on the project and even link to a report if you want to give your client that much information.
Include all information
A professional invoice is not just nicely designed, it also includes all necessary information. To ensure that you didn’t miss anything, make use of an invoice template that has been specifically designed for your country. Especially in Europe, invoicing rules are very strict, so make sure you follow the legislation.
What any invoice should have is at least:
invoice number
invoice date
contact information (yours and clients)
services as line items
total and subtotal
any applicable taxes
payment terms
Be professional and polite
Maintaining politeness in invoice communications is essential for fostering positive client relationships. A respectful tone can help resolve potential disputes, build trust, and encourage prompt payments. Using friendly language, avoiding jargon, and adding personalized touches, such as greeting customers by name, enhance professionalism and make invoices more pleasant to receive.
Request deposits for long-term projects
As a consultant, it's common to receive payment from clients in phases rather than upfront. Requesting deposits can help mitigate this risk and ensure timely payments.
Benefits of requesting deposits:
Financial security: Deposits provide financial security by ensuring that you receive some payment for your services before starting the project.
Motivation: Deposits motivate clients to complete their share of the work on time, as they have invested in the project's success.
For long-term projects with multiple phases or milestones, requesting deposits can be an effective way to manage cash flow and ensure timely payment. Consider using a deposit schedule that breaks down payments into manageable chunks.
Deposit amount: Determine the deposit amount based on your client's budget, project timeline, and payment terms.
Payment terms: Clearly outline payment terms in your contract or agreement, including when deposits are due and how often you'll receive further payments.
To make deposits easier, you can use Service Provider Pro and receive a partial upfront payment for your invoice.
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Automate payment tracking
Once an invoice has been sent, you shouldn’t spend time on tracking or chasing invoice payment. Your invoices have a due date, and clients pay by that time—in most cases at least. If they don’t, there should be a system in place that reminds them automatically.
Any modern client billing solution has this basic functionality in place, such as Service Provider Pro.
The alternative is to hire a virtual assistant who handles all your billing related tasks, including tracking payments, and sending unpaid invoice reminders.
Provide multiple payment methods
In order to avoid late payments, make it easy for clients to pay you. Try to be accommodating when it comes to the way they pay by offering multiple options, from PayPal to card payments and bank transfers.
Of course, accepting any payment option out there might not be easy for you. Some will require you to get verified as a business, so choose the most important ones that will cover a wide range of clients. And more importantly, communicate the payment methods you accept early on.
How to bill clients as a consultant FAQ
How do you bill for consulting services?
There’s not a single way of billing for consulting services, but experts recommend combining different pricing methods, for instance project-based billing with hourly rates for out-of-scope work.
How do you charge as a consultant?
Consultants should use a billing software that allows them to send proposals that can be turned into an invoice when accepted. Ideally, the software also tracks payments and sends unpaid invoice reminders.
What should be included in a consultancy invoice?
The invoice should include a unique number, the date, contact information of both parties, the services rendered, the total amount, taxes (if any), and payment terms.
Summary
Billing for your consulting seems like an easy thing to do, but it’s a bit more complicated once you have to actually do it. After all, you want to get paid for your services but also show (potential) clients that they are not overpaying for your services. With this guide, you’ll hopefully have a better understanding of the available options, so you can win over more clients for your consulting business.
