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Project billing: A complete guide to all stages and types

Learn about project billing and its different types and stages. Also, discover 10 tips to improve your billing process, including a tool
May 23, 2023
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Mukundh Krishna

Managing a project-based business comes with unique challenges, one of which is ensuring that clients pay on time. Likewise, you need to ensure that you bill clients accurately.

This process, known as project billing, can be a delicate affair as you and the client try to manage your risks and resources.

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In this article, we’ll explore project billing and the different project billing types businesses can use. We’ll also examine the various stages of project billing and provide 10 tips for improving your billing process.

Lastly, we’ll introduce you to a tool to help you ace your customer onboarding and project billing.

Let’s begin!

What is project billing?

Project billing is the process of setting rates, preparing invoices, and collecting payments for your project work.

The billing process presents risks for both the service provider and the customer, depending on how it’s handled. If the customer pays up front, they risk paying for a service the provider doesn’t complete. If the provider does the work upfront, they risk not receiving the full project fee for their service.

Therefore, the provider and customer must settle on a standard billing schedule that mutually minimizes risk.

We’ll delve deeper into the different project billing schedule types in a later section

First, let’s explore the stages of project-based billing.

8 Stages of project billing

There’s much more to project billing than simply sending an invoice and receiving payment. We’ve broken the billing cycle down into eight stages. 

1. Project planning

When planning any type of project, you must have a clear picture of details like:

  • The project scope and deliverables
  • Required activities and resources needed to complete the project
  • The client’s goals
  • Timelines for the completion of the project
  • Any risks associated with the project

All this information is vital to estimating the project cost accurately.

Something that would help at this stage is a tool like Rocketlane that provides reusable project templates so you don’t forget any steps while planning your project.

2. Resource planning

Consider the equipment, facilities, human resources, and materials you’ll need. Record details of each as a separate line item in an accounting software.

Additionally, consider when you’ll require those resources and plan around potential constraints.

You can then begin to plan resource allocation for specific teams and activities.

With Rocketlane, you can automate your resource allocation and get high-level visibility into which resources are available throughout the project.

3. Setting a billing rate

Once you’ve planned the project and know what resources you’ll need, you can decide on your billing rate and standard billing schedule. You can then prepare a quote for the client.

You should consider the following when creating your quote:

  1. Estimated billable hours needed to complete the project, multiplied by the hourly rate of each team member’s rate card
  2. Expected billable expenses
  3. Any flat fees for specific tasks within the project
  4. A billable amount to contribute toward your overheads

Along with project plans, Rocketlane allows you to set and track billable rates and hours for accurate job costing and billing.

4. Discussing the quote and setting a budget

If the initial quote doesn't convince the client, you may need to negotiate a billing rate that works for both of you. 

To win the client’s full confidence, you can present them with Rocketlane’s accurate budget reports and forecasts.

Once you’ve agreed on a budget with the client, set an internal budget to ensure project profitability.

For best results when setting a budget, you should:

  1. Decide on a desired profit margin.
  2. Review historical budget data from previous projects.
  3. Plan reserves for cost overruns.

5. Staying on budget while running the project

During project work, you must stick to your project budget. Check in regularly to ensure you’re staying within your expected margins.

You should track your team’s hours of work for accurate hourly billing and productivity management. 

Rocketlane’s in-depth project management and time tracking features can help with this too.

6. Generating invoices

When you arrive at the agreed project milestones, it’s time to create an invoice.

Depending on your project billing type, you may need to perform job costing to tabulate time and project expenses at this stage.

You can then use invoicing and billing software to create a customized invoice for your service. It helps to create a draft invoice template to ensure consistency across invoices.

7. Sending invoices

After preparing the invoice, share it with the client. This could be via email or on a centralized document portal like the one Rocketlane provides.

Be sure the invoice is timely, accurate, and includes clear payment terms.

8. Collecting payments

Finally, you can collect your earnings.

Your invoice should allow the client to pay the invoiced amount of money easily via a selection of online payment gateways.

If you nail each of these steps, your customers should have no qualms with payment.

Now let’s investigate the different project billing schedule types you can choose from.

4 Types of project billing

The four main project billing types are:

1. End-of-project flat fee billing

With this project billing type, the service provider chooses a fixed fee the customer will pay when the project is complete.

Pros:

  1. The client knows what to expect upfront.
  2. Providers can maximize profits if the project runs under budget.

Cons:

  1. Service providers only get paid after all the work is done.
  2. Requires careful budgeting to avoid incurring losses.
  3. Providers must protect themselves against scope creep (an SOW can help).

2. Fixed price milestone billing

In a milestone billing schedule, the provider invoices the client for a percentage of the fixed billable amount receivable after completing certain project milestones, such as:

  1. Number of hours worked
  2. Deliverables submitted
  3. Goals or phases completed

Pros

  1. The client stays up-to-date with project progress, which improves customer satisfaction.
  2. Providers get paid at each milestone, which helps cover overheads.

Cons

  1. Invoicing several times throughout the project is more time-consuming than doing it once at the project’s end.

3. Time-and-materials billing

In this more advanced billing type, the customer is responsible for all the project expenses relating to labor and materials. Common use cases for this model include freelancers and construction companies.

Pros

  1. Calculating incurred project costs is easier and more accurate than estimating costs at the start.
  2. You avoid scope creep by billing for any extra project costs.

Cons

  1. Customers don’t know the project cost until it’s time to pay.
  2. Providers may struggle to get customers to pay when the invoiced amount is higher than expected.

4. Retainer/subscription billing

Similar to the milestone billing schedule, providers can charge customers a set billing amount at regular intervals, such as weekly or monthly. This works well for a long-term project.

Pros

  1. Provides a predictable budget and cash flow.
  2. Clients can anticipate the billing amount and cadence.

Cons

  1. Requires careful planning over how much work to deliver during each subscription period.
  2. Incorrect budget estimations will negatively impact your hourly rate.

What roadblocks can come up during the project billing process?

Let’s find out.

Top 4 project billing challenges

Anything that involves planning, negotiation, and collecting payments comes with certain challenges, and project billing is no exception.

Below, we’ll cover some of the most prevalent challenges that creep up during the project billing process.  

1. Revenue leakage

Revenue leakage happens when billable labor and expenses are unbilled or underbilled. This is often a result of human error when you manually track time and project expenses.

It’s important to use the right tools to automate these processes for improved accuracy.

2. Excessive admin time

Project billing can be complicated and time-consuming. It could hinder you from performing core activities.

Time tracking, accounting, and onboarding tools can help you reduce admin time.

3. Allocating expenses to the right projects

Many business expenses (e.g., office costs, software, training, etc.) aren’t related to any specific project.

You must work this expense into your project billing systematically to cover all your costs.

4. Changing scope and timelines

The customer may propose sudden changes to the initial scope of work or timeline. For example, they may request adding a task or moving a deadline forward.

A tool like Rocketlane can help you manage this by providing a centralized space to negotiate and document changes to the contract. You can also easily adjust deadlines and budgets and track projects according to the new scope.

Now that we have looked at the challenges that may arise during project billing, let’s equip you with best practices that will greatly reduce the challenges and risks of the project billing process. 

10 Tips for improved project billing

Keep the following ten tips in mind as you set your rates, decide your billing schedule, and develop your invoices. Doing so will help you streamline your billing process.  

1. Create an SOW and SLA

One way to protect yourself against scope disputes is to create a statement of work (SOW) and service level agreement (SLA).

SOW: A highly-detailed list of all the project deliverables your company is responsible for. It can also include time frames and acceptance criteria.

SLA: A contract for the ongoing professional services your company agrees to provide. For example, a construction company may commit to ongoing maintenance of a client’s building.

The SLA can include:

  1. Your scope of responsibilities.
  2. The level of guaranteed performance.
  3. How quickly you commit to responding.
  4. How to handle failures in service.

Once both sides agree on the SOW and SLA, you can maintain a degree of predictability in the project. 

2. Ask for an advance payment

Regardless of your billing schedule, requesting a deposit (down payment) is usually advisable. It can be a percentage of the total or a fixed amount.

It creates more surety that the customer will pay (or lose their deposit) and provides you with some capital to start.

3. Differentiate billable vs. non-billable hours

If you’re charging customers for time and labor, it’s crucial to only charge for billable hours that include the time employees spend working on the project directly.

A non-billable hour is time spent on tangential work activities like training, meetings, invoicing, etc. The client is not responsible for the monetary cost of these activities.

Tip: Rocketlane has built-in time tracking capabilities that also tracks billable and non-billable hours.

4. Document and share your payment terms

Avoid confusion and disputes by clearly outlining your payment terms in the project contract.

This contract should include information such as:

  1. Billing method 
  2. Billing milestones
  3. Payment due date (or dates)
  4. Terms for late fees
  5. Required deposit
  6. Payment methods

5. Schedule regular check-ins about project progress

Regular check-in meetings are beneficial, even if you’re not using milestone billing. Here, you can discuss project progress and resource management with the client.

You can use a tool like Rocketlane to communicate project progress. With Rocketlane, you can share status updates and discuss them in contextual conversation threads within the app.

6. Include details of work done in the invoices

Clients like to know exactly what they’re paying for. Customize your draft invoice template to break down each billable service as a separate line item.

This way, you build your credibility and communicate the value of your service to the client.

7. Allow online payments

The best way to get paid on time is to make online payments as easy for the client as possible.

Allow them to choose from several payment options (e.g., Stripe, PayPal, credit card). Additionally, see if your invoicing software can embed a Pay now button in the client invoices.

8. Document any changes to project billing and get written approval

Project billing is a legal matter. So, ensure changes to your billing agreement are approved by both parties and well-documented on the project record. This way, everyone is aligned, and no disagreements will arise.

You can use Rocketlane to organize all your documents in one location – including your contract, SLA, and SOW. 

You can also collaborate on the documents to clarify your contract terms and fast-track approvals. 

9. Check your revenue often

It’s vital to monitor your expenses, budgets, and projected project revenue throughout the process, especially for a long-term project. That way, you can catch any discrepancies early and intervene effectively.

10. Use the right tools

As you can see, project management has many moving parts. Having the right tools can help you stay on top of everything.

For instance, these are three tool types that are must-haves for any project manager:

  1. Time tracking software: Track each hour team members spend working on projects and tasks. This makes it easier to monitor productivity and do accurate hourly billing.
  1. Accounting software and invoicing tools: These help you automate project accounting and send custom invoices, respectively. The right project accounting and billing software can help you calculate revenue, expense tracking, billing, and more.
  1. Collaborative project tool: Software like Rocketlane that is built for cross-organizational project collaboration and delivery helps you to organize information, collaborate with the client, track project progress, and more.

Would you believe that there’s a tool with time tracking, project management, and resource planning built in?

Introducing: Rocketlane!

Rocketlane: Collaborative projects for smoother project tracking and billing

Rocketlane is a powerful client onboarding and collaborative project management tool.

It can help you accelerate your onboarding so you can get paid sooner

Let’s see how Rocketlane can make project billing easier. Here are some of its key features:

1. Document sharing

Rocketlane’s native documents let you and your clients create, share, and collaborate on documents.

Rocketlane provides a centralized space to access a project record containing your:

  1. Contracts
  2. SOW
  3. SLA
  4. Billing agreements

That means no more wasted time scouring multiple tools and email threads.

2. Time tracking

With Rocketlane’s built-in time tracking, you can track every minute your employees work so you never suffer from project revenue leakage. This is useful for freelancers, small business owners, and large companies alike.

The time tracking feature includes:

  1. Employee timesheets
  2. Timesheet approvals by managers
  3. Creating a rate card for each employee
  4. Tracking billable and non-billable hours
  5. Creating project time budgets and tracking metrics like planned vs. actual hours of work
  6. Categorize time tracked across multiple projects according to the task and project name

3. Project management and collaboration

Rocketlane provides you with a 360-degree view of project progress by allowing you to:

  1. Create project plans and save them as templates for similar projects.
  2. See an overview of project statuses and timelines.
  3. Create Gantt charts, kanban boards, and checklists.
  4. Identify risk factors in your projects (e.g., tasks that are overdue or behind schedule).
  5. Share and collaborate on status updates.
  6. Send reminders for upcoming deadlines (e.g., task or billing deadlines).

You can also control which employees and clients can see and access specific projects, tasks, and documents.

4. Resource management

Rocketlane helps you plan, allocate, and track your resources in several ways. Here are the key benefits of using Rocketlane’s Resource Management module:

  1. The ability to have an overview of each employee’s utilization and availability.
  2. Option to assign team members to projects based on their skills, roles, and real-time availability.
  3. Include resource requirements in your project templates.
  4. Get estimates of the time required for projects.
  5. Automate resource planning and resource allocation for projects

5. Integrations for billing and invoicing

Rocketlane provides integrations with numerous apps, including Zapier.

Zapier is an app that allows you to build workflow automation where an action in one tool triggers an event in another.

This means you can automate project management actions between Rocketlane and apps like:

  1. Google Calendar
  2. Outlook Calendar
  3. Zoho Invoice & Zoho CRM
  4. Quickbooks Online
  5. Freshbooks
  6. And 5,000+ other apps

For example, you could create a new contact in Zoho Invoice every time you onboard a new customer in Rocketlane.

Bill better with Rocketlane

Project billing is a crucial aspect of any project-based business because it affects how service providers get paid for their work.

It’s essential to choose the right project billing method for your business. You must also understand the project billing process, from planning to payment collection.

By following these 10 tips for improved project-based billing, businesses can streamline their billing cycle, increase cash flow, and improve overall client satisfaction.

Rocketlane can be a helping hand for project billing whether you run a small business or a larger company. The tool helps you collaborate and stay organized during every phase of project planning and execution. This is especially helpful if you’re managing advanced billing with different billing milestones for multiple projects.

Additionally, its built-in time tracking and resource management features can improve the accuracy of your project planning and invoicing.

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Rahul Sridhar
Content Marketer @ Rocketlane

Content Marketer at Rocketlane. Former teacher turned tech writer. Occasionally dabbles in comedy and rap music.


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