Effective Project Accounting for Service Businesses
The success of a project in a service business depends on accurate time and expense inputs, billing rules, workflows and processes. Inaccuracies introduce billing errors and these mistakes damage customer relationships, impact your reputation and put future business at risk. Inaccurate or late billing also results in delayed or disputed payments, which impacts cash flow—something many businesses already struggle with.
Knowing the correct amount to bill isn’t always easy. Billing for projects with multiple deliverables spread over weeks, months or even years requires detailed project tracking.
Keeping an accurate record of tasks completed, hours worked, pass-through costs and other details is essential whether your invoicing is based on milestones, completion percentage, fixed fee or simply billing for time and materials.
Let’s explore how NetSuite helps service businesses streamline processes for more reliable recording and efficient project accounting.
Common Billing Challenges
Project Tracking and Visibility
Projects require frequent reporting to ensure they are on track financially and meeting contract-specific billing deliverables. In a project-based organization, contracts can range from fixed price, time and materials, not-to-exceed, retainer-based or a combination of several. The billing, if executed using an entry-level project application or spreadsheets, can be the primary cause of projects running over budget and why project managers don’t have a clear understanding of project status.
As a result, customer invoices can be error-filled or delayed. Manual processes also introduce discrepancies with project tracking and data entry. Organizations can become burdened by countless hours spent running through line items and calculations in spreadsheets to reconcile month-end close, or the administrative work that comes with fixing errors after the project has wrapped.
Establishing a single data source is difficult for many companies because they’re operating their business with multiple, disconnected applications. For example, when a project manager updates a project management application but fails to make corresponding changes to a different application that manages project financials (like added costs or utilization), the effects of that missing financial information can snowball. This ultimately leaves the finance and operational teams tracking the project budget with unreliable information, leading to an unrealistic view of project health.
Project managers and financial leaders need to work together with clearly defined processes to better track the time and expenses associated with working tasks and completing projects. To provide this level of detail, companies must maintain an accurate record of all project activities throughout the project lifecycle. This requires careful tracking, which can be a time-consuming activity. While challenging, recording project details consistently can pay huge dividends. Otherwise, managers will waste time trying to correct and fill in the missing pieces, leading to wasted resources, unbilled hours and more risk.
Detailed project records are also essential for accurate revenue recognition. Under U.S. and international accounting standards (ASC 606/IFRS 15), revenue from contracts should be recognized as each performance obligation within the contract is completed. Public companies are required to comply with these standards and investors, along with creditors of private companies, often expect it as well.
As with billing discrepancies, decisions over the timing of revenue can lead to serious disagreements. And in the case of public companies, recognizing revenue before it has been earned can result in legal penalties. Due to this, auditors pay extra attention to how and when contract revenue is recognized.
Manual Billing Processes Are Bad for Business
As critical as project tracking and visibility is for project billing and revenue recognition, many companies still struggle to maintain accurate records due to manual data entry into spreadsheets, disconnected entry-level applications or both. These billing discrepancies can also stem from incorrectly setting up projects without proper processes in place, like approval chains and workflows, or from long hours spent entering and re-entering project and financial data.
Manual billing typically requires numerous calls and emails between accounts receivable and project management to ensure invoices are accurate, which wastes time and delays the billing process.
It’s also error-prone. If timesheets and expenses are not accurately recorded into the project, unreported costs can add up, especially if someone misses a large expense from a vendor or overlooks a block of time. If this mistake is then made by a billing administrator reading a timesheet or expense report inaccurately, a client may be charged for too many or too few hours. This discrepancy can cause an invoice to be rejected -- delaying payment, potentially holding up the project and damaging the customer relationship.
While spreadsheets may seem easy to manage, they’re also easier to modify. A minor change to a single formula can affect project billing and revenue recognition schedules. Since spreadsheet formulas are typically hidden, the update may go undetected for weeks or months. Once discovered, fixing such a problem means issuing customer credits and potentially restating earnings.
Connect and Automate Project Activity and Accounting With NetSuite
NetSuite overcomes these challenges with comprehensive bid-to-bill solutions that automate project tracking, time and expenses, resources and revenue recognition.
Updates are made automatically as the project progresses so that organizations can accurately invoice customers at the right time. NetSuite makes it easy for service businesses to maintain an accurate record of all project time and expenses, minimizing revenue leakage and allowing you to produce timely project invoices that connect to the general ledger.
With NetSuite, project accounting processes are fully integrated with accounting and professional services automation (PSA). This eliminates the back-and-forth exchange of information and manual data inputs so that accounts receivable staff have direct access to the data they need for timely, accurate billing.
Since NetSuite’s PSA provides a comprehensive record of all project activity, finance and operations teams share a unified source of data and customers are less likely to delay payment, which improves cash flow and customer service.
Additionally, NetSuite’s Advanced Revenue Management feature is designed to handle complex revenue allocations to ensure project revenue is recognized accurately and compliant with current accounting standards (ASC 606/ IFRS 15). Revenue managers can create custom rules, so revenue is recognized according to the unique schedule, contract or requirements of each unique project.
Looking to enhance your project accounting? Contact us online, give us a call at 410.685.5512 or click the link below to schedule your demo.
About Sharon Paul
Helping clients use technology to solve tough business issues is what drives Sharon. If she can save a business valuable time by automating a procedure or process, or help them use technology to produce useful information for decision-making, then Sharon feels that she’s done her job. Sharon specializes in NetSuite, Microsoft Dynamics GP and Sage 300Cloud ERP systems. In her spare time, she loves to cook and will gladly swap recipes with you.