It is important for you, especially the project managers, to understand contract types and their effect on the billing process. The contract type chosen for a project triggers business-processing rules. Though you can change it any time, it is best to choose the right type while setting up a project. You can do it in consultation with the billing manager of the company. In addition, it is a good practice to include a ‘Stop Work’ clause in your contracts to safeguard your interests. Projects will be profitable only if the client pays you on time for the work done.
Web Suite uses a project record to track information for any of these purposes:
Revenue
Marketing costs
Overhead costs
For revenue-generating projects, you might choose a contract type such as Fixed (lump sum), Hourly (time and materials), Hourly Not to Exceed, Recurring and Cost Plus. These contracts may or may not have time and expenses or contract amounts associated with them. Web Suite is designed to record time and expense entries for all contract types. So whether the projects are to be billed per hour or lump sum or even not billed at all, record time and expense entries against them to take advantage of project management tools in Web Suite.
Typically, Web Suite computes the default net bill amount based on the total time and expenses relieved with an invoice. It compares all time and expense flowing to a project to the revenue generated to show gross profit. Fixed types require a contract amount though it is a good idea to provide a contract amount for hourly contracts as well. Web Suite uses this information to evaluate time and expenses by comparing the amount spent [(B-Hours x Bill Rate) + Non-billable Expenses] against the contract amount. In such cases, your time and expense entries display in red. However, nothing will stop you from overbilling a project except if it is a Recurring with Cap contract or has a billing schedule. In addition, contract amount is used in the forecasting and work-in-hand reports.
For projects that your firm is trying to ‘win’, set them up as ‘Marketing’ contract type. Web Suite tracks all time and expense, giving you better profitability and management information for setting fees. Tracking of marketing time and expense costs begins when a new or existing client calls. Conversations, budget and estimate preparations, meetings, planning, and bid proposals all affect a project’s profitability. After winning the project, you can carry out your plan through to final close of the project.
Finally, you can use the Overhead type to track internal activities and expenses like education, staff meetings, research, and so on. You could set up one or more research projects for the firm with the objective of improving your services and expanding your professional offerings to customers. An overhead project requires that you set up your company as a ‘client’ and then assign the overhead project to it.
You can choose Web Suite’s predefined contract types on the Project-General screen. Various contract types include:
Fixed-Type Fixed Hourly Not to Exceed Percentage Recurring With Cap |
These contracts types are used when you want to bill:
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Hourly-Type Hourly Cost + Percentage Cost + Fixed Fee |
These contract types are used when you want to bill:
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Recurring-Type Recurring Recurring + Expense |
These contracts types are used when you want to bill:
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Non-Billable Marketing Overhead |
These contracts types are used when you want to record:
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The various contract types provided by Web Suite are:
Fixed contracts are based on a fixed firm price or a contract amount agreed upon by the client and your company. The contract can be billed in full, by the hour or in incremental flat amounts. The impact is that a maximum contract amount or ceiling is ensured and automatic checking of each time and expense entry is made possible so that it does not push the project total over the contract amount. If it does, Web Suite displays a warning and adjusts the time or expense entry so the maximum is not exceeded. Hitting the ceiling of a contract amount does not block the recording of additional time and expense; however, Web Suite does automatically change billable to non-billable status. These processing rules can be overridden on a project-by-project basis.
Hourly contracts have no contract amount. Although Web Suite enables you to bill any amount you want, hourly contracts are typically billed based on time and expense entries recorded for the project. There is no maximum contract amount (although you can record one for reference).
Hourly Not to Exceed contracts are based on a contract amount agreed upon by the client and your company. They are similar to fixed contracts. The impact is that automatic checking of each time and expense entry is made possible so that it does not push the project total over the contract amount. If it does, Web Suite displays a warning and adjusts the time or expense entry so the maximum is not exceeded. Hitting the ceiling of a contract amount does not block the recording of additional time and expense; however, Web Suite does automatically change billable to non-billable status. These processing rules can be overridden on a project-by-project basis. The contract can be billed in full, by the hour or in incremental flat amounts. The reason both contract types are offered is to allow you to treat them differently. Commonly companies bill Hourly Not to Exceed projects by the hour and fixed projects in incremental flat amounts. In this case, different invoice formats would be required for each contract type.
Marketing contracts should be assigned to projects for which a contract is not yet secured while work is being done. Marketing contracts can be used to hold time and expenses incurred in an effort to obtain work. Marketing projects record all time entries as non-billable. When a full contract is secured, change the Contract Type setting from Marketing to whatever is appropriate. Doing this will prompt you with an option to automatically change previous time entries from non-billable to billable.
Overhead contracts refer to work done on projects that track company overhead, not billable to a client. This can include weekly meetings, filing expenses, office maintenance, birthday parties, holidays, sick time, vacations, etc. Assign your company as the client to overhead projects.
Percentage contracts are those based upon a certain percentage of a cost or a settlement amount. Percentage based contracts are monitored by Web Suite just like fixed fee contracts. The impact is that automatic checking of each time and expense entry is made possible so that it does not push the project total over the contract amount. If it does, Web Suite displays a warning and adjusts the time or expense entry so the maximum is not exceeded. Hitting the ceiling of a contract amount does not block the recording of additional time and expense; however, Web Suite does automatically change billable to non-billable status. These processing rules can be overridden on a project-by-project basis. Commonly, users modify the contract amount of Percentage project due to change orders but Web Suite will not let you to change its contract amount, if its partially billed. Assigning Percentage contract types to these projects will make it easier to report on them and filter screens based on contract type.
Recurring—If you bill a project a fixed amount after a specified number of days, choose this type of contract. The project will be billed that amount irrespective of how much time was spent on the project. You need to set the billing frequency and amount for this. A contract amount is not required, but can be entered for reference. While any format can be used, an hourly invoice template is commonly used. The project will automatically show in Billing Review based on the specified frequency and invoice amount.
Recurring With Cap- If you bill a client a fixed amount after a specified number of days and the total consideration for the project has a ceiling, choose this type of contract. For example, you want to bill $2,000 per month up to a total of $25,000. Web Suite will generate a $2,000 invoice every month for 12 months and then on the 13th a $1,000 invoice will be generated regardless of how much time is recorded to the project during those 13 months. You can set the billing frequency and amount in for it. The project will automatically show in Billing Review based on the specified frequency and invoice amount. Enter a contract amount for Recurring With Cap contract types. The impact is that automatic checking of each time and expense entry is made possible so that it does not push the project total over the contract amount. These processing rules can be overridden on a project-by-project basis.
Recurring + Expenses are like Recurring Contracts, the difference being that expenses are not included in the recurring amount charged at a defined frequency. The expense amount is charged in addition to this amount. Again, a contract amount is not required, but can be entered for reference.
Cost + Percentage—are like Hourly-type contracts where all direct costs (time and expenses) accumulate until billed. The special bill rate applied to hours worked is the fully loaded cost rate (setup as special bill rate), and the Fixed Fee Percentage is typically the profit margin. When you bill, Web Suite adds the profit margin to the invoice. The key calculations are:
Fixed Fee Amount (Percentage Profit) = Billable Amount x Fixed Fee % / 100
Net Bill Amount = Service Amount + Service Tax + Expense Amount + Expense Tax + Fixed Fee Amount - Discount - Retainer Applied
You can override the Net Bill Amount if desired.
Cost + Fixed Fee—can be used as a billing arrangement when you want to bill direct costs (time and expense) plus a fixed fee (profit) to the client. Web Suite adds a portion of the Fixed Fee to the Net Bill before generating the invoice. Web Suite also tracks the fixed fee portion to ensure you do not over-bill. The key calculations are:
Fixed Fee Amount = Billable Amount x (Fixed Fee / Contract Amount)
Net Bill Amount = Service Amount + Service Tax + Expense Amount + Expense Tax + Fixed Fee - Discount - Retainer Applied
For example:
Contract Amount = $1000, Fixed Fee Amount = $100, Value of billable time and expenses = $500
Fixed Fee = 500 x (100/1000) = $50
Web Suite will stop adding the fixed fee when the Fixed Fee Amount is exhausted. The direct costs continue to be billed.
You can set a default invoice and statement for each type of contract in the Global Settings screen.