How to measure the performance of your invoicing & WIP processes in your consulting firm

Research shows that adopting a Professional Services Automation (PSA) tool is one of the best ways to boost performance and growth within your consulting firm.

A 2024 independent study by The Consultancy BenchPress found that consulting firms using a PSA had 19% higher gross margins than those using spreadsheets, as well as a 40% higher operating profit.

These firms also grow revenues faster, can expect a much higher revenue portfolio under the wing of each of its partners, and are more tuned into measuring KPIs regularly.

The benefits of having an integrated (eco)system are significant both in terms of operational efficiency and time & cost saving, as well as key insights into the performance of a consulting business, automating core processes, and supporting faster and better decision making that is crucial to be successful in a highly competitive market.  

Interested readers can find more detail on the benefits of a PSA and an overview of our 5-point performance measurement framework here.

So, let’s take a deeper look into which metrics we should be measuring to see how we're performing in terms of invoicing and WIP.

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Invoicing & WIP (work in progress)

Timesheet completion

This measure tracks the timeliness and accuracy of timesheet submission and approval.

Timely and accurate timesheet completion is essential to expedite the billing process.

The need to chase down, validate and approve timesheets can lead to delays in invoicing and impact on cashflow.

It's also key to:

• Supporting project managers in assessing project progress
• Reaching billing milestones
• Managing resources
• Assuring project profitability.

While not an exact science, it's good practice to ensure timesheets are completed on a weekly basis and by midday Monday latest for the week prior.

I’m a fan of what I call “full time reporting”, which requires consultants to complete timesheets for all the hours they work, chargeable and non-chargeable, including additional hours worked beyond the standard working day.

This provides a true picture of the time that is actually spent on both project and internal activities.

It removes the need for consultants to make micro decisions on “time capping” and is easier to validate if a minimum number of hours per week has been booked to timesheets in terms of confidence in timesheet completion.

The project manager and finance team in combination can determine how much of the project time is billable to the client in the invoicing process, and what time should be written off.

The calculation is the number of timesheets that are not submitted on time, are incomplete, or are rejected for inaccuracies, as a percentage of total timesheets for the period, and can be tracked over time against a target.

Time to bill

This is a measure of the time it takes from the date that work is done (recorded in timesheets) to the time it is invoiced to the client (invoiced date).

It represents the lag between doing the work and billing for the work, which is ideally as short a time as possible.

This is calculated as the average time of timesheet entries between the date of the timesheet entry and the date that time was invoiced to the client per the invoice date.

Debtor days

An essential metric in any business, this looks at the average time it takes to receive payment of your invoices by your customers.

This can be calculated as current receivables (outstanding invoices) divided by annual sales x 365 days.

Work in progress

We all know that “cash is king”, so being able to effectively manage your work in progress is a key component to good cashflow management.

Work in progress in the context of consulting firms can be considered in 2 ways:

1. Time based WIP - The total amount of work that has been completed (time booked to projects) that hasn’t yet been invoiced to the client or written off

2. Revenue based WIP – Revenue that has been recognized that hasn’t yet been invoiced to the client or written off

Both of these measures provide an indication of the effectiveness of the billing process with the intent to keep WIP to a minimum level.

% expenses recharged

An easy way to give away your margin is to invoice expenses to your customers that are reimbursable. This measure allows you to keep a keen eye on ensuring that this is the case.

It can be easily calculated as the total of project expenses that have been invoiced divided by the total of project expenses that have been incurred.

Invoice schedule forecast

This forecast measure looks at the monthly total of invoices that are scheduled in the future for live projects.

It can be used as an early warning indicator for cashflow forecasting by comparing the future monthly forecast to your committed future costs (salaries, office costs etc), to ensure that you will have enough future cash to cover your outgoing commitments.

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In conclusion

Remember, it would likely be too onerous for you to be measuring all of these, so choose the ones that make most sense for you and your business.

In the final blog of this series, we'll be stepping through People & Resourcing measures in more detail to explain how and why these measures help you understand the performance of your people and your effectiveness in resourcing to projects.

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