Invoicing based on a payment plan with per-project revenue recognition

Typical fixed-price contracts are based on a fixed price agreed with the customer, which is used for invoicing when the purchased service/product is delivered. For fixed-price projects, the supplier carries the risk of budget overruns but, conversely, the supplier is able to achieve high hourly rates and contribution margins through effective project management.

Selling every product or service at a fixed price can be tempting, as it requires less administration and invoicing. On the other hand, it can be an unfortunate shortcut, as it poses increased challenges in terms of managing accounts, work in progress and the bottom line in general.

The challenges peak at long-term fixed-price projects, where revenue recognition is expected to follow performance. In other words, there is a need to continuously make a so-called completion level assessment for calculating turnover.

For example, in the case of major deliveries many companies prefer to invoice the customer on an ongoing basis: 40% of the contract total in advance, 50% after the first major delivery and 10% upon final delivery.

In TimeLog

In TimeLog, the Fixed price – Standard contract covers this scenario. As illustrated on the following page, this contract combines the customer's payment plan and a number of tasks in the project plan. All work and expenses registered on the contract share the total value of the contract. It is, however, possible to indicate if the expenses on the project are default billable when creating the project, as if it was a time & material project.

It makes it possible to invoice expenses on fixed price projects in the following ways:

1. As part of the contract’s fixed price
2. On an additional time & material contract, which is selectable when reporting expenses in TimeLog
3. A combination of 2 and 3, where e.g. travel expenses are billed separately while subcontractors are including in the fixed price

The contract type Fixed price – Standard contract also lets you manage how much of the total accrues to work, expenses and travel expenses, if you select the first possibility above. In this way, the contract can have subcontractors without disrupting value calculations work (hourly rates etc.).

Items on the payment plan may well be products, making it possible to sell e.g. training, whereas underlying budgeting and revenue recognition is based on working hours.