Defending an Attack on Time-Based Billing

Source: Ric Payne’s Blog—Make a Difference

Ric Payne responds to statements by a consultant who believes billing for time creates conflicts of interest and is not ethical. The following bullet points review the assertions (in italics) and Ric’s responses:

Time-based billings reward inefficiency because the longer the job takes, the more you bill the client.

Payne says this is unfounded. Inefficient firms have high write-offs or lose their clients. Improved technology and intense competition have created efficiencies that benefit clients.

Jobs are not valued correctly.

If the client accepts the bill, it must have been valued correctly. If the client believes the bill exceeds the value, he will renegotiate or find another firm. However, if the firm bills for time without providing value, that would be unfair.

Time-based billings shortchange clients because accountants are afraid to incur hours that clients won’t pay for.

CPAs who shortchange their clients will lose them. The reason CPA firms don’t spend enough time on their clients is that they are too busy with clients they should not have.

Clients fear talking to their CPAs because they know they will be billed for every minute.

This is a fair criticism in some cases, but it can be easily dealt with by not charging them unless time exceeds a predetermined amount.

Clients don’t know the amount of the bill until the job is finished.

The firm should provide an estimate of the fee up front.

Payne says the most successful practices he has seen use a combination of time-based and fixed-price billings. Time-based billing has its faults, but not for the reasons given above. The real problem with time-based billing is that the firm does not participate in efficiencies created by good management and improved technology. Value pricing systems should be used and should focus on the output, not the input.

For the complete blog entry, click on the link below.

From Ric Payne’s Blog—Make a Difference, April 19, 2008.

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