A 12-person IT services firm, $2.4 million in annual revenue, and 38 clients on monthly retainers. Their billing took two people four days every month, and it was wrong often enough that two clients had started checking invoices line by line before paying.
The owner wanted to automate. I asked him to answer six questions first, in writing. It took three weeks and it saved the project.
The six questions, in the order that matters
- What exactly triggers a billable event: hours logged, a ticket closed, a milestone hit, or simply the calendar date?
- Which clients have a cap on hours, and what happens to overage: billed, absorbed, or rolled forward?
- Who is allowed to change a rate on an existing agreement, and is that change retroactive to the start of the month?
- What happens when a client is invoiced on the 1st for a month that started 3 days ago?
- Which items are taxed, which are exempt, and does the answer change per country or per client type?
- What does a credit note look like, and who approves one?
Questions 2 and 6 were where the firm’s real pain lived. Three clients had overage caps, and no two staff members agreed on how the cap was applied. Two credit notes from the previous year had never been applied at all, worth about $7,400.
What changed in the first billing cycle
With the rules written down, the configuration became a short job rather than a debate. Retainer agreements became recurring contracts with hours included, rates locked per agreement, and an overage rule that either billed or warned, depending on the client.
Month one took six hours instead of four days, and the two people who used to do it now spend that time on collections. The days sales outstanding figure moved from 54 days to 38 days in one quarter, mostly because invoices now go out on the 1st instead of the 8th.
Where firms get stuck is trying to automate before the rules are agreed. Software cannot resolve an argument between your delivery lead and your accountant. It will only make that argument happen faster and with better reports.
The check that catches almost every retainer error
Before sending any retainer invoice, run one comparison: hours logged this month against hours included in the agreement. Anything over 100% needs a human decision, and the decision should happen before the invoice leaves, not after the client calls.
ERPNext Consulting built that check into the approval step for this firm, so a flagged invoice cannot be sent without a second person reviewing the overage. In the first five months it caught 14 invoices that would have been disputed, worth about $19,000 in rework and awkward phone calls.
If you run a services business on retainers, do this in the next two weeks: list every client agreement on one page with hours included, rate, overage rule, and billing date. You will almost certainly find two agreements you cannot explain. Fix those before you buy anything.