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Combining %-based, time-based invoicing for a win-win solution

Supplier: eTrack Products
29 November, 2013

These days more architects are using percentage-based invoicing where the fee for some phases is increased if the building cost increases.

This is fair for the architect and may well be in the contract but can be disconcerting to the forgetful client who gets invoiced for completed phases already paid.

You could avoid upsetting the client by quoting using percentage-based fees but invoice the actual time worked. If the building cost increases, a 'credit' is indicated on the invoice for the completed phases. On the invoice, this credit is offset against the actual work (time * rate) done.

The benefit to the client is that they see exactly what they are being invoiced for since based on actual work done in the current phase. The benefit to the architect is that you cover your risk of the building cost increasing and working more hours since you have more 'credit' you can invoice in later phases. The balance of the (Total percentage Based Fees – Total time*rates) is clear on the invoice and can be carefully tracked by both the client and the architect.

If the balance (credit) is positive at the end of the project:

  • the client feels great at being 'under budget' (a likely case for referral or repeat business); and
  • the architect has been paid for all their work and has managed the risk of increased costs throughout the project.

If the balance (credit) goes negative at any point, depending on the agreement, either the architect can invoice for the extra hours (with full justification since the whole project has been invoiced hourly), or not, in which case the architect is no worse off than if percentage-based invoicing was used (and if remaining staff hours are tracked for each phase this can be anticipated long before it happens and thus prevented).

This win-win model is more work to track and to prepare invoices but becomes easy if automated.