Overview of Invoicing in XPM

Background

There are many ways to invoice from XPM, each have their upsides and downsides but there is one method that requires much less manual intervention than the other methods.  This is the method that will be outlined in this document. Before we get into it, however, let’s have a quick look at the billing models for the accounting industry.

• Quoted: We provide a fixed fee for the work and invoice based on this fixed fee provided.  This means we are billing irrespective of the timesheets. If we quote $3,000 and put $3,400 of billable time to the job, we bill $3,000 and incur a $400 write off.
• Time and Cost: We bill based on the timesheets on the job.  So if we put $3,400 of billable time on the job, this is what we bill.  Sometimes we decide to write off some of the time, let’s say $400, so we only invoice $3,000.
  
• Fixed Price Agreement: Here we invoice 12 monthly instalments for an agreed set of services.  Let’s say we bill $250 per month over 12 months, so we bill $3,000 the 12 months.  We then do the work, then do a WIP washup to apply the 12 instalments against the billable time entered.  Let’s say we did $3,400 of billable time. When we do our WIP washup we will recognise a $400 write off.

 
The Quoted and Time and Cost methods are billed from XPM, whereas the Fixed Price Agreements we bill from Xero.  We bill out Fixed Price Agreements by setting up a recurring invoice in Xero and having the reference on the recurring invoice match either the client order number in the job, or the job number.  For more information on this see our help article on ‘Managing Fixed Price Agreement renewal dates’.

In this article we are focusing on the invoices we are raising in XPM for our Quoted, and our Time and Cost jobs.   When raising an invoice in XPM, it is first important to look at three buttons:

• Progress Invoice:  If you do a Progress Invoice on an Actual Time and Cost basis, the timesheets you invoice will be billed, and the ones you don’t bill be rolled through to the next billing period.  This means they will remain as WIP on the job. When doing this invoice you have the option of choosing ‘Fixed Price’ as the calculation method.  If you select this and overwrite the invoice amount in the fixed price box, any write offs/ups will be spread across all the timesheet entries on that task.
  
  If you do a Progress Invoice on a Quoted Basis, it will recognise the invoice amount as an ‘interim’.  This means the timesheets on the job are not considered to have been ‘billed’, because we have not billed them, we have created a new line on the job called an interim.  The timesheets remain as WIP, and the interim is recognised as negative WIP. So if we have $1,000 of timesheets and have an interim invoice of $800, we will have $200 WIP because $1000 + ($800) = $200.
  
  
• Final Invoice: If you do a Final Invoice on an Actual Time and Cost basis, any time you do not bill will be written off.  So if we have $1,000 of time, and we will $800, the $200 we did not bill will be recognised as written off, so we no longer have any WIP on the job. 
  
  If you do a Final Invoice on a Quoted basis, the invoice total will be apportioned across all the timesheet entries.  So if we have $1,000 of timesheet entries and we invoice $800 on a quoted basis, the $200 write off will be apportioned across the $1,000 of timesheets. 
  
  

• Remove from Invoice List:  This button creates a WIP Washup.  So it takes all the interim invoices, and washing them up against all the unbilled timesheet entries.  So if we have a $1,000 of timesheet entries and a $800 interim and we hit “Remove from invoice list’, the $800 invoice total will be apportioned across the $1,000 of timesheet entries.  This will recognise a $200 write off that is shared across everyone who contributed to the $1,000 of time.

If this is a bit overwhelming, don’t worry as we simplify everything in this document.  It’s a good idea to have a general understanding of those three buttons, but not essential to understand the ins and outs of it.

Invoicing Method

The method for invoicing we are about to look uses the following logic:

• Invoices will be sent from Xero.
• Invoices will show a single line item with paragraph text for the work completed.
• The revenue stream for the invoice will be automatically assigned from the Job Category.

This is the most popular option for invoicing because it requires little (if any) editing in Xero.  Under this method we send a single line item invoice to Xero using the Job Description. We use the Job Category to determine the revenue stream when the invoice arrives in Xero. See our job category guide here.

The downside with this method is that we cannot send an invoice to Xero that has multiple revenue streams.  For example, if an invoice has ‘Bookkeeping’ and ‘Compliance’ on the same invoice. As we are sending a single line item to Xero, we cannot break this invoice out to multiple revenue streams.  If this happens, it will need to be edited in Xero to break out the revenue streams, or choose a different invoicing method that will require editing the text of every invoice in Xero. 

The need to break out invoices from XPM to multiple revenue streams should be very rare, as the invoices that are broken out across multiple revenue streams are for your Fixed Price Agreements, which are billed from Xero.

To use this invoicing method you will need to setup your Job Categories to split out your revenue streams, as well as your billing method so you can still filter your WIP.  Here is an example of a good set of Job Categories:

• Billable Fees - Compliance
• Billable Fees - Advisory
• Billable Fees - {other revenue streams}
• Fixed Price Agreement
• Internal

The Billable Fees Job Categories need to have the appropriate revenue mappings setup.  We do not need to setup revenue mappings for Fixed Price Agreement Job Category as these are billed from Xero with the appropriate revenue split.  Internal jobs will never be billed.

If you have a Billable Job that contains both Compliance and Advisory, it is worth splitting this into two separate jobs.  For example, you may have an annual job that has Annual Accounts, GST, and Quarterly Coaching. The Annual Accounts and GST can be setup in one job, and the Quarterly Coaching in another job.  This is different than how we setup jobs for Fixed Price Agreement, where we would have all three tasks in the same job, because they are all billed together in the same invoice from Xero and we need to have this invoice sit against the same job as the timesheets.

To setup the integration in Xero we need to use the following settings:

Types of Invoices

There are four types of invoices you will raise in XPM:

• Time and cost invoices (with write offs to be applied to specific timesheets)
• Time and cost invoices (with write offs to be apportioned across all timesheets)
• Quoted invoices (with write offs to be apportioned across all timesheets)
• Deposit invoices (write offs are not applied at this stage)

Time and cost invoices (with write offs to be applied to specific timesheets)

With this method, we are selecting specific timesheet entries to either write up, or write off.  So if we have a $1,000 on time and only want to bill $800, we can select specific timesheet entries that total to $200 to not bill.  This means if we had 10 timesheet entries at $100, and we selected two timesheet entries, those two timesheet entries would both receive a $100 write off, and the other eight entries would receive no write off.

• Complete timesheets in XPM
• Raise a ‘New Progress Invoice’.
• Select ‘Actual time and costs’
• Edit the invoice
• Update the ‘Job Description’ to say what you would like the invoice to say when it arrives in Xero.  Hit Save.
• Click into the Tasks and review the timesheets.  If there is a timesheet you do not want to bill, select ‘No’ next to the entry.  This will mark that timesheet as a write off.
• If you would like to write up a timesheet entry, you can overwrite the time to be more than the actual timesheet entry.  This will not affect the timesheet entry, it just create a write up on that time entry.
• Once you have made your adjustments for write ups and write offs, hit Approve. This will send the invoice to Xero using the Job Description from the invoice as the line item description.  The revenue stream will be populated from the Job Category in the job.
• If this job is ready to be closed, hit ‘remove from invoice list’.  This will move any unbilled WIP into a write off. If this job is still in progress, do not hit this button.

Time and cost invoices (with write offs to be apportioned across all timesheets)

With this method, we are apportioning the write up or write off over all timesheet entries.  So if we have a $1,000 on time and only want to bill $800, we can overwrite the $1,000 to $800 and $200 write off will be split evenly across all the timesheet entries.  This means if we had 10 timesheet entries at $100, each timesheet entry would receive a $20 write off.

• Complete timesheets in XPM
• Raise a ‘New Progress Invoice’.
• Select ‘Actual time and costs’
• Edit the invoice
• Update the ‘Job Description’ to say what you would like the invoice to say when it arrives in Xero.  Hit Save.
• At the top of the invoice, change the Pricing Mode to ‘Fixed Price’.
• In the box next to the task change the amount shown to the amount you wish to invoice.
• Once you have updated all the necessary boxes, hit Approve. This will send the invoice to Xero using the Job Description from the invoice as the line item description.  The revenue stream will be populated from the Job Category in the job.
• If this job is ready to be closed, hit ‘remove from invoice list’.  This will move any unbilled WIP into a write off. If this job is still in progress, do not hit this button.

Quoted invoices (with write offs to be apportioned across all timesheets)

With this method we are invoicing based on the quote we have raised on the job. If there is no quote on the job, this method will not work.  This method allows us to invoiced exactly what was quoted, rather than messing around with timesheets. So if we have an agreed fee of $2,000 for a cashflow forecast, we are going to bill $2,000 regardless of the timesheets.  The best way to approach this is to create a quote for $2,000, and when we invoice, selected the Quoted method. This will pull through exactly what was on the quote.  

Because we have chosen ‘Progress Invoice’ there will be no write up/off applied to the timesheets. Instead, the invoice will be treated as an ‘Interim’ which is negative WIP.  If we would like to apply the invoice amount to the timesheets and recognise the respective write ups/offs we can either make it a ‘Final Invoice’, or once we have completed the invoice, hit ‘Remove from Invoice list’.  Both options will achieve the same result and apportion the invoice total evenly across the timesheets thus recognising the write ups/offs evenly across all timesheet entries relative to their billable amounts.

• Raise a quote on the job for the amount you wish to invoice.
• Complete timesheets in XPM
• Raise a ‘New Progress Invoice’ if you wish to create an interim, or ‘New Final Invoice’ if you wish to recognise the write ups/offs against the timesheet entries in this invoice.
• Select ‘Quoted/Estimated time and cost’.
• Edit the invoice
• Update the ‘Job Description’ to say what you would like the invoice to say when it arrives in Xero. Hit Save. (If your quote was set up correctly you won’t need to edit anything).
• Hit Approve. This will send the invoice to Xero using the Job Description from the invoice as the line item description.  The revenue stream will be populated from the Job Category in the job.
• If you have chosen ‘Progress Invoice’ and this job is ready to be closed, hit ‘remove from invoice list’.  This will move any unbilled WIP into a write off. If this job is still in progress, do not hit this button. 

Deposit invoices (write offs are not applied at this stage)

With this method we are invoicing based on a percentage of a quote we have raised on the job. If there is no quote on the job, this method will not work.  This method allows us to invoiced a percentage of exactly what was quoted, rather than messing around with timesheets. So if we have an agreed fee of $2,000 for a cashflow forecast, and want to bill a 50% deposit, the invoice will be created for $1,000.  This invoice will be an ‘interim’ so is negative WIP.

Once you have finished the job, we need to do our final invoice.  We can either choose the quoted method, as per above, or do another deposit invoice.  If we choose the quoted method, XPM will bring through a negative line item representing the deposit invoice.  So it would say Cashflow Forecast - $2,000, less deposit ($1,000), total invoice $1,000.

If you choose to do another 50% claim, just like the deposit, it will treat this invoice as another ‘interim’.  So you will have two lots of negative WIP for ($1,000), totally to ($2,000). You will then need to hit ‘remove from invoice list’ to wash up this ($2,000) against the timesheet entries.

• Raise a quote on the job for the amount you wish to invoice.
• Complete timesheets in XPM
• Raise a ‘New Progress Invoice’.
• Select ‘% of quoted value’, enter the percentage you wish to invoice, and enter a description in the box provided.
• Edit the invoice
• Update the ‘Job Description’ to say what you would like the invoice to say when it arrives in Xero. Hit Save. (If your quote was set up correctly you won’t need to edit anything).
• Hit Approve. This will send the invoice to Xero using the Job Description from the invoice as the line item description.  The revenue stream will be populated from the Job Category in the job.
• If this job is ready to be closed, hit ‘remove from invoice list’.  This will move any unbilled WIP into a write off. If this job is still in progress, do not hit this button.

These four invoicing methods should cover every scenario you need when running XPM.