Practice Reporting with Xero Practice Manager: The Work In Progress Equation

Billable WIP represents the positive element of your practice’s WIP balance.  It is the value of work done that is yet to be invoiced.  Your billable WIP balance is the sum of the individual WIP balances for all the jobs with a positive WIP balance in your practice at any given time.

The objective of this large positive number that exists within your practice is to keep it as low as possible.  We can decrease the balance of our billable WIP by generating invoices or by applying write-offs.  This allows us to prepare pre-billing reports to accurately anticipate the value of upcoming invoices and inform our short-term cash-flow forecasts.  By converting time sheets to invoices, and invoices to cash in our bank account faster, we are increasing the velocity of money in our practice.

Our billable WIP balance is calculated in the same way as our total WIP balance.

Opening WIP Balance

• Billable value of time
• Billable value of disbursements
• Invoiced value
• Write-on’s
• Write-off’s

= Closing WIP Balance

Here we exclude the negative balances on any fixed-price agreement jobs.  The invoicing frequency and value for these is determined by the contract, not by us.  The billable WIP balance in our practice represents the un-invoiced value of work done that we have the potential to invoice.

Referencing the equation above we can see that we can reduce our billable WIP balance in two ways:

• Creating invoices for jobs
• Applying write-offs to jobs

To create invoices or apply write-offs to jobs we need to be talking to our job managers or partners to ensure we are creating invoices for the correct value for the correct jobs.  Which jobs we can invoice and which we cannot is determined by:

• The terms and nature of the engagement we have with our customer
• The current job state
• The job budget or expected fee
• The job-task progress or completion
• The billable value of time incurred to date
• Any invoiced values to date
• Any write-offs or write-offs applied to date
• The current WIP balance on the job

The same set of information is required by a job manager or partner to choose when or how much of a write on or write-off to apply to a job.  We’d prepare this information ‘as at’ a specific date being our suggested invoice date which is typically the end of each month.  So let’s look at how we can pull this information together using XPM.

The best way to view the billable WIP balance as at the end of last month in XPM is to go to Business > WIP.

1. Select the little blue triangle and ‘New filter’
2. Give this filter a name like ‘billable WIP balance’
3. Add the condition ‘Job Category’ = ‘Billable fees’ or similar. Select all of your billable fees job categories where you may have more than one.
4. Save
5. Edit the date to be ‘As at’ the end of the previous month

Note: If you do not have your job categories set up to match your engagement types you are unable to filter your billable WIP from your total WIP.   See Chapter 4 - Practice settings on how to set these up.

The overview tab will show you the total billable WIP balance for your practice as at the date selected. This is the number you want to get as small as possible.  If we’re on a monthly invoicing cycle it will naturally grow throughout the month as we add billable time to the job, and be reduced as we generate invoices at the end of each month.

There is no way to easily compare this value over time without re-running the report for multiple dates.  This makes it difficult to make sure this balance is not creeping upward over time or compare a current balance to the same time last year.  The best way to monitor and reduce your billable WIP balance in your practice is by using the WIP Performance report in Link Reporting, which will be covered in more detail at the end of this section.