Setting up Engagements with Xero Practice Manager: Signing up new clients to Fixed-Price Agreements

This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
Get a copy for your desk at www.linkedpractice.com

Uranus has 27 moons, and there are just as many ways to bill an engagement using Xero or XPM. This topic is broken down into three sections:

• General guidelines for setting up engagements
• How to set up engagements with XPM
• How to set up engagements with Practice Ignition.

We will start by looking at some general guidelines that are relevant regardless of which system you use to create your engagement. We will then look a closer look at how to set up engagements specifically in XPM and finally, how you can improve your efficiencies by using Practice Ignition.

Signing up new clients to fixed-price agreements

When you onboard new clients, they will not all sign up on the first day of the financial year to make your invoicing easy. The reality is, you will have clients coming onboard throughout the year so it can get difficult deciding on when to start billing them, and on what basis. We first need to establish whether the client needs their current year annual accounts completed. If they do, we generally do these on a quoted basis and start the monthly recurring invoices for the next accounts. Let’s look at a few scenarios to make this crystal clear.

Let’s say we are going to charge our client $3,000 for their annual accounts, which is $250 per month. They are coming to us six months into the financial year and they have not yet had their current year’s annual accounts work done.

Under the in-advance method, we will invoice the client $4,500 up front and put them on a $250 per month retainer – $3,000 is for the current year’s annual accounts and $1,500 is to catch up for six missed payments for next year’s financial accounts (which they are paying for in advance). By the time we hit the next financial year, the client would have prepaid for the work to be completed this year, and will start paying for next year’s accounts. This is the best method for cash flow, but can make it more difficult to sign up new clients.

Under the contract-period method, we will invoice the client $3,000 up front and put them on a $250 per month retainer – $3,000 is for the current year’s annual accounts, and we won’t start their annual accounts next year until six months into the year because we will wait until they have paid the full $3,000 for the work. This method works well for both clients and the practice, but it means we will need to be more disciplined on our scheduling, so we don’t do the work before month six. This method can also make job rollovers more onerous as they occur throughout the year.

Under the in-period method, we will invoice the client $1,500 and put them on a $250 per month retainer – $1,500 is for the missed payments this year, and they will pay off the remaining $1,500 over the next six months. This method is easiest for onboarding new clients, but if a client has their work completed in month two, they are technically paying off their work for the next 10 months.

Now, let’s look at the same example but the annual accounts for the current year have already been completed by the client’s previous accountant.

Under the in-advance method, we will invoice the client $1,500 up front, and put them on a $250 per month retainer. The $1,500 is to catch up for six missed payments.

Under the contract-period method, we will just start the $250 per month retainer. We won’t start the work on their annual accounts for 12 months, until we have collected the full $3,000.

Under the in-period method, we won’t charge the client anything except maybe a nominal joining fee for the administration involved to onboard them as a client. We wouldn’t start the $250 monthly payments until the next financial year.

It is important to choose your method for your practice and stick to it. Having all three methods operating at the same time will create a lot of confusion and slow down your rollover processes each year.

In-period tasks for fixed-price agreements

In the examples given in the previous section, we have assumed no in-period tasks such as GST and payroll processing. If these are in your agreement, you will need to be doing this work from the date the client signs up.

Here is what you would do:

• If you are using the in-advance method, you would reduce your first year’s up-front fee to recognise you did not have to manage the in-period tasks for the first half of the year.
• If you are using the contract-period method, you would just start doing the in-period tasks from the date the contract is started.
• If you are using the in-period method, you would just start doing the in-period tasks from the date the contract is started. The exception here is if the client has already had their annual accounts for the year filed by their previous accountant. In this case, we would bill a reduced rate for the first year, and increase it the next year.

Enjoy this article? Buy the book.

Need help setting up, fixing up, or getting up to speed on Xero Practice Manager?

We can help at www.linkedpractice.com