This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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Where do I prepare my invoices?
At a high level, you invoice your time-charge agreement work from XPM and your fixed-price agreement work from Xero. In both cases we send the actual copy of the invoice from Xero.
Time-charge agreements are jobs that are invoiced either on time and cost, or on a quoted fee. We have a job in XPM, we add our time to it, and invoice based on time sheets or the quoted value of the job.
Our fixed-price agreements are not billed from XPM because it doesn’t have the ability to create repeating invoices in a job. We instead set up the repeating invoices in Xero, and have the invoice amount sent back to XPM against the job. We will discuss how we do this in this chapter.
There are many ways to invoice from XPM, but we are going to keep it simple and look at just four methods. Before we get into it, however, let’s have a quick recap on two types of time-charge agreement work that we invoice from XPM:
- Time and Cost: We invoice based on the time sheets on the job. So if we put $3,400 of billable time on the job, this is what we invoice. Sometimes we might decide to write-off some of the time, so we only invoice $3,000 and write-off $400.
- Quoted: We provide a fixed fee for the work and invoice based on this amount. This means we are invoicing irrespective of time sheets. If we quote $3,000 and put $3,400 of billable time to the job, we invoice $3,000 and incur a $400 write-off.
When raising an invoice in XPM, it is first important to understand three buttons: ‘Progress Invoice’, ‘Final Invoice’ and ‘Remove from Invoice List’.
If you do a progress invoice on an ‘Actual time and cost’ basis, the time sheets you invoice will be billed, and the ones you don’t bill will be rolled over to the next billing period. This means they will remain as WIP on the job. When creating this invoice you will have the option of choosing ‘Fixed-price’ as the calculation method. If you select ‘Fixed-price’ and overwrite the invoice amount in the fixed-price box, any write-offs/ups will be spread across all the time sheet entries on that task.
If you do a progress invoice on a ‘Quoted basis’, XPM will recognise the invoice amount as an ‘interim’. This means the time sheets on the job are not considered to have been ‘billed’ because we have not billed them, we have created a new entry on the job called an interim. The time sheets remain as WIP, and the interim is recognised as negative WIP. So if we have $1,000 of time sheets and have an interim invoice of $800, we will have $200 WIP because $1,000 + ($800) = $200.
A common fault is zeroing out all tasks except one, and rolling the total invoice amount into the one task. The issue this causes is no revenue is recognised against the tasks that were zeroed out, which means they will show 100% write-offs, which are then reporting on against the staff that worked on those tasks. The task that received all the billable value will show a huge write-up, so the staff that worked on that task will benefit from the write-up in their performance reporting. You must invoice based on how you want to recognise the revenue, rather than how the invoice looks.
Let’s look at an example:
Say James put $2,500 of billable time to ‘Annual Accounts – Preparation’ and Jane entered $500 of billable time to ‘Annual Accounts – Review’. The invoice would look like this:
- Annual Accounts – Preparation ($2,500)
- Annual Accounts – Review ($500)
The mistake is to edit the invoice to something that looks like this:
- Annual Accounts – Preparation ($3,300)
- Annual Accounts – Review ($0.00)
James would be allocated a $800 write-up from this job, and Jane would be allocated a $800 write‑off. This isn’t at all fair when we do our performance appraisals with James and Jane.
It is important that when we invoice, we don’t just consider how the invoice looks. We need to consider which time sheet entries (and disbursements) we are recognising our revenue against. This may mean you need to relook at the way you are currently invoicing, and consider invoicing by the invoice description (option A).
If you create a final invoice on an ‘Actual time and cost’ basis, any time you choose not to bill will be written off on the invoice date. So if we have $1,000 of time, and we bill $800, the $200 we did not bill will be recognised as written off, so we no longer have any WIP on the job. This is the main difference between a progress invoice and a final invoice. A progress invoice will roll that $200 forward, whereas a final invoice will write it off.
If you create a final invoice on a ‘Quoted basis’, the invoiced amount will be apportioned across all the time sheets on the tasks you have invoiced. So if we have $1,000 of time sheet entries and we invoice $800 on a quoted basis, the $200 write-off will be apportioned across the $1,000 of time sheets. This is the main difference between a progress invoice and a final invoice. A progress invoice will recognise the $800 as an interim, whereas a final invoice will apportion the revenue against the time sheets and recognise a write-up or write-off.
This button creates a WIP wash-up, which is when we apportion the unallocated invoice (interims) across all the unbilled time and disbursements entries on the job. If we have $1,000 of time sheet entries and a $800 interim and we hit ‘Remove from Invoice List’, the $800 invoice total will be apportioned across the $1,000 of time sheet entries. This will recognise a $200 write-off that is shared across everyone who contributed to the $1,000 of time.
If that is a bit overwhelming, don’t worry as it will all be simplified in the next section. It’s a good idea to have a general understanding of these three buttons, but it’s not essential to be able to recall all the logic.
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