Practice Performance Reporting with Xero Practice Manager: Practice net write-offs

This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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Practice net write-offs

Practice write-offs describe the effectiveness of the billable team members in your practice. Your practice may be highly productive, achieving a high volume of outputs and meeting all of its deadlines, but this does not mean your practice is effective in doing so. We could be pouring a lot of time and love into our client work in relation to our internal time, without being able to charge for it. This can give practices the illusion of success, without the monetary reward.

Write-offs occur on jobs where the billable value of time is greater than the invoiced value of time. This can be caused by time overruns on fixed-price jobs or tasks, unknown complexity, unforeseen tasks, rework, duplication of effort, or anything else that contributes to us being unable to invoice all time put into a customer job.

Write-ons occur on jobs where the invoiced value of the job is greater than the billable time incurred. This can be caused by completing tasks faster or more efficiently than expected. Write‑ons can also occur where we may deliver a fixed-price job or task faster than expected.

For more on what write-ons and write-offs are, how they are calculated and when they occur, visit Chapter 10: Invoicing.

Practice write-offs can be measured in both dollar and percentage terms. ‘Practice Write-off ($)’ is better at quantifying and identifying the clients, jobs, tasks and staff that are contributing to our write-offs in a given period. ‘Practice Write-off (%)’ describes the percentage of billable time we earned in a period that we were unable to invoice. This is a number you want to keep as low as possible. A practice write-off of (6%) for May would indicate that on average, in May, we were only able to invoice $0.94 of every billable dollar.

Just like on an individual job, our practice write-offs can be positive, indicating that we were able to invoice over and above the value of billable time incurred in a period. A practice write-off % of +8% in June would indicate that for every $1.00 of billable time incurred in June we were able to invoice $1.08.

Practice write-off % is sometimes called ‘recoverability’, which describes the inverse of the write-off percentage. A practice write-off % of (6%) is the same as having a 94% recoverability for your practice. Recoverability describes a practice's ability to recover their billable value in their invoicing.

Similar to our productivity, our practice write-off % does not vary dramatically month to month. At a job level we may have some jobs with huge write-offs and others where we enjoy write-ups. This gets evened out when we look at it at the practice level. Your practice write-off % is relatively stable and is a number you should know. So how do you measure it?

Your practice write-off % can be calculated for a period as:

(Total write-ups + total write-offs) / (total billable time + total billable disbursements)

The result will be a decimal which you can multiple by 100 to arrive at a percentage. Where our write-offs are greater than our write-ups, we have a net write-off. This will result in a negative number. Where our write-ups are greater than our write-offs, we have a net write-up. This will result in a positive number.

Write-ups and write-offs are recognised on their write-on/off date. This is covered in Chapter 10: Invoicing. Whereas billable time and billable disbursements are recognised on their ledger date, which is the date they update the WIP ledger. This will either be the time sheet date or the date the disbursement was incurred.

Despite their importance and the availability of the data, there is no report in XPM that reliably measures practice write-off % or its components. This is because of the inability to view write‑ons and write-offs as separate WIP ledger entries on jobs or to create them independently of an invoice or WIP wash-up at the end of a job. The best report available in XPM is the ‘Staff Time Write-up Report’ located in ‘Reports > All Reports’. The results of this report are unreliable because the elements that make up individual write-offs aren’t displayed and we’re unable to drill into the underlying transactions.

The WIP Performance report in Link Reporting allows you to view your practice write-off %, and drill into the causes of these write-offs. Your practice write-off %, practice net write-offs, how these are arrived at, and all the underlying transactions are all available right there in front of you. This is where the magic is.

Now that you have viewed and compared your practice write-off % over time, how do we go about invoicing a greater proportion of our billable value each month? The answer is in drilling into our practice net write-offs and looking at the jobs, tasks and staff that have contributed to each month’s write-offs. You can help your team succeed by providing them the information they need at www.linkreporting.com

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