Background of issue
In Xero Practice Manager there is no way to write off a portion of WIP on a job at a given date/time. This causes a problem when you have a job that spans over multiple months and your WIP gets ahead of the progress you are making on the job.
A common example is where we have a fixed monthly invoicing arrangement, we are unable to 'remove from invoice list' during the life of the engagement without incorrectly over-applying future invoiced value to past efforts or writing off time already incurred. See the article 'When do we recognise write-offs on retainer jobs?'.
Let’s look at an example. Say we have an engagement that has a budget of $6,000 invoiced $500/month. This covers in-period activities like BAS and GST returns as well as the end of year accounts. Starting in July, when we get to October we are likely to have completed our first BAS return. This might have taken 4 hours @ $200/hr amounting to +$800 in billable value. We will have also accumulated -$1,500 in WIP from the 3x invoices we have generated to date. The WIP balance on this engagement in early October will be -$700. Negative WIP is generally good news, but in this case the BAS return has taken twice as long as anticipated (or budgeted for). Maybe we had a junior team member working on the BAS return and we want to apply a write-off now to the $800 in billable effort incurred.
The problem we face here is that we are unable to create a stand-alone write on/off entry in XPM. Write ons/offs can only occur via an invoice (at the invoice date) or via 'Remove from invoice list' (on the date you click the button). We are unable to do an invoice here because the invoicing for this engagement is already being generated by Xero (blue) via a fixed monthly invoice. We are also unable to click 'Remove from invoice list' here because that would take the -$700 WIP balance and create a write-UP of +$700 and worse, generously give this to the junior team member we are wanting to apply a write-off to; to the detriment of everyone else who works on this job in the future.
So what can we do?
The easiest method is to wait until the end of the job and do your WIP wash-up then. The junior team member will get their share of any net write-ons/offs on this job applied to them on the weighted average value of the billable effort they put into the job. So will anyone else who worked on this job, even if their piece of the delivery was under-budget.
The benefit of this is that it is fast, and you could say 'fair' in that is is not subjective in the way write ons/offs are applied. The people who contributed to this job will win/lose together.
The downsides are that we are carry a future write-off we know we will incur for a further 9 months. There will also be a 'lag' in the individual performance for our junior team member because no write-off will be applied until the end of the job. They may in fact earn a write-up! (if other parts of the job are under-budget). When looking at the job budget throughout the life of the job, we are better to recognise write-offs early and often in order to more accurately monitor how the remainder of the job is tracking.
How to Resolve
To do a partial write off of WIP, we need to raise a zero-value ‘Progress Invoice’ that is on an ‘Actual Time and Cost’ basis. It is very important you get that correct. ‘Progress Invoice’, on an Actual Time and Cost’ basis. The date of this zero value invoice will be the write-on/off date.
Uncheck all the tasks and costs that you don’t want to write on/off. For the remaining task, open the task and select 'Yes, No, Future' for the specific timesheet entries. Select 'Yes' if you are going to edit the 'invoiced' time from 4 hours to the 2 hours it should have taken for example. This will apply a write-off of -2 hours specific to that persons task and timesheet at their billable rate. Select 'No' if you want to completely write-off that timesheet. This might be appropriate if there is more than one time entry. For all other timesheet entries on that task - select Future. This will carry these values forward to the final WIP wash-up at the end of the job.
There is no apportionment option here, ie if you want to write-off $350 in the scenario above you will need to manipulate the Yes/No and time values to make arrive at this value.
- Tick on one or more of the invoiced values. You are applying this invoiced value to only the time that is remaining.
If you are only writing off time, you can select 'future' for all timesheet entries in the task above except the 'No' entries. There should be no 'Yes' entries. This will make your invoiced value zero without having to include any invoices.
- Scroll to the top of the job and edit the invoice basis to be 'fixed fee'. You can now override the job-task value to match the invoice value. This will create a write on/off at the job-task level (while still writing off the time entries you have identified) and create a zero-value for our invoice subtotal. This is essential. There must be no value to this invoice.
Approve the invoice and you can void this in your Xero blue, or leave it where it is.
A BIG Asterisk on this
Amazing! You say. This sounds like the best of both worlds! I'm able to invoice based on fixed monthly fees, AND I get all the benefits of write-on/off recognition that I would have on invoicing in arrears. The BIG asterisk on this is WHO will be doing this. The person who follows the above steps needs to be switched on. They need access to your XPM invoicing area and they may need access to your Xero (blue) to void these invoices.
Your accounts person sounds like the best option BUT - are they the best person to be deciding the fate and performance of your people? Where and to whom the invoiced values you want to recognise get apportioned directly affects the performance reporting for your people and services. You do not want to call into doubt or question or add objectivity to the write ons/offs your team see here.
So is the job manager the best person to be making these decisions? Probably, they are responsible for the job budget, delegation of tasks/work, support to staff on the job and delivering the job tasks on time and under budget. They are in the best position to decide when, who and how much an in-period write on/off might be recognised. BUT they also have the least time available in the practice and are probably not proficient with the intricacies of XPM invoicing.
Maybe the best and easiest option is to let nature take it's course with the job-level WIP wash-up that occurs at the end of the job. Faster, easier, no subjectivity but all the detail of the write ons/offs available.
This will take as long as the number of timesheets you need to click into. If you have 10 timesheet entries in the task, this will be a 5 minute job. If there are 1,000 entries, it could take up to an hour.
Need help setting up, fixing up or getting up to speed on WorkflowMax?
We can help at www.linkacademy.com