About the Author
The President of ChannelCorp, Bruce Stuart is a Certified Management Consultant with experience in the computer hardware, software and telecommunications markets of more than 40 countries. He has authored in excess of 300 articles and eight books on the subjects of building channel partner business value and improving vendor channel strategy. He is a world renowned executive educator and strategic management consultant.

ChannelCorp Workshops
ChannelCorp provides Executive Education to vendor and channel partner management. Public workshops take place in Asia, North America and Europe. In-house workshops take place throughout the world. For more information, go to the Workshops section of www.ChannelCorp.com.

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1.5 Billing Solutions

Like shipping and invoicing, poor billing practices cause many preventable receivables problems. This article focuses on some tips for billing both services and products.

Service billing
It is very difficult (impossible) to repossess services after they have been created and then consumed. The best we can usually do is render the service provided unusable by the non-paying entity or sue the non-paying entity for breach of contract. Unfortunately, many fee fights come about as a result of a dissatisfied customer. Additionally, most situations that result in fee fights have weak project plans, poorly defined deliverables and weak contracts. The following dos and don’ts should keep most solution providers out of trouble:

do not proceed with service creation and delivery without a proposal or contract document that specifies fees, project milestones, deliverables, payment schedules and ownership of the work to be done

do not proceed without a letter from an authorized decision-maker in the client attesting to the fact that the terms and conditions of the proposal or contract have been accepted

do not proceed without communicating to the client, in writing, that if the payment terms of the contract are not being met, you reserve the right to stop work on the project until payment is received

Service proposals or contracts for service should include specific billing and payment dates as part of the terms and conditions. From the reseller perspective, you want the payment to lead the work done. Simply put, you want to be paid for the time you put into a project before you put the time in. When payment lags the work done, it is easy to get caught with large amounts of Work In Progress on the books if a project is cancelled, or is delayed. Maintaining large Work In Progress balances tends to go hand-in-hand with large write-offs and poor profitability of service operations.

Product/systems billing
Billing for products and systems differs slightly from the billing of services. Many mistakes are made every day, and those mistakes cost resellers large sums of money. The following example will illustrate a typical problem situation.

ABC Company sells a $120,000 system to XYZ Company. The solution is configured as follows:

$100,000 Hardware

$20,000 Software/Modifications/Training

The Gross Margin on the Hardware is 25% and the solution provider’s vendor must be paid in 30 days. The Gross Margin on the Software/Modifications/Training is 50% and the costs associated with the Software/Modifications/Training must be paid within 30 days. The reseller has sales of $2.4 Million. Two thousand dollars of the contract is for Training. It was completed by ABC but XYZ is not satisfied and is disputing the total invoice of $120,000 because of a two thousand dollar customer satisfaction issue.

Does this make sense? Does this happen often? Check your old receivables and you will find a Customer Satisfaction problem. For the most part, satisfied customers pay their bills on time. You will also find that the problem is a result of you breaking (or being prepared to break) a Service/Support/Training promise.

ABC Reseller could avoid the nightmare described above and save the interest on the $85,000 that had to be borrowed to pay the vendor ($75,000 or 75% of $100,000) and wages ($10,000 or 50% of $20,000) until the $120,000 receivable was paid. The rule is simple:

never make payment for standard products (Hardware/Software/Peripherals) contingent on satisfaction with services delivered. Split invoices when possible.

Had ABC Reseller done this, the dispute over the $2,000.00 training invoice would have been split out from the $120,000 solution. The $2,000.00 issue could have been solved with a handshake. The $120,000 issue will probably attract lawyers.

In summary, correct billing of services, products and systems can make a substantial impact on the success of your Accounts Receivable Project. Look at your policies, procedures and contracts to see if you can make an immediate difference. The next article examines compensation solutions to cash flow problems.

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The foregoing document has been excerpted from the 6th Edition of the Reseller Management Handbook, available for $100.00 U.S. from ChannelCorp Management Consultants Inc.

ChannelCorp Consulting services
ChannelCorp provides strategic consulting in the areas of channel economics, channel strategy, channel marketing, channel development and channel management to hardware, software and peripherals vendors around the world. ChannelCorp is also widely recognized as one of the industry’s leading authorities in the areas of reseller and solution provider profitability improvement.

ChannelCorps’s management consulting expertise is built on a solid foundation of fifteen years of researching and analyzing the evolving business models and marketing strategies of the vendor and solution providers worldwide.

Suggested Reading
For more information on the topics covered in this article, you should consider purchasing The Channels Handbook and/or The Reseller Management Handbook. For more information, go to the Products section of www.ChannelCorp.com.

Availability
ChannelCorp can make our copyrighted materials available to your organization for inclusion in your corporate newsletters and websites.

For information on republication, contact Bruce Stuart - channelcorp@telus.net

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