Charging time for contactors

Hamish Mexted Increasing Profit, Time Saving & Processes

Charging for work when you’re a contractor

Working as a contractor can give you great flexibility. This includes not only when you work, but how you charge your customers for that work.

There’s a bunch of different options for how you charge your customers, so it’s important to look at what you do and whether it’s the best option for you. Ultimately, whatever option you go with it needs to give you the biggest return on your time.

We’ve put together a few things to consider when looking at how you charge.

1. Fixed fee or hourly rate?

When contracting, do you charge an hourly rate, or set a fixed fee for the entire project in advance? While charging by the hour is still, by in large, the most common way of charging it’s worth considering whether a fixed fee would work better for a particular project or piece of work.

It is generally thought that a detailed project with a definite beginning and ending deserves a set, flat price, whereas an ongoing, open-ended job is a better fit for an hourly rate.

Hourly rate charging has the advantage of being easy to place an accurate value on the work and less risky because all of the hours worked are billable and there’s no chance you’ll underestimate the amount of work required.

Whereas one main advantage of a fixed fee is that it eliminates any billing surprises for the client, and can make recovering payment from a customer easier.  However, you could affect your profitability if you underestimate how long the project will actually take.

For large project that are undertaken on a fixed fee basis, contractors need to protect their time and resources from additions, changes, and substitutions to projects. This can be achieved by clearly defining the scope of the project and what you’re expected to deliver, specifying that work undertaken outside of the original scope will be charged hourly or quoted separately.

2. Do you charge for and recover all of the time you spend?

For example, do you charge your customers for things like meetings, or hours spent on research? Or do you write this time off as unrecoverable?

If you don’t currently charge for all of your time, it’s worth looking at how much this is costing you and whether you could build this time into your charge out rate or fixed fee to make sure that you’re paid for all of your work.

3. Do you ask for upfront or progressive payment?

If you don’t require any upfront payment, or have payment milestones as you progress through the work, you’re assuming 100% of the financial risk of the work.

While assuming this sort of risk might be acceptable for low value, short duration projects, it may not be appropriate for large projects and could put considerable strain on your cashflow.

4. How quickly do you invoice your customers?

When you’ve finish a project or particular piece of work, how quickly do you invoice your clients for payment? It goes without saying that the longer it takes to invoice a customer, the longer it will take for them to pay you.  This is particularly so if the customer pays it bills on a particular day each month. If you don’t invoice straightaway you risk not being paid promptly – regardless of your actual payment terms.

Need more?

Let us know how you manage your invoicing. We’d love to hear your ideas, or share some more tips on how you could improve what you do.