Accounting For Sales

Purpose

To outline all accounting guidelines and processes related to sales.

Scope

Currently covers commission payout, cost estimation, quoting and billing.

Commission

Commission Basics

Countable pays up to 15% commission to those who help schedule new work contracts for us externally, and up to 7.5% internally. The total commission doesn’t exceed 15%.

Commission is paid out upon receipt of payment from the associated project.

Proposal Writing

Commission is divided as follows.

  • We pay 1.5% to whoever creates the outline checking grammar + spelling, copies content from related past proposals, coordinating deadline, and submitting. (admin)
  • We pay 1.5% to whoever is responsible for sending the qualifying questions, identifies the contributor team, and doing internal evaluation and review. (manager)
  • We pay 3% to the technical authors who develop the proposal content and artwork. (contributor team)
  • We pay 1.5% to whoever finds the proposal and suggests it to the team to write. If it’s from a source we always follow, this amount is kept. (sourcer)

Cost Estimation

Software project cost estimation is notoriously difficult. A typical problem is the team appears to have 70% of the information when estimating a project, when they really have 30% because by definition, they can’t see black swan conditions (unknown unknowns).

Effort Estimation Process

For all projects:

  • Make sure you summarize the purpose of the work at the top of any estimation document.
  • Ask for any details you can to reduce scope uncertainty. Book a (voice) meeting to review this and discuss.
  • Tell the client what you need by when to finish within the budget (data, access, creds).
  • Determine their deadline, and build a prototype that captures the general idea of the system within 25% of the alloted time.

Quoting

Some companies require a quote in order to issue a purchase order. This is appropriate when:

  • The amount is at least $5,000.
  • The work is very well understood. We’ve done something very similar before, and understand the steps clearly.

A template is here. To fill it:

  • Fill in 1 to 5 days of effort per line item. Don’t separate items which are under a day, batch them.
  • Each line item should be for a different team member. To get the day rate, multiply that person’s standard hourly rate by 8 hours. The standard hourly rate (as with other agencies) is around 2.5 times the team member’s hourly salary, although this varies. You can get the hourly rate from our accounting team.

Client Quotes

Clients may request a budget in an RFP, or a quote for a specific piece of work. Keep the following in mind:

  • Break the work down into about 1 day line items (8 hours), with appropriate level of detail. On larger projects, up to a week can be in a single line item.
  • Our minimum quotable amount is $3,000. Amounts below this should instead be approved via a simple email message or Trello ticket from someone authorized to approve the work.
  • Separate quotes or budgets to be completed at different phases and specify the order (priority).
  • The quote should provide a clear scope of functional specification, and list assumptions it is based on in order to simplify determining whether later changes are in scope or not.
  • Use this template.
  • The big caveat with providing a quote, is it affects the work outcome. It may help keep the team focused on what’s promised in the quote, but also may prevent fixing problems we find along the way, or looking into opportunities because of the concern of scope creep. This may result in a substantial loss of competitive advantage so we’d encourage our clients to avoid using quotes most of the time. Instead, budget 25% of the original budget for a prototype to multiply your knowledge of the problem at hand, and the decide what to do. At this point the work will likely be much more clear and incremental.

Billing

We have several models depending on what works for a client. Two most common / preferred:

  1. Write a spec and give a quote. Estimate the number of days each work item will take. When it’s approved, put the tasks from the spec in your Scrum Backlog. Whenever something new is added, it pushes down off bottom of the backlog (into the Ideas column ideally) and we explain to the client those items won’t be done since we’re doing their new request instead.
  2. With other clients, we have a backlog and a retainer, so we try to work on the backlog a certain # of hours per week and use the Sprint meeting to ensure they’re happy with progress for what they’re paying.

Invoicing Clients

Describing client-facing processes around invoicing, and the expectations on both sides.

Process

Clients are invoiced before the 10th of each month, and given 30 days to pay for work completed in the previous month. Depending on the client, there may be:

  1. SaaS fees
  2. A retainer amount for advisor services, on-call or maintenance work
  3. Portions for completed phases of a flat fee amount
  4. An hourly itemized amount (we prefer to avoid these, since it’s better for clients if we charge for value created, not time spent. This helps us collaborate with the client to increase value)

If the amount expected to be invoiced in a single month exceeds the client’s credit amount, they must pay a deposit so their credit is not exceeded. If a client has paid at least 3 invoices in a row, on time, they may apply for a credit increase. The credit should not exceed the total invoiced over the last 3 months. This credit is only usable for the month work is acted on, and 30 day grace period (see below).

Phased Invoices

For projects in category 3 above (flat fee), phases with dates should be identified, so it’s clear how much is due at each time.

Overdue Invoices

We take overdue invoices seriously, in order to weed out clients who do not pay on time. By following this policy, over time we will only retain clients who are able to pay within the agreed term (30 days). While we’d like to be nice about this, we’ve found that some clients may abuse that and will use us as a source of financing, which is not our purpose.

Overdue invoices must be acted on. Here are the escalation steps in order of severity. Also, new projects and quotes cannot be started or issued when an amount is in arrears.

1 week overdue: The client receives a warning. We cannot issue more than one warning per client per year. If a client has already been warned, we must skip this escalation step. 2 weeks overdue: The client’s credit is reduced, by default to 50% of its’ previous value. Record this in the client sheet. 3 weeks overdue: The client is issued late fees, if applicable (if they are using our contract). If so, they may stay at this escalation level as long as late fees are paid within the next 30 days and every 30 days after, and the invoiced amount does not exceed their credit. 4 weeks overdue: We stop doing any work for the client, including urgent maintenance work. 5 weeks overdue: The debt is sold to a collection agency, and the client is black-listed.