How much information should you divulge on an invoice?

June 24, 2015

One of my clients handed me an invoice and asked me to take a look at it. He had commissioned a single-sided A4 cover sheet to be designed by an advertising agency and he felt the invoiced amount was too high.

The design of the cover sheet was basic - so basic that it looked like it could have been created in Microsoft Word. My opinion was that the supplied layout was worth around 3 hours of time at the very most. If this was charged at a conservative NZ$120/hr the total should have been around NZ$360 + a bit of admin time + tax. With that figure in mind it was difficult to see how the advertising agency could justify the near-$1,500 invoice I held in my hand!

The invoice showed a number of line items: Art Director, Copywriter, Designer, Account Manager, Administration. Each listed the time spent, an hourly rate and the total.

I proceeded to pull apart the line items with comments like "how on earth can they charge for copywriting when there is just a basic title?" and ""Art direction?! Their Art Director should be fired!". Had the invoice showed one lump-sum total with a brief description of the work completed, I would have said something more like "golly, that's really expensive", then left it up to my client to sort out the cost of the service vs the value provided. Can you see the difference?

Why an agency may wish to show individual line items on an invoice
  • That's the only way their accounting software works.
  • That's the default way their accounting software works.
  • They want their client to see which of their team worked on the job.
  • They want to justify the amount charged.
  • Transparency and accountability.

Things to bear in mind
  • A savvy client will check (and possibly challenge) line items. They will analyse perceived "value" in the individual lines rather than the perceived value of the overall total.
  • If you show hours taken/charged you are setting a precedent of hours-based (rather than value-based) charging.
  • The number of hours taken may not be a "fair" charge for your client. There are many internal factors that can lead to inflated hours in your job control system which should never be on-charged to your client.
  • When choosing an agency job control/finance system ensure it allows you to show line items if you want to, or hide the line items and write a summary paragraph instead, or combine line items together in more generalised groups/sub-headings.

How a pre-approved quote will help

In an ideal world, you will supply your client with a detailed quote for each job which may, or may not, show a breakdown of time and materials. This quote should be approved by your client (preferably with an accompanying purchase order number) so there are no surprises at invoicing time. If this is your process, then it is quite acceptable for an invoice to contain minimal information and no line item breakdown. Invoices which match pre-approved quotes should never be questioned.

Where's there's mystery...

Another reason not to show individual line items is "mystery". Remember, "where there's mystery there's margin". A client will be far less inclined to challenge an invoice (or quote) if the cost is shown as one lump-sum total only, rather than a breakdown of costs. It's sneaky, but true.

Fair's fair

As long as you keep your charging fair, consistent and your services packed full of value, then there should be no reason for your client to complain about what your invoice looks like or the amount you are charging. It's almost month-end...happy invoicing!

“AM-Insider Purchase Order for download



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