How Trades and Service Providers Should Invoice Clients

Whether you're a landscaper, contractor, plumber, electrician, or any other trade or service business, you're usually billing a combination of labor and materials, tracking that across multiple jobs and clients at the same time, and trying to make sure nothing is overlooked or forgotten. If your invoicing is disorganized, you either don't get paid for your work, or you spend too much time reviewing payments. As a small business owner, how you spend your time is critical, and being able to quickly and easily manage the invoicing process is core to your business.

Hourly labor. The most common model for many trades, time is tracked on site or on a job and is billed at a rate that reflects the skill level of the employee, overhead, and market. This model is straightforward in principle, with the requirement that time is regularly and accurately tracked. Generally speaking, service providers that don't log hours regularly and reliably ultimately wind up underbilling.

Flat project rate. This structure works well for defined-scope projects where there is enough background experience to estimate cost and value accurately. However, in this case there is the risk the job runs long and costs increase while the payment does not, and this could be for any one of a number of reasons including the client asking for more and more under their assumption that more work is included in the project. In this structure the rate needs to account for buffer, and the project needs to be extremely well defined with all parties in alignment of what is and isn't in scope.

Time and materials. Service businesses also commonly charge for labor billed hourly plus materials billed at cost (or with markup), which can be more flexible when the full scope isn't known upfront. Clients are clear on costs for both elements, and the provider isn't carrying risk on the time or materials side. As with any model, it is important to be on the same page with the client from the start, with a quote or estimate a useful tool to provide guidance. Friction with clients often arises when time is much greater than expected, so it is important to have the bounds outlined from the start, and as soon as costs are expected to be higher than anticipated, bring the client into conversations.

Markup on materials and goods. Building upon the time and materials structure, often tradespeople and contractors will mark up materials supplied for a job. The markup covers time to source, purchase, transport, and manage inventory, not just the item itself, and often aligns with the most-used practice in the market. Common markups vary by trade and region, but 10 to 30% is a typical range.

Different rates for different roles. If there are a number of team members, often the skill and task will warrant different billing. Examples are a lead landscaper that designs and directs while an installation crew executes. Likewise, a master electrician and an apprentice are often different hourly rates. Even within a single project, an individual might bill different rates depending upon the task. A sound invoicing system needs to support the flexibility of multiple rate tiers both per individual and per job.

One of the most common invoicing mistakes in trades is treating everything in an invoice as the same type of item, or worse, not separating categories at all. That creates two problems: first, clients can't decipher their invoice to understand what is taxable and what's a pass-through, which in turn delays payment, and second, lack of clarity in bookkeeping makes it challenging to track which line items you need to account for differently.

Labor and services are generally not subject to sales tax in most states, though this varies, check with your tax representative.

Materials and goods are typically taxable. If you're purchasing materials and charging them to a client, assuming you aren't acting as your client's agent, sales tax generally applies.

Reimbursable expenses cover the assortment of costs paid out of pocket on behalf of the client and billed back at cost, permit fees, dump fees, subcontractor invoices you're passing through, delivery charges. These typically don't carry additional markup and are likely to have different tax treatment than goods sold directly. Keeping them in their own category makes the invoice easy to read, reduces client questions before payment, and keeps your internal accounting clean.

A common mistake is assuming that a single billing structure will fit every job. While that might work initially, over time there is real value in having the flexibility to charge in whatever manner is right for the job, so it's important to find a tool that allows for that variation.

You might charge a longtime client at a preferred rate but a new commercial client at a different rate. For goods you might apply different markups on specialty materials versus commodity items, or pass some goods through at cost while marking up others. You might have a project manager who bills differently than the field crew, or bill your own time differently than your staff. Any invoicing tool needs to easily accommodate all of these cases without requiring workarounds, which ultimately lead to more time spent, more errors, and lost revenue.

The biggest problem most trade and service businesses run into isn't generating an invoice, but rather the time between doing the work and getting paid. Common things that go wrong:

You're not sure if you already sent an invoice for a job, so you hold off and it falls further behind. You might have saved it as a draft and forgotten to send it, or downloaded it to send but it got stuck in your outbox.

You sent the invoice but never followed up, either forgetting it hasn't been paid or overlooking a reminder.

You can't quickly see what's outstanding across all your clients without opening each invoice or client file individually.

Your invoice doesn't match what the client expected because the scope wasn't captured clearly along the way.

A good invoicing system gives you that picture without additional manual effort. You should be able to open your dashboard and immediately see what's been sent, what's been paid, and what's past due, and follow up on an outstanding invoice in a minute or two, right from inside the tool, without switching to email.

We started by making the shift from Excel spreadsheets and Word documents first to a few task-specific apps, then moved to a single app that could handle our basic needs. Over time we focused on the capabilities that were critical to us.

Ability to track time and materials in one app and have them flow simply into an invoice. We previously used multiple tools, assembling invoices manually from separate sources, which resulted in more steps, more wasted time, and more errors.

Invoice statuses shown at a glance, draft, sent, paid, or overdue, along with balances, without having to run reports or drill into individual client records. Invoicing and collecting payment are what keep a business running, and overlooking invoices stuck in draft or items never added to an invoice costs real money.

Invoices that can be emailed within the app and followed up on without leaving the tool. Being able to track when invoices were sent, when follow-ups went out, and both full and partial payments, all in one place, saves a significant amount of time compared to managing it across separate email threads.

Different rates per employee, per project, and per client. From the start we needed this flexibility to handle the value of different tasks and different client situations. With one flat rate across everything we would have been over-charging for some work and under-charging for other.

Support for online payments. We initially handled everything manually via check and cash, gradually adopted other forms of payment that we still needed to track separately, and eventually moved to support clients paying via bank transfers and credit cards. We're now at the point where we can cover the fees for some payment types, like bank transfers, and pass others, like credit cards, on to clients, letting them choose which they prefer.

Data export in case we decide to switch tools and to keep backups. It's our data and we should be able to access and retain it. This was non-negotiable.

There may be other capabilities your business needs: a full CRM, accounting integrations. But where we are, we needed the basics: track time and materials, quickly turn that into an invoice, see where the business stands, and provide what our accountant needs. Which is why we built Track and Invoice.