IT services · Software and SaaS
IT services margin traced from timesheet to invoice to collection
An IT services firm sells people's time. Its margin is decided by how much of that time becomes an invoice and how much of the invoice becomes cash. We reconcile timesheets to billing, cost every project from the people on it, and show where bench, write-offs and slow collection are taking the margin.
In one paragraph
IT services firms — application development and maintenance, testing, managed services and IT staffing — usually turn over ₹20–500 crore. Delivery sits in India, with customers in the US, Europe, the Middle East or India itself. Owners and finance heads face a cost base that is almost entirely salaries. Every unbilled hour, idle week on the bench and rate concession goes straight to margin.
Managing director or CFO, often with the head of delivery
The economics
How the money moves in this trade
Revenue comes from time-and-material billing, fixed-price projects and monthly managed-service fees, each with a different risk. Time-and-material revenue depends on timesheets being complete and approved before invoicing. Fixed-price revenue depends on an honest estimate of the effort left to complete. Both depend on the delivery team recording time against the right project, which finance rarely checks.
Most of the cost sits in payroll, with subcontractors filling gaps and a bench carried between projects. Export billing adds foreign currency, letters of undertaking and remittance records, while domestic customers deduct tax at source. Collections commonly run well behind billing. A firm can report healthy margins and still draw on its working-capital line to pay salaries.
The problem
Where the numbers usually break down
Utilisation measured on effort, not billing
Hours logged against client projects are reported as utilisation, though some were never billed or were written off.
Bench cost spread across projects
Salaries of people between assignments are absorbed into delivery cost, so project margins look worse and the cost of idle capacity is never reported.
Fixed-price projects without an estimate to complete
Revenue is recognised on invoices or percentage billed rather than on effort remaining, so a losing project is discovered at closure.
Rate cards drift unnoticed
Discounts, free resources and rate holds agreed by account managers reduce realisation but are never compared with the rate card.
Subcontractor cost not matched to billing
Contractors are paid on their own invoices with no check that the same hours were billed to the client.
What we do
The work, and the result each part produces
Timesheet-to-invoice reconciliation
Approved hours matched to invoices each month, with unbilled and written-off hours analysed by project and reason.
Revenue leakage has a number and an owner.
Project costing from payroll
Cost per person, including benefits and allocated overhead, applied to the hours each person worked on each project.
Every project shows its true contribution.
Bench and utilisation reporting
Available, billed and bench hours reported by skill and location, with the cost of the bench shown on its own.
Hiring and redeployment decisions rest on idle capacity, not headcount.
Fixed-price estimate to complete
Remaining effort re-estimated monthly with delivery leads, and revenue and margin recognised against it.
Loss-making projects are visible early.
Realisation against rate card
Billed rates compared with standard rates by customer, with discounts and free resources quantified.
Commercial concessions are a reported cost.
Export and receivables discipline
Export invoices tied to remittance records and the letter of undertaking, and receivables aged by customer with collection follow-up.
Cash keeps pace with billing.
Where we start
The first steps of an engagement
Timesheets, invoices and payroll
We ask for approved timesheet exports, the invoice register, payroll cost by employee, and the list of active projects with rate cards and subcontractor invoices.
Approved hours matched to invoices
Approved hours are matched to invoices for recent months. Unbilled and written-off hours are listed by project and reason.
Cost rates and bench tracking
A loaded cost rate is set for each person, and bench time is recorded on its own instead of being spread across projects.
Project margin and utilisation
The first report shows contribution by project, billed utilisation by practice and location, and the cost of the bench.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Billed utilisation by practice and location
- Bench cost, month by month
- Realisation against rate card, by customer
- Project contribution after allocated overhead
- Unbilled and written-off hours, with reasons
- Days sales outstanding by customer
Who it suits
Written for, and not the right fit for
- You need a statutory audit or a transfer-pricing report signed; an independently engaged CA does that.
- You want recruitment or bench-sales support; our work is the numbers behind those decisions.
- Mid-sized IT services firms billing on time and material, fixed price or managed service.
- Founder-run firms where delivery heads, not finance, decide what is billed.
- Firms with export customers and a working-capital line tied to receivables.
Services
Services this work draws on
Costing and profitability
What each product, line and customer really contributes.
Explore service ↗Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Payroll and labour compliance
Every payroll cycle reconciled, with the statutory workflow attached.
Explore service ↗SEZ and foreign trade advisory
SEZ, EOU and export scheme records kept continuously, not at assessment.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
Why are margins falling when utilisation is high?
Usually because utilisation counts hours worked, not hours billed at full rate. Write-offs, discounted rates and subcontractor premiums can all sit inside a healthy utilisation figure. Billed utilisation and realisation, read together, usually explain the gap.
Do you prepare STPI and SEZ unit returns?
We prepare the returns, reconciliations and export data an STPI or SEZ unit needs, and keep them consistent with the books. Any prescribed certificate is signed by an independently engaged professional.
Will this work with our existing timesheet tool?
Yes. Most firms already capture time. What's missing is the monthly match between approved hours, invoices and payroll cost, and that's where we start.
5th Quadrant prepares project costing, export records and the supporting data for STPI or SEZ returns. Statutory audits, transfer-pricing reports and any prescribed certification are signed by an independently engaged licensed professional, coordinated through 5th Quadrant. Full detail is on our Professional Scope page.
Explore further