How Do You Bill Time and Materials Without Leaving Hours Off the Invoice?

Where T&M hours and materials fall off between the job and the invoice

Hours and parts leave a T&M job through ordinary gaps, each one a missing step rather than a dishonest person. Some never reach the job record correctly:

• Hours on the timecard with no job number. Payroll pays them; no job carries them, so no invoice can.
• Hours on the wrong job or in the wrong category: a journeyman’s hours at the helper rate, a T&M visit logged to a fixed-price job.
• Travel, setup, cleanup and the second trip for a part, left off even where the agreement bills them.
• Counter purchases and parts from the truck with no job number on the receipt.

Others reach the job record and still miss the invoice: overtime billed at the straight rate because the invoice was built from hours rather than rates; supplier, rental and subcontractor invoices that arrive after the customer was billed; time entries still waiting for approval when invoices were run; a ticket invoiced from a phone before the parts were added. The first group is fixed at the timecard and the receipt, the second at the invoice run. On construction jobs there is one more gap, the customer’s signature on the T&M tag itself, which the guide on unsigned T&M tags covers.

What a T&M invoice should show so the customer pays it

A T&M invoice asks the customer to trust the hours, and the easiest one to pay can be checked against something the customer already saw: the daily ticket its foreman or manager signed, the receipts, the work order. The federal standard is the strictest version. A contractor on a federal T&M contract must substantiate each payment request with “evidence of actual payment” and with records such as “Individual daily job timekeeping records.” A private customer may ask for less, but an invoice built to that standard answers the questions before anyone asks them.

• The work order or PO number, the job address and the dates covered.
• Labor by day and by person or category: hours, rate, amount. Overtime and after-hours on their own lines, at their own rate.
• Materials by line: quantity, unit cost and the markup as the agreement states it, shown the same way on every invoice.
• Rentals, subcontractors and other pass-through costs on their own lines, with the supplier’s invoice attached.
• Billed to date, this invoice, and, where there is a cap, what remains under it.
• The signed daily tickets or timesheets and the receipts, in the same order as the lines they support.

Illustrative example, with invented numbers: a hypothetical electrical contractor bills a week of T&M repair work as 44 hours over three days at two labor rates, 6 of them after hours at the rate the work order names, 14 material lines at cost plus the 15 percent markup the work order states, and a running total of $11,400 against a $15,000 cap. The customer’s project manager can tick every line against daily tickets it already signed. An invoice that reads “Labor, 44 hours” and “Materials, $2,310” asks the same customer to take it on faith.

How to match time sheets and receipts to invoices each week

The match belongs to one named person, whoever runs billing, on the same day each week before T&M invoices go out. Payroll is the starting record because it already holds every paid hour: the Department of Labor’s Fact Sheet #21 lists “Hours worked each day” and “Total hours worked each workweek” among the records a covered employer must keep for each nonexempt worker under the Fair Labor Standards Act. That is a plain reading of a federal fact sheet, not legal advice. Salaried staff and the owner may not appear in payroll by the day, so their T&M hours need a record of their own. The match runs in five steps:

• Payroll to jobs: for each hourly person, paid hours against hours recorded on jobs. The difference is shop time, training, or hours that never got a job number; the last kind goes back to the person who worked them before the next payroll closes.
• Jobs to invoices: for each T&M job, hours recorded against hours billed, by person and by rate, overtime included. Every gap gets a reason next to it.
• Receipts to jobs: every supplier invoice, counter ticket and card receipt for the week carries a job number; the ones without go back to whoever bought the part.
• Materials to invoices: material recorded on each T&M job against material lines billed, with the markup the agreement states.
• Caps: for every capped job, billed plus unbilled against the cap.

Illustrative example: a hypothetical crew of six hourly technicians is paid for 240 hours in a week. Timecards put 214 on jobs, 18 on shop and training time, and 8 on no job at all. Of 120 hours on T&M jobs, 113 are billed and 7 wait on a customer signature, and 4 of the billed hours went out at the helper rate on a journeyman’s ticket. The 8, the 7 and the 4 are this week’s list, each with an owner. The first match can take an afternoon; after that, it takes about as long as the list is long.

What “unbilled time and expenses” means, and how to clear it

Unbilled time and expenses are hours and costs recorded against a customer and marked billable that have not yet appeared on an invoice. Accounting, field-service and practice management software can keep them in an unbilled list or report, under different names. Whatever it is called, it is the nearest thing a T&M business has to a list of money earned and not yet asked for. The guide to unbilled hours in a managed IT firm’s time entries splits the wider gap, hours worked against hours billed, into three leaks; this list is the third, and the split carries to any trade.

The list means something only when it is read by age. A line from yesterday goes out on this week’s invoice. A line from six weeks ago is work done, hours paid, and a customer never asked to pay. Sort it oldest first, read the top every week, and give each line older than one billing cycle one of four outcomes:

• Billed: on this week’s invoice, at the agreement’s rate.
• Held, with a reason, a date and a name: waiting on a signature, a supplier invoice or a customer PO.
• Written off by decision: goodwill, a callback, the company’s own error. The owner or a named manager decides, and the reason stays on the line.
• Moved: it belonged to warranty, a fixed-price job or internal time, and is reclassified so it stops looking billable.

Two numbers go to the owner each week: the dollars on the list older than one billing cycle, and the age of the oldest line. A list cleared by a bulk write-off at quarter end shows a smaller number and erases the reason the hours were never billed, which is the part worth knowing.

When a not-to-exceed cap turns T&M into a fixed price

A not-to-exceed cap limits what the customer will pay for the T&M work. Below it, the job bills hour by hour. Past it, hours the crew keeps working without a written increase are the company’s cost unless the agreement says otherwise, and the job behaves like a fixed-price job with none of the margin a fixed price would have been built to carry.

The federal clauses spell out the mechanics. FAR 16.601 allows a T&M contract only if it “includes a ceiling price that the contractor exceeds at its own risk.” FAR 52.232-7 requires the contractor to notify the contracting officer, with a revised estimate, when the costs expected over the next 30 days, added to everything accrued so far, “will exceed 85 percent of the ceiling price.” It also says the Government need not pay beyond the ceiling and the contractor “shall not be obligated to continue performance” past it, unless the ceiling is raised in writing.

A private agreement that names only the cap amount leaves the hard questions open. Four belong in writing; again, this describes common terms and is not legal advice:

• What counts toward the cap: labor only, or materials, markup and pass-through costs too.
• The notice point at which the customer gets a written revised estimate. The federal clause uses 85 percent; a private agreement can pick its own.
• Whether work stops at the cap until the customer approves more in writing, or continues with the company carrying the overrun.
• Who on the customer’s side can raise the cap, and in what form.

The total that matters is billed plus unbilled, because hours count against the cap the day they are worked. Illustrative example: a hypothetical job has a $20,000 cap and $14,200 billed, so the project manager sees room to spare. But $3,900 sits unbilled, waiting on supplier invoices and a signature, so the true total is $18,100, past 85 percent of the cap with three days of work left. Found this week, it is a conversation and a revised estimate. Found after the last invoice, every hour past $20,000 is worked for nothing.

When this needs no outside help, and where the Review fits

All of this is in-house work. A company whose work orders state rates, markup and cap, whose timecards carry job numbers, and whose unbilled list is read every week by a named person has done what this guide describes.

An outside look earns its fee when the records do not connect: payroll hours that cannot be traced to jobs, T&M terms buried in email threads, materials bought on account with no job numbers, caps nobody tracks. The Revenue Review reads this under the Delivery → Invoice hand-off. From read-only exports of payroll, time entries, supplier invoices and the invoice register, it sets hours paid against hours billed and materials bought against materials billed for each T&M customer, where the records support it, and ends in a written report that puts a monthly dollar figure on each gap. It does not rewrite agreements, give legal advice or bill any customer. It takes two weeks.

If it is unclear whether that is worth a fee, the next step is a free 20-minute call, where a company whose gap is small is told so.