How Smart Timesheet Approvals Help Improve Financial Performance

Summary 

Delayed timesheet approvals in project-based businesses can lead to revenue leakage, cash flow issues, manual adjustments, and audit risks. The article describes a smart, automated timesheet approval system using modern Professional Services Automation (PSA) software. The system integrates data from contracts, timesheets, and payroll, offering real-time visibility and automated controls to prevent unapproved billing. PSA solutions standardize workflows, minimize manual work, enhance compliance, and streamline customer and employee experiences. Ultimately, automated timesheet approval systems are essential for eliminating revenue leakage, improving financial control, and supporting sustainable growth for service-driven organizations.

In this edition

• The effects of delayed timesheet approvals

• Required: a smart timesheet approval system

• How a modern PSA provides the smart timesheet approval solution

• Conclusion

• A call to CFOs, delivery, and project teams

Let us return to the month-end scenario of closing the accounts. Let’s say that your employee filled 160 hours of work for the month. You recognize revenue based on this data. But the project’s contract stipulates the customer must approve all timesheets for billing. This particular customer’s approval comes for 152 hours a few days after you close the books. You have already recognized revenue for 160 hours. Therefore you need to adjust the 8 hours of work in next month’s accounts.  The delayed approval for less than “claimed” hours has several effects:

1. Revenue leakage

2. Unbilled DSOs

3. Manual adjustments

4. No systemic control over delays and revenue leakages

5. Manual work

6. Problems of scale: When you manage 100s of projects and 1000s of resources the manual work is humongous and the lack of control snowballs into bigger problems like audit observations and loss of trust by customers.

The above challenges are quite widespread in the IT services industry. Even some of the big companies face them. 

Required: a smart timesheet approval system

The “simple” problem above tells us what is needed. We need a software where one can easily compare the approved hours from my project manager and the approved hours from the customer. The difference is the revenue leakage. We should have the ability to easily reverse 8 hours of revenue based on the customer's and interna; approval. We should be able to bill only the approved hours. There should be a control that unless and until the hours have been approved, no one should be able to bill. The software should stop it. All these things are very manual today, and we need to digitize them.  We should make it easy for customers to process approval requests. 

How a modern PSA provides the smart timesheet approval solution

PSA software covers areas like leave and timesheets, billing, etc. in its digitization footprint. It connects project set ups to all the operational and financial processes to ensure compliance. 

Here's how PSA software provides the solution:

• Integrated Data and Automated Calculations: A robust PSA system automatically captures and processes data from contracts, timesheets, leave management, and payroll systems This enables the automatic identification and updating of deferred and unbilled revenue and the precise calculation of invoice amounts, even for complex T&M or fixed-price projects with multiple calendars and varying rules on leave and working hours. This eliminates the need for manual spreadsheets and reconciliation efforts.

• Real-time Visibility and Leakage Tracking: PSA provides dashboards that offer real-time visibility into crucial financial parameters like unbilled revenue, allowing CFOs and CEOs to track them effectively. It enables the comparison of internally logged hours versus customer-approved hours, highlighting revenue leakage and allowing management to investigate the root causes.

• Automated Controls and Workflows: 1. Prevention of Unapproved Billing: The system can be configured to prevent billing unless customer approval for timesheets is received, acting as an essential automated control that eliminates manual oversight. This control can be tailored at the project level, allowing flexibility for projects that do not require customer approval. 2. Automated Adjustments: PSA facilitates the automatic reversal of revenue for unapproved hours in subsequent periods, ensuring smooth adherence to accounting principles. 3. Standardised Workflows: PSA provides standardised yet customizable workflows for timesheet submission, approval, and exception handling. This includes controls on who can book hours, for which tasks, and within what limits, preventing overbooking and ensuring compliance with labour laws..

• Enhanced Customer and Employee Experience: 1. Customer Portals: Modern PSA can integrate with customer portals where clients can quickly review and approve timesheets, eliminating email chains and speeding up the approval process, thus improving cash flow. If some customers require you to use their systems for timesheet approval, PSA allows easy import of Excel spreadsheets into it and avoids manual data entry. 2. Employee Empowerment: By providing clear, easy-to-use timesheet interfaces and visible performance metrics, PSA incentivises employees to fill timesheets accurately and regularly, fostering a culture of accountability and transparency.

• Improved Strategic Planning: Accurate, real-time timesheet data, validated and aggregated by PSA, becomes the "single version of the truth" across the enterprise. This high-fidelity data is crucial for realistic project cost estimations, accurate profitability analysis, and informed resource planning, allowing for proactive interventions like reallocating resources to prevent revenue losses.

Conclusion

Implementing a smart timesheet approval system through a modern PSA transforms a cumbersome, error-prone process into a streamlined, automated workflow. It is essential for eliminating revenue leakage, improving cash flow, ensuring compliance, and providing the actionable insights needed for sustained profitability and growth.

A call to CFOs, delivery, and project teams

Do you have unique insights to share?

How often do you need to adjust revenues in next month’s financial statements? How long do customers take to approve your timesheets? How do you reduce lost billing due to timesheet discrepancies? Is your billing accuracy impacted due to timesheet errors? 

I would love to hear from you about your unique insights, struggles, and successes. With your permission, we shall publish select insights in the upcoming editions of the “PSA Insights” newsletter. Please write to me at psainsights@kytes.com. I shall personally respond to you.

Let’s build a community of insights-driven professionals in project companies.