Time And Material

Term Definition
Time and material is a project billing type whereby the customer is charged for all of the hours of work performed, any direct expenses incurred, and material purchased during project delivery.. For example, if you hired a technology consultant to install a network in your office, the consultant might opt to charge you for time (the number of hours worked to install the network) and materials (the raw cost of the direct materials used in your installation).

Time and material billing arrangements are typical in the construction industry, contractors, consulting firms, accounting and legal particularly when the full scope of the project is not well understood. For most consulting arrangements, a customer and a service provider typically start working together on a time and material basis. Once the project is scoped and well defined, the project may be billed using milestone billing or some other form of fixed billing.

To use time and material billing you must be able to accurately track and manage time, expenses incurred and material used. Time and material may be recorded manually, using a spreadsheet, or via a web application. The information must be accurate and timely to facilitate client invoicing. For anything more than 5 to 10 billable projects and/or customers organizations, tracking time and material manually would almost certainly lead to inaccuracies and billing backlog.

A time and billing system incorporates a real-time rate engine. The cost and revenue of any time, expense, or charge entry is immediately calculated at point of entry. The rate engine supports simple or detailed date-based rules that enable organizations to define hourly rates and split billing rules for users, clients, projects, tasks and roles. For example, billable resources may be billed at different rates if they work on two several different customers, or the billing rate may depend on the type of work they perform. A time and billing system automates and tracks such billing rules.

Area of Application
Project Accounting

Related Terms
Time and Expense
Milestone Billing

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