If your project business relies on time and material billing, you are working with a model that looks transparent at first glance: hours worked times the agreed rate equals the invoice. Reality looks different. Missing bookings, unclear project assignments and incomplete proof of service mean that a considerable share of the work delivered is either never invoiced or invoiced late.
For IT consulting firms, management consultancies and engineering firms running parallel projects, this is not an isolated case. It is a structural revenue problem.
The key points on T&M billing at a glance:
- Billable hours must be documented by project, role and period
- Missing or retroactive time tracking creates burden-of-proof problems with the client
- Every hour that was not booked is an hour that cannot be enforced legally
- Invoicing depends directly on the quality of the time data
- Systems that separate time tracking and billing inevitably create media breaks
Why T&M projects cost more than expected
The time and material billing model is widespread in IT project business and management consulting because it allows flexibility. Requirements change, scope grows, change requests are added. The client pays for what was actually delivered.
This assumes that the contractor knows exactly what was actually delivered. And that they can prove it.
In practice, three patterns cost revenue:
- Gaps in time tracking. Employees book their hours retroactively on Friday afternoon or after a work package is finished. What exactly was done and when is hard to reconstruct. Entries from freelancers and external resources in particular are often missing entirely until the project reaches billing.
- Unclear project assignments. People working on several projects at the same time sometimes assign hours across the board or by gut feeling. Internal alignment meetings, hypercare phases and handover meetings end up nowhere or in the wrong project.
- No basis for proof of service. Clients in IT increasingly require detailed timesheets as a prerequisite for approving payment. If you cannot provide this proof, you fall behind, even if the work was delivered.
The result is always the same: the invoice amount is lower than what was calculated. The cause is missing documentation, not a shortfall in performance.
For companies that discover after successfully completing a project that 8 to 12 percent of the hours worked were never billed, this is a direct loss of profit. With an average day rate of €1,200 and a team of 20 consultants at 80 percent utilization, this quickly adds up to a six-figure amount per year that was never claimed.
What T&M requires legally and what that means for billing
Under German law, time and material contracts are usually structured as service contracts under Section 611 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) or as contracts for work under § 631 BGB. Which type of contract applies has a direct impact on the burden of proof.
In practice, the difference is significant. Under a service contract (Dienstvertrag), the contractor owes the performance of an activity, not a finished result. Remuneration arises from the work performed. Under a contract for work (Werkvertrag), on the other hand, the focus is on producing a defined piece of work. For T&M projects with changing scope, classification as a service contract is more common, but hybrid forms are frequent.
What both contract types have in common: documentation of the work delivered is the basis for remuneration. If you cannot prove what was done and when, you have a structural problem in a dispute.
Timesheets and approval process: what the contract should cover
Many T&M contracts contain a clause on hour approval by the client. Hours worked are reviewed and approved by the client monthly or after a work package is completed, before the invoice is issued. This model protects both sides, but it requires the contractor to document on time and completely.
In practice, this creates two points of friction:
First: hours that are not submitted by the agreed deadline are not approved in the current cycle. This pushes the invoice amount into the next month and extends days sales outstanding.
Second: hours submitted without a sufficient description of the activity trigger questions from the client. Every query costs time and delays payment.
Both can be avoided if time is recorded at the right level of detail from the start. Activity descriptions, assignments to project parts and timestamps are not optional fields but a prerequisite for approval.
Under service contracts, the contractor owes the delivery of services, not a specific result. Whoever bills must prove that and when the work was performed. A lump-sum timesheet is often not enough. Clients can request detailed proof, and courts have ruled in favour of the client in disputes where documentation was insufficient.
In practice, this means:
- Granularity is not a matter of goodwill. If you do without project time tracking by work package, role and date, you cannot prove in a dispute what was done and when. The burden of proof lies with the contractor.
- Change requests need their own time bookings. Hours incurred outside the original project scope must be documented separately. If you book change requests to the general project time, you lose the basis for billing them additionally.
- Billing cycles must match the time data. If you bill monthly, you need time data that is up to date every day. If you book retroactively, you bill on an uncertain basis.
On top of that, many IT projects run under framework agreements with agreed hour quotas. If the quota is exceeded without informing the client in advance, the resulting discussion delays payment or leads to cancellations.
Where billing wears teams down day to day and what it costs
Take an IT consulting firm with 60 consultants, an average of 5 parallel projects and monthly billing. The time data comes from a mix of Excel spreadsheets, Jira comments and retroactive entries sent by email.
Before each billing run, the finance team spends several days consolidating timesheets, chasing project managers for missing bookings and resolving inconsistencies between internal reports and client expectations. It is not unusual for individual items to be dropped as a goodwill gesture or for lack of evidence.
This is not an isolated case. According to a Bitkom survey, more than half of IT service companies say that administrative processes tie up a significant share of their operational capacity. T&M billing is one of the most time-consuming of these.
The specific cost blocks:
Internal effort for retroactive entries and consolidation. Project managers and finance staff spend hours merging data that would be available automatically in a working system.
Hours that are never billed. Industry estimates assume that in companies without structured project time tracking, between 5 and 15 percent of the work actually delivered is never invoiced. With annual revenue of €3 million, that is up to €450,000 in lost revenue.
Delayed payments. Invoices that are disputed or lack proof are held back by the client. This worsens cash flow and puts pressure on liquidity.
Escalation costs in client disputes. If you cannot present solid proof of service for IT projects, you often lose disputes with clients before any formal resolution even begins, because your internal data is too weak.
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What structured time and material billing looks like in practice
The solution is not a new billing model. It is about recording time data in such a way that it is ready for billing without rework.
In practice, this means four things:
- Daily project time tracking by work package and role.
Employees book daily, not weekly. Every booking is assigned to a project, a work package and, where contractually relevant, an hourly rate. This creates the basis for proof of service that can be generated from the system without queries. - Separate booking of change request hours.
Hours outside the agreed scope are booked separately from the start. Project managers see in real time when a change request is ready for billing and can start the approval process with the client before the hours get lost in the overall invoice. - Automated proof of service from time bookings.
A system that connects time tracking and project controlling can generate proof of service to the client's specifications without anyone creating lists manually. The proof is an export format, not an editorial project. - Billing status as a project KPI.
Project managers can see at any time which hours are billable, already billed or still open. The question "How much can we invoice this month?" is no longer an estimate but a figure from the system.
ZEP maps exactly this connection. Project time tracking is directly linked to project controlling. Hours that employees book via the mobile app or the terminal are immediately assigned to a project and, if configured, to a billing status. The billing run draws on this data, with no consolidation step.
In ZEP Operations, the complete Project-to-Bill process runs on one data basis: from time booking through controlling to the outgoing invoice. If you currently spend three days a month preparing billing, you reduce that to half a day, because the data is already there.
Including freelancers and external resources.
IT consulting firms often work with freelancers and partner resources. These resources book their hours in their own formats or send them in by email. Consolidating them before the billing run takes time and causes transfer errors.
ZEP supports the inclusion of external resources via their own accounts with defined permissions. Freelancers book their hours directly in the client's project system. The time data is immediately assigned to the project and ready for billing, without later transfer from third-party files.
Resource planning as a management tool.
T&M billing requires the right resources to be on the project at the right time. If capacities are unclear or wrongly allocated, there are phases without billable work. Project managers who only see in hindsight where bottlenecks occurred can no longer correct anything on the timeline.
In ZEP Control, Resource Planning, available as an add-on, sits directly next to project time tracking. Planned capacities and actual bookings can be compared. Variances become visible early, before they show up as a gap in billing.
When Excel is no longer fit to be your billing basis
Most companies that bill T&M projects via Excel know it is not ideal. They do it anyway, because switching seems like a lot of effort and the system has somehow worked so far.
Three signals show when "somehow works" is no longer enough:
The billing cycle regularly gets longer. If the finance team spends more than a day before each billing run gathering and reconciling data, the operational limit has been reached.
Clients demand more detailed proof. Documentation requirements are rising, especially in IT projects with framework agreements or with public-sector clients. If you cannot deliver here, you risk payment delays.
The number of projects grows, but the overview does not. Above a certain project density, usually more than 10 parallel projects per administrator, Excel loses its control function. Billable hours get lost in the mass.
Switching to structured project time tracking works step by step. With ZEP Clock, the company starts with working time tracking including absences; travel expenses are available as an add-on. ZEP Control adds project hours, project controlling and, as an add-on, Resource Planning. ZEP Operations closes the loop with Proposals, Invoicing and the complete Project-to-Bill process.
What IT consultancies and management consultancies actually gain
The direct effect of structured T&M project billing shows in three areas.
Shorter days sales outstanding. Invoices that include complete and correct proof of service are approved faster. In companies that have switched from manual to system-based documentation, the average time to payment demonstrably shortens. The effect on cash flow is particularly noticeable in project-driven companies with long project durations.
Higher billing rate. If you document all hours delivered without gaps, you also invoice all hours delivered. That sounds obvious, but in practice it often is not. Hours that have to be reconstructed after the fact end up on the invoice less often than hours booked daily.
Fewer escalations with clients. Disputed invoices arise mostly where proof of service is incomplete or hard to follow. A system that generates proof of service automatically from time tracking structurally reduces the reasons for disputes. This improves the client relationship and saves internal capacity for clarification.
For managing directors and operations leads in IT consulting firms and consultancies, this means: investing in an integrated platform for project hours and billing is not an efficiency topic but a revenue topic. Every hour that is not documented today is missing from the next invoice.
Conclusion: fewer data gaps, more billable hours
Time and material billing does not run itself. It only works reliably when the time data is complete, up to date and assigned to projects.
Three measures you can introduce right away:
Structured time tracking pays off faster in T&M projects than in any other billing model. Every hour recorded is an hour that can be invoiced. Every hour not recorded is lost for good.
- Introduce mandatory daily booking, with no catching up at the weekend.
- Separate change request hours from regular project hours from the start.
- Check what share of your monthly billing work consists of gathering data. That share can be reduced directly.
If you take the step to integrated project time tracking, you put billing on a solid basis. From the first month with complete data, it shows in the invoice amount.
FAQs
What needs to be documented in time and material billing?
For legally sound T&M billing, hours worked must be documented per employee, project, work package and date. Change requests need separate bookings. Under German law, the rules of § 611 and § 631 of the German Civil Code (BGB) apply, depending on the contract type. In practice, detailed proof of service is the most important prerequisite for the client to approve payment.
How do I prevent billable hours from being lost in T&M projects?
The most common reason for lost billable hours is retroactive time tracking. If you postpone bookings to the end of the week or the end of the project, you lose granularity and therefore evidential value. Mandatory daily booking with required fields for project and work package structurally reduces gaps. Systems such as ZEP enforce this assignment during entry.
What proof of service do IT clients require for T&M projects?
IT clients increasingly require timesheets for T&M contracts broken down by employee, activity description, date and project part. For framework agreements with agreed quotas, proof of quota usage is standard. Public-sector clients sometimes have formal requirements for the report format. Systems that generate proof of service directly from time tracking considerably reduce the effort of creating it.
How long does it typically take to prepare a T&M invoice?
In companies without integrated project time tracking, preparing a monthly billing run for 10 or more projects often takes two to four days. Most of this time goes into gathering and consolidating time data from different sources. With an integrated solution that connects time tracking and invoicing, this effort drops to a few hours.
What is the difference between T&M and fixed-price projects in billing?
In fixed-price projects, the invoice amount is defined in advance and time tracking mainly serves internal controlling. In T&M, time tracking directly drives billing. Every undocumented hour is missing from the invoice amount. This makes the quality of time data in T&M projects a revenue factor, not just an operational question.
When is software for T&M project billing worth it?
Switching to an integrated software solution pays off as soon as manual billing effort exceeds half a day per month, clients ask for proof of service more often, or invoice amounts regularly fall short of the internal calculation. For IT consultancies, these thresholds are usually reached at around 10 parallel projects.
