Rate cards, realisation and recovery
How an accounting firm's rate cards drive its realisation and recovery figures, why time without a rate shows as unvalued, and which screen to trust.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A partner looks at a client and says it is "not profitable". Asked how she knows, the answer is a feeling: the year-end always drags, the bookkeeper is slow to answer, the fee has not gone up in years. The feeling may well be right. But a firm that prices on feelings will keep losing money on the clients nobody has measured and arguing about the ones everyone complains about.
Realisation and recovery turn the feeling into figures. They compare what the firm's time was worth with what it actually billed and collected. Both depend on one thing being right first: the rates the firm puts on its people's time.
Realisation and recovery defined
Firms use these words in slightly different ways, so agree the definitions inside your firm before comparing figures. One common way of putting it:
- Standard value is the time recorded on a client multiplied by each person's standard rate.
- Recovery compares what was billed with that standard value. If the firm bills less than the standard value of the time, the difference was written down or off.
- Realisation follows the money further and compares what was collected with what the work was worth or billed. Fees billed but never paid reduce it.
Whatever the exact formulas, both figures answer the same question from different ends: of the time the firm put into this client, how much came back as fees in the bank?
The idea is close to job costing in a business. AccountingTools' note on job costing explains how the materials, labour and overhead costs of each job are accumulated so that costs can be traced to specific jobs. For an accounting firm, the "job" is the engagement, and labour is nearly all of the cost.
Rate cards by person or role
The standard value is only as good as the rates behind it. Under BILLING & FINANCE > Rate Cards & Realisation, a firm keeps its rate cards and sees, from them, the age of unbilled work, realisation and recovery.
Setting rates well is a partner decision, but a few principles help:
- Rate by grade or role, then adjust. A rate for each grade keeps things consistent; exceptions for specialists can sit on top.
- Review the cards once a year. Salaries rise, people are promoted, and rates that were sensible two years ago now understate the cost.
- Rates are not prices. A rate card values time. What the client pays is agreed in the engagement letter. A low recovery on a fixed-fee client is information, not a mistake in the card.
- Cover everyone who records time. Including partners, administrators who do client work, and contractors.
Unvalued time is not estimated
The last point above has a direct consequence. Time recorded by someone with no rate is counted as unvalued rather than estimated. Achekam does not guess a rate for them.
That is the honest choice, but it can surprise a partner reading the figures. If a new senior has been working on a client for a month and no one added her to the rate card, her hours appear as unvalued, and the client's standard value is understated. Recovery on that client then looks better than it is, because the billed fee is being compared with only part of the time.
So before trusting the figures:
- check the list of people recording time against the rate cards;
- add rates for anyone missing;
- look again at clients where a large share of the time was unvalued.
Where profitability says "Not measured"
There is a trap in the menus. A separate Recovery & Profitability screen shows "Not measured" for realisation and margin. It is easy to open it, see nothing useful and conclude the firm has no figures.
The measured realisation is on Rate Cards & Realisation. Write-offs are in the WIP Register. Scope variations logged under Billing & Finance are kept only in the browser in which they were entered, so do not treat that log as the firm's record of anything. Tell the partners which screen to use, and ignore the other one until it shows measured figures.
Acting on the figures
Figures that nobody acts on are just decoration. Some practical uses:
Find the clients to reprice. Sort clients by recovery. The lowest are either underpriced, out of scope, or badly run engagements. Each calls for a different conversation. The choice between pricing approaches is weighed in fixed fees or billing by time.
Read the write-down reasons. In the WIP Register a partner, manager or administrator can write unbilled time up, down or off with a reason. Write-downs above the firm's threshold, 10% by default, and every write-off wait for approval by another partner. The reasons explain the low recoveries. More in writing WIP up, down or off.
Compare with the time reports. Time Reports offers ten reports for a chosen period, such as staff time and engagement time, exportable as CSV, XLSX or PDF. If a low-recovery client's hours come mostly from senior staff on work a junior could do, the fix is staffing, not price.
Watch the age of unbilled work. Old WIP is often time the firm already knows it will not recover. Deciding about it early keeps the figures honest.
A quarterly review in five steps
- Confirm every person recording time has a rate.
- List clients by recovery, lowest first.
- For the bottom group, read the write-down reasons.
- Decide for each: reprice, rescope, restaff or accept.
- Record the decisions and check them again next quarter.
Begin this week by comparing the list of everyone who recorded time last month with the rate cards, because every missing rate is a hole in the figures the partners will rely on.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
