What do these tracked hours invoice at?
The number on an invoice and the number in your bank account differ by the tax. This keeps them visibly separate.
Invoice total, gross
—
Net, before VAT
—
VAT amount
—
Formula: hours × rate × (1 − discount) × (1 + VAT)
What the number assumes
19% is the standard German VAT rate. Cross-border business customers in the EU are usually reverse-charge, which means 0% here and a note on the invoice. This is arithmetic, not tax advice.
The formula defines the arithmetic. It does not define your business. A figure from this page is a starting point for a decision rather than the decision.
How to work out an invoice from tracked hours
The net amount is the hours you tracked multiplied by the agreed rate, less any discount. VAT is applied to that net figure, and the gross is what the client pays. Keeping the three visibly apart matters because only one of them is yours: the tax is collected, not earned.
The arithmetic is simple enough that the value of the calculation is in the discipline of it. An invoice that shows hours, rate, net, tax and gross is one a client can check without asking, and invoices that can be checked get paid faster.
What tracked time is actually good for
Two things: billing accurately, and finding out where the work went. The second is more valuable and gets far less attention. A month of tracked time will usually reveal that one client absorbs disproportionate unbilled attention, or that a category of task takes twice as long as anyone would have estimated.
It is not a productivity measure, and using it as one destroys the data. As soon as tracked hours are treated as a target, they become an account of what people think should have happened rather than what did, and then neither purpose is served.
Discounts and what they really cost
A discount comes entirely out of margin, which means a 10 per cent discount on a project with a 25 per cent margin removes 40 per cent of the profit. That is worth calculating before offering one, and worth remembering when a client asks for what sounds like a small concession.
If a discount has to be given, attach something to it: a longer commitment, faster payment terms, a reference, a reduced scope. A discount given for nothing sets the price for every job afterwards, because it tells the client what the work is really worth to you.
Getting paid, which is a separate problem
An invoice is not revenue until it clears. The practical levers are all boring and all effective: invoice on the day the work is accepted rather than at month end, state the due date as a date and not as a number of days, put the payment details on the invoice itself, and follow up on the first day it is late rather than the fourteenth.
For longer projects, invoice in stages tied to delivered milestones. It halves the exposure, and it surfaces a payment problem while there is still work in hand, which is a far better time to discover one.
Making tracking survive contact with the team
Time tracking fails for a predictable reason: it costs the person doing it and pays somebody else. The fixes all reduce that asymmetry. Track at the level of a project rather than a task, make starting a timer one action rather than a form, and show people their own data rather than only reporting upwards.
Reconstructing a week on Friday afternoon produces fiction, and everyone involved knows it. Same-day entry is the single practice that decides whether the numbers are worth anything at all.
Be explicit about what the data will never be used for, too. Tracked hours used in a performance conversation will be the last accurate tracked hours you get.
Questions
Should I round the hours?
Round in the customer's favour or not at all. Rounding 42 minutes up to an hour, repeated across an invoice, is the kind of detail that ends a client relationship.
What about expenses?
Add them after the discount and before VAT, unless the expense was already gross, in which case it does not get taxed twice.
Should I invoice tracked time or estimated time?
Tracked hours on a time-and-materials contract, and the estimate on a fixed price. Mixing the two by invoicing tracked time on a job that was quoted as fixed is the fastest way to a dispute, because the client agreed to a number and received a different one.
How should I round tracked time?
To fifteen minutes, consistently, and say so on the invoice. Rounding to the hour is generous to you on every entry and generous by a lot over a month, while rounding to the minute suggests a precision that time tracking does not have. Whatever you choose, apply it the same way when it favours the client.
Does VAT apply to a client in another country?
It depends on where both parties are and whether the client is a business. Within the EU, business-to-business services usually reverse the charge to the client, so no VAT appears on the invoice but the client's number must be on it. This calculator applies whatever rate you enter and does not know your situation, so for anything cross-border check with your accountant.
Related calculators
Same corner of the arithmetic, different question.