Time and Materials Invoice: Complete T&M Billing Guide
Master Time and Materials billing with our comprehensive guide covering T&M calculators, material markup strategies, contract templates, billing frequency best practices, and time tracking systems that prevent payment disputes.
Time and Materials (T&M) billing is one of the most flexible—and most misunderstood— pricing models in professional services. Unlike fixed-price contracts where you quote a total upfront, T&M billing charges clients for actual hours worked plus materials used. This transparency can build trust and accurately reflect project complexity, but only when implemented with clear contracts, disciplined tracking, and professional invoicing systems.
Research shows that T&M contracts are preferred for 62% of consulting and construction projects where scope uncertainty is high. However, T&M billing also generates the highest rate of payment disputes—primarily due to poor time tracking, unclear material markup policies, and inadequate documentation. Clients question hours they cannot verify and material charges they perceive as inflated.
This comprehensive guide will show you exactly how to implement T&M billing successfully: when to use it versus fixed-price, how to calculate fair material markups, which contract clauses protect both parties, how often to invoice, and what time tracking systems prevent disputes. Whether you are a consultant, contractor, or freelancer, you will find actionable frameworks and ready-to-use templates that make T&M billing profitable and professional.
Time and Materials Invoice Calculator
Invoice Breakdown:
When to Use T&M vs Fixed-Price Contracts
Choosing the right pricing model is critical to project success. Here is when each model makes the most sense:
Use Time and Materials When:
- Project scope is uncertain or expected to change
- Client wants flexibility to adjust requirements mid-project
- Work involves research, discovery, or investigative phases
- Duration is difficult to estimate accurately
- Client values transparency over budget certainty
- Materials costs are highly variable or market-dependent
Use Fixed-Price When:
- Project scope is clearly defined and stable
- Client has strict budget constraints
- Similar projects allow accurate time/cost estimation
- Client requires budget certainty for approval
- Client prefers not to review detailed time logs
- You want to benefit from efficiency improvements
Material Markup Strategies for T&M Contracts
Material markup covers procurement time, storage, handling, and administrative overhead. Industry-standard markups range from 10-25% depending on complexity:
Markup Transparency Best Practice
Always disclose your markup percentage in contracts and on invoices. Transparency prevents disputes and builds client trust. Example: Materials billed at cost plus 15% handling fee. Hidden markups damage relationships and invite scrutiny.
Time Tracking Best Practices for T&M Billing
Accurate time tracking is the foundation of successful T&M billing. Poor tracking leads to lost revenue and payment disputes. Follow this checklist:
Billing Frequency: How Often Should You Invoice T&M Projects?
Billing frequency impacts cash flow, admin burden, and client relationships. Choose the cadence that matches your project type:
Daily Billing
Invoice at the end of each workday
Weekly Billing
Invoice every Friday or after 40 hours
Monthly Billing
Invoice at the end of each calendar month
Essential T&M Contract Clauses (Click to Expand)
Protect yourself and your clients with clear contract language. Click each clause to see template wording:
Common Time and Materials Billing Mistakes to Avoid
Mistake: No maximum not-to-exceed amount
Solution: Include an NTE cap with notification requirements at 75% and 90% of maximum
Impact: Clients fear runaway costs and hesitate to approve T&M projects
Mistake: Vague task descriptions on timesheets
Solution: Write specific tasks: Meeting with client to review Phase 2 requirements (not just Meeting)
Impact: Clients question billable hours they cannot verify, leading to payment disputes
Mistake: Invoicing without client-approved timesheets
Solution: Get weekly timesheet approvals before submitting invoices
Impact: Clients dispute hours after invoicing when they should have approved earlier
Mistake: Hidden or undisclosed material markup
Solution: State markup percentage clearly in contract and on invoices: Materials at cost plus 15% handling
Impact: Clients feel deceived when they discover markups, damaging trust permanently
Mistake: Billing overtime rates without contract clause
Solution: Include overtime rate definitions in contract: 1.5x for hours beyond 40/week
Impact: Clients refuse to pay overtime rates not specified in original agreement
Mistake: Poor receipt documentation for materials
Solution: Save receipts immediately, organize by date/project, provide copies over threshold amounts
Impact: Clients demand proof of material costs, delaying payment while you search
What to Include on Time and Materials Invoices
T&M invoices require more detail than fixed-price invoices. Transparency prevents disputes and builds client confidence:
Labor Hours Breakdown
List each person who worked, dates, hours per day, hourly rates, and specific tasks completed. Example: John Doe - Senior Consultant - Jan 15: 8 hrs @ $150/hr - Requirements gathering and architecture design.
Itemized Materials List
Separate materials section with: item description, quantity, unit cost, total cost, markup percentage, and billed amount. Attach receipts for items over agreed threshold (typically $200-500).
Clear Subtotals and Payment Terms
Show labor subtotal, materials subtotal, combined subtotal, tax, and total separately. Restate payment terms (Net 30), due date, and accepted payment methods. Include late fee policy if applicable.
Project Progress and NTE Tracking
If contract includes a not-to-exceed amount, show: total invoiced to date, current invoice amount, new total invoiced, remaining budget, and percentage of NTE used. This transparency prevents surprise overruns.
Frequently Asked Questions
What is the difference between Time and Materials and Fixed-Price contracts?â–¼
When should I use Time and Materials pricing instead of fixed-price?â–¼
What markup percentage should I charge on materials in T&M contracts?â–¼
How often should I invoice clients on Time and Materials projects?â–¼
How do I track time accurately for T&M billing?â–¼
Can I include a not-to-exceed amount in a T&M contract?â–¼
What should a Time and Materials invoice include?â–¼
How do I handle disputed hours on Time and Materials invoices?â–¼
Start Creating Professional T&M Invoices Today
Time and Materials billing offers unmatched flexibility for complex projects, but only when paired with disciplined time tracking, transparent pricing, and detailed invoicing. Clear contracts prevent disputes. Accurate documentation prevents lost revenue. Professional invoices get paid faster.
QuickBillMaker provides T&M-optimized invoice templates with automatic labor and materials calculations, material markup tracking, and detailed time breakdowns that clients trust. Create your first T&M invoice in minutes, customize markup percentages, and track project costs against not-to-exceed limits—all in one professional platform.