Paymo is a really fantastic online service, for managing timesheets and billing. We’ve been using it for a few years now and its pretty much perfect.
You set up clients, and projects, and download a little timer gadget that allows you to track time spent on each project.
At the end of the month – or whatever billing cycle you want to use – Paymo will draft an invoice based on the timesheet and any expenses you recorded for the project. You can edit, and add notes, before you email the invoices to your clients, and you can even offer the option to pay online via Paypal.
Very well suited to freelancers and small businesses that manage a lot of different clients and projects.