DisengagementThe best way to avoid having a collection problem is to communicate your billing and collection policies in your engagement letter, including stop-work and/or disengagement provisions that can be enforced if a client doesn’t pay you in accordance with the engagement letter.
Stopping work accomplishes the critical goal of not allowing fees to build up to the point where you believe you can no longer walk away from them.
Working without revenue is a strain on any business. You commit unpaid hours that could be used on profitable work for a paying client. The sooner you disengage from a delinquent client’s work, the sooner you can start working for a client that will pay you.
Delinquent clients also need to understand the consequences of nonpayment, which is why the engagement letter policies and provisions are so crucial.
CommunicationMost clients will pay up if they receive clear written communications and a detailed invoice. However, some clients might be more difficult or evasive. Here’s how CAMICO recommends dealing with them over the course of three letters:
- Send a letter that politely notes the nonpayment of fees owed, requests payment, and asks your client why they haven’t paid.
- Reiterate the first letter, asking if there is any reason for the delay in payment.
- Send a final letter that reiterates that they haven’t paid. In it, request a call to discuss payment.
CAMICO’s claims experience shows that simple fee disputes are better resolved through mediation and arbitration than through litigation. That’s why CAMICO recommends mediation for all disputes as a first step, and binding arbitration—for fee disputes only—as a second step.
Include a mediation clause for all disputes, and a binding arbitration clause for fee disputes only in your engagement letter, and have it signed by the client. Note: some states do not permit arbitration clauses.
Arbitration is less expensive than civil litigation. Lawsuits and counter-suits almost always result in the firm spending far more in attorney fees and in lost billable time than is warranted for the fees owed to the firm.
CAMICO ResourcesIf you are a CAMICO policyholder, please log into the CAMICO Members-Only Site to access additional fee-issue related resources and advice such as
- War Stories with loss prevention tips
- Sample language about payments for CPAs onboarding new clients
- Sample engagement letters for clients that may need to be referred to a collections agency
- Sample engagement letter with good payment policy language and enforceable arbitration section
- Resources for firms setting up their payment onboarding language: suggested wording for fees, retainers, etc.