Billing and Collection Tips

At this point in tax season, it's important to prepare invoices and collect payments in a manner that results in getting paid on time and in full, ideally without disputes. Problems arising from billing and collection practices often arise, but by taking a few basic steps, many of which should begin in advance of a client engagement, firms can avoid or manage such problems.

Billing tips

If an invoice is unclear, clients may put it aside to address later, lengthening the time it takes to get paid. Standardized, clear, concise yet descriptive invoices are more likely to be paid sooner.

All professionals within the firm should be accountable for their timesheets and billing deadlines. Firms should aim to reduce their billable time by using administrative staff, with appropriate training and support, to prepare invoices and collect payments.

Timely billing leads to better collections. Consider billing more frequently than monthly, as smaller invoices may be paid sooner.

Collection tips

It's often helpful to speak to the person in the client company who's in charge of authorizing bill payment. If a large balance is due, consider calling 10 days before the due date to be sure the invoice has been received, and request a payment date.

Collection calls are relatively effective, inexpensive, immediate, personal and informative, but they should be documented in the firm's files. Staff members need to know the rules under the Fair Debt Collection Practices Act (FDCPA) to prohibit unintentional harassment of debtors. Anger management and mediation training may help staff deal with difficult people.

Once a firm has sent out 30-, 60-, and 90-day letters, it should consider turning the account over to a professional collection agency to avoid spending more valuable time and resources. If a client offers a reasonable partial payment in lieu of full payment, take it and disengage. This frees up valuable time to pursue better clients who pay their bills on time and in full.

Client screening tips

One of the many of these steps that should begin in advance of a client engagement is client screening—a crucial step toward controlling losses and enhancing clientele, services, and fee structures. The basic screening process uses a checklist to flag problematic prospective clients.

Some questions about prospective clients may include:
  • Is the client the kind of client the firm would like to have? Why? Why not?
  • Does the client demonstrate integrity? Why did they choose your firm? Why are they leaving their current firm?
  • Is the client financially viable?
Some firms create a list of their top five clients with descriptive attributes which make them attractive. The descriptions help guide firm management in screening the clients they want to entice.

Due diligence for client screening should include the following steps:
  • Performing background and credit history checks
  • Obtaining and assessing the quality of references, including additional references, when necessary
  • Obtaining permission to check with the predecessor firm

Engagement letters tips

Engagement letters document the understanding with the client and serve as the firm's first line of defense in the event of a fee or billing dispute. The engagement letter should limit the firm’s scope of services by employing words that limit its responsibility and avoiding words that expand it.

To reduce "payment resistance," firms should involve their clients in the design and understanding of the terms and conditions of the engagement letter. Billing and payment policies should be clearly communicated during the initial client interview.

Firms should always document their expectations, including billing and payment terms, in the engagement letter. That language, along with other documentation in your file, can be used later to rectify selective client memory.

Use retainers/retainer replenishment for clients that are new to the firm, slow-paying, or financially stressed. Remind clients that retainers are not an estimate of the total cost, do not earn interest and are comingled with other funds, and must be paid before any work begins.

Include a stop-work clause and create a policy to enforce the clause to prevent unpaid fees from accumulating to the extent that the firm believes it can no longer walk away from the client. Without such a clause, if the unpaid fees become so large that the firm wants to sue to collect, the client may have little to lose by suing the CPA for malpractice. The legal fees incurred from the lawsuits and the billable time lost by the firm almost always exceed the fees owed.

Disengagement tips

If you decide to disengage, terminate the relationship professionally and formally with a disengagement letter. The letter should always contain clear statements, a description of your work, and a list of any due dates or filings. Try to provide ample lead time before a client’s deadlines to better protect yourself. Your client need not feel antagonized in any way. Done effectively, disengagement can leave your client feeling that you have acted in the best interest of both parties.

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