NB – A version of this article appeared in the Australian business publication, BRW, today.
Why do accountants take so long to get paid by their clients? They are nice people (bit too nice sometimes), they do fine work that adds a tremendous amount of value to the clients, they have reasonable client relationships, and they are trusted by their clients.
But they are often the last to be paid. Having 50-80 days in average debtors is not uncommon. Are they taken for a ride by their clients – or are they just too soft?
Yes they are too soft – and too nice sometimes!
Niceness aside I think a lot has to do with the traditional billing practice that most firms adopt. Do the work, calculate the bill after write offs (where the client knows nothing of the price) send out an invoice sometime after the work is finished, and then wait to get paid. And finally when the debtor hits 772 days outstanding a lame follow up procedure kicks into gear. I was being facetious about the lame procedure!
So why not fix the problem at the root cause. It’s not the clients fault – it’s the processes fault. Change the process and change the result.
I think accountants should price every job before starting. Give the client an agreed price on the project, what the scope is and what the value of the project is – just like every other business out there. Then when you present the engagement letter or proposal to them give them some choices how they can pay.
Here are some examples of some options on how the client can pay – that you can build into your engagement letters.
Option 1 – 50% upon signing the agreement and 50% in 45 days
Option 2 – 5% – 10% discount if you pay the full amount before commencement
Option 1 – 50% deposit upon commencement, 25% progress and 25% at the end
Option 1 – 5% – 10% discount if you pay the full amount before commencement
A couple of real examples: 4 partner firm in Perth. They gave the client an option of 50% now and 50% in 45 days or 100% now. Heaps of clients paid 100% now with no benefit!
Sole practitioner in Surburban Adelaide. They priced 3 consulting proposals (all of them well over $100,000) in the past 6 months. Each one was given a 10% discount if paid in full. They did.
You’ll have to position this carefully with your clients and you’ll be surprised at their reaction. The side benefit is that when you have all or part of the funds before starting the clients are more motivated to get the information you need – on time. Also, your team are more motivated to do the work more efficiently.
I rest my case.