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Retainers
Retainers work
especially well for smaller engagements for which you should
always request a retainer in the amount of the total estimated
or quoted engagement fee. However, retainers should also be
utilized on larger engagements and can be a good indication of
your client’s sensitivity to fees. If you request a retainer,
and your client refuses, you may use this information in your
evaluation of taking the engagement. Typically, your
relationship with your client is at its best at the outset of an
engagement and a refusal to pay a retainer may spell trouble
down the road. If your client pays a retainer for all or part
of the estimated engagement, you have eliminated most of the
problem associated with the collection of fees.
Bill
Frequently
There are clear and
practical business reasons for billing clients frequently. It
provides a steady, predictable cash flow for your business, and
allows your clients to budget smaller payments. In addition, it
allows your clients to understand the progress of the engagement
which will most likely encourage them to pay promptly. Should a
collection issue arise, you will catch it sooner, have performed
less work, and it will involve a smaller amount of fees than if
you wait to provide one bill at the end of the engagement. You
are mitigating the potential for a collection issue.
Payment on
Delivery
The preparation of
tax returns and financial statements lend themselves directly to
requiring payment on delivery. When stipulated up front, this
incorporates the simple principle of leverage. Your client
needs the work papers you’ve prepared and you are leveraging
this need to obtain payment. Discuss such arrangements in
advance and have them clearly outlined in your engagement
letter.
In the event that
you implement the above procedures and still find yourself with
a collection issue, there are certain steps you should take
before consideration of a suit for fees. By implementing these
steps, you should arrive at a sensible course of action in any
situation.
Negotiate
There are typically
two reasons for unpaid fees; either your client is having
financial difficulties, or they were dissatisfied with the
outcome of your work. By initiating discussion with your client
you will be better able to understand their point of view and
hopefully, negotiate a course of action that is acceptable to
both parties. If the fees are unpaid because of financial
difficulties you may consider developing a payment plan, or
offering a reduction in fees for immediate payment. A
dissatisfied client is a more sensitive situation, but by
discussing the reasons for their dissatisfaction you may uncover
an unrealized problem with your own practice and, furthermore,
reach a compromise that is suitable to your client. Remember,
collecting a reduced fee for your services in this situation is
better than no fee at all, and may certainly be less costly than
litigation. A release of claims letter in return for a fee
reduction should be considered as well.
What if you’ve tried your best to negotiate and your client
still refuses to pay what you feel is a valid fee? Before
jumping to litigation, assess the situation.
Assess
Materiality
A suit for fees
should purely be a business decision. Yes, you delivered
services and deserve to get paid, but don’t make it personal.
Only a certain level of outstanding fee will make it practical
to consider pursuing. Assess the resources and costs necessary
to pursue unpaid fees and establish a threshold for which you
will consider litigation. Write off amounts below this
threshold. In the long run, it will be cheaper than litigation.
Assess the
Risk of Counterclaim
There are certain
things that when considered will allow you to assess the
potential for a counterclaim should you file a suit for fees.
Always review your work with a critical eye for potential
pitfalls before considering a suit. You need to be confident
that there are no errors and comfortable with all decisions you
made. In addition, assess your client’s personality,
temperament, and satisfaction with your work. All of these are
clues that should alert you to the potential for a counterclaim.
Conclusion
As mentioned,
whether you should sue for fees is a frequently raised question
by accountants. There is no doubt that pursuing delinquent fees
through litigation increases your chances of being sued yourself
for malpractice. A malpractice suit, even if frivolous, will be
time consuming and require resources. As a professional
liability insurance agency we recommend that you follow
guidelines like these listed here to minimize the potential for
such a situation. We also recommend that you always discuss
your procedures and actions with legal counsel. Suit for fees
cannot always be avoided, but by implementing some standard
procedures you will reduce your potential for such situations.
The
Accountant’s Risk Management Handbook, by Ralph
Picardi, provides more details on this topic, including a
discussion on statute of limitations.
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