Just prepared clients draft accounts to 31 Oct 2010. Reserves negative (they were ok the year before). Client has decided its getting no better and will pull the plug.
We've done most of the work but wount get paid. This seems to be a recurring theme. How do people avoid this?
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Payment in advance
Either payment in instalments during the year by standing order or payment in full with provision of the accounting information (i.e. before anything has been done). I've only got a couple of clients now who pay after. I know its not everyone's cup of tea (clients or A-Web members) but it works for me and my clients. And going forward its the only option I offer. I may well lose potential clients as a result of it but I figure there are enough to go around if you look hard enough and I'd rather be fussy at the start and save myself some aggro later on.
Put in a bill anyway and threaten legal action. You've nothing to lose and money to gain. And if you don't get paid at least you've learnt from it and can hopefully avoid it in future (when it might be bigger amounts involved) Fingers crossed!
Any fool can work for themselves, getting paid for it is the cle
Know your clients, and have an idea how their business is going before you start their accounts.
I'm old fashioned I guess, but I dont think clients shouldnt pay until the accounts are done. What we do, however, is always get a signed agreement from directors stating that in the event of their company ceasing to trade, they personally indemnify us for any outstanding fees. This is something we obtain when we first take them on as clients.
Advance payment
We always ask for monthly payments from clients, but we don't make it compulsory. The few clients who do not pay monthly are asked to pay 50% in advance, with the balance being due on completion. I know lots of people do not agree with this approach, but my viewpoint is that we are providing a bespoke service. If they choose not to pay for the goods (accounts!) we can hardly sell them on to someone else in order to recover our costs. We haven't had any bad debts for years (fingers crossed it stays that way) but in the early days I pursued them through the small claims courts. It isn't difficult.
With regards to this particular client, will they need your services to wind up the company? If so, this could give you some bargaining power.
Same as ShirleyM
"We always ask for monthly payments from clients, but we don't make it compulsory. The few clients who do not pay monthly are asked to pay 50% in advance, with the balance being due on completion."
Identical to the way we operate. Having written off an upleasant amount of bad debts in a prior year, we have changed to doing it this way and nobody has complained about paying 50% up front. It improves cashflow and reduces bad debt exposure by over 50%.
Some clients who are particularly uncreditworthy I get full fees up front.
Oh, and director's personal guarantees are written into our terms of engagement as standard.
Just for interest ....
Over the last 4 years that we have operated this method we have never had a problem with existing clients, and have had only 2 potential clients object to advance payments.
Gentle questioning of the 'potentials' about their reasons for objecting made me reject them as clients. The point I am trying to make is that the advance payment can be a good indicator of a potential clients intentions to pay, or not pay!
Also, in the early days, we were often asked to prepare accounts/tax and it was only after completion that we were told they 'couldn't afford to pay me just yet'. OK, we got paid eventually, but it was often months later.
Not so sure
"Also a banker friend said he thought the client had to be advised to take independent legal advice prior to signing, otherwise ditto."
This doesn't sound right to me. What can people agree to without taking "independent legal advice"?
What do their accounts tell you?
I am not an accountant, but if I were, as soon as the raw accounts info arrived, I would take a general look at their ability to pay. An accountant is clearly knowledgeable and in a perfect position, to make that call, surely. And if there were any red flags, I would require their payment before completing the work for them (before spending any real time on their accounting work). IE, not give over anything and not file anything for them until the payment arrived on my account.
On the other hand, if your existing clients have not given you any cause for alarm (and no red flags on their accounts), there should be no need to demand payment up front. Also a cash-rich company is not likely to fold up and take your invoices with it, is it.
But it is your business and battle scars tend to strengthen one's financial policies.
I wish I could get my customers to pay up front. Sadly, they go to other contractors rather than do that so I have to rely more on what I see in their eyes and how they conduct themselves. And when the red flag(s) show, I just inflate the price enough for them to go elsewhere. That's only a problem when they still come back wanting my company to do the work, at which point I am able to require 30% up front. (100%, phew!)
Payment up front
My clients nearly all pay up front monthly by standing order. This appears to be standard industry practice now. Those who have defaulted during the year or never set up the standing order are required to pay 12 months in full before I start work. This seems perfectly reasonable in our industry these days. I have never had a client verbally object to this when I explain it to them let alone go elsewhere because of it. Many many clients have said how they like it in fact as it helps them budget. I explain that the monthly fee also act as a retainer so they can call me anytime and ask me questions without worrying that I will send them a bill. Clearly some call more than others. I hope this helps others change things because it was one of the best decisions I have made.
12 month standing order
Most clients like this as they can budget more easily. A few prefer to pay up front.
In advance
All our clients pay in advance via monthly standing order. Most of them like it (or don't object) as it helps their cash flow budgeting.
This is also the best indicator of a client with financial difficulties or wanting to leave as the first thing they do is stop the standing order.
Go after the director, personally
The company may have limited liability, but directors become personally liable if they trade negligently. And employing you to do some work the comapny wasn't to pay for might count. Worth a go, in my opinion. I wouldn't shell out on solicitors costs, but I'd certainly start with a letter along these lines, then follow it up via www.moneyclaim.gov.uk
Not sure why you're not getting paid
The decision to pull the plug is a business decision and may be a sound one. This is no reason for you not to get paid. The accounts still have to be submitted. If you don't do it who will? Sooner or later they are going to be in trouble with HMRC and Co House if a limited co. Do they know the implications of not submitting the accounts. Don't think they're about to go to someone else.
In trouble?
"Sooner or later they are going to be in trouble with HMRC and Co House if a limited co. Do they know the implications of not submitting the accounts."
I've not companies who let themselves be wound up or liquidated suffer many problems. I've regularly been confronted by a total disinterest by all concerned.