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Professional Clearance when fees outstanding...

 We have received a professional clearance letter regarding a client who hasn't bothered to pay us, and even when we offered very good terms (let him pay a bill in arrears in 6 installments by direct debit), the last 3 months bounced.

We made it clear to the client that we wouldn't be doing any more work for him until outstanding invoices paid. There is no dispute as to the invoice, just the client says he doesn't have money to pay, and "why do you bother trying to collect the direct debit when it's going to bounce".

Anyway, client left (good riddance) and found another accountant, who is now asking for professional clearance and the usual (sets of accounts, debtors and creditors, TB, tax computations etc). I know that the client is extremely unlikely to pay what he owes if I give away the accounts etc. 

How should I reply to the request for clearance? Whilst I want to get rid of this headache, I don't want to put any more work unpaid when I haven't been paid for the original work. What am I required to pass over, and what can I/shoudl I reply?

Andrew

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Not much choice if ................

If the client is a limited company, you have no choice but to reply to the other accountants will all relevant opening balances, copies of account etc, in short everything basically. I see no reason why you cannot mention that the client owes you money and cant afford to pay, hence why hes leaving you. I am not sure what the situation is if a sole trader/partnership.

I once had a client that came to me and after writing to the other accountant i was made aware of his lack of paying invoices on time and that he owes their firm circa of £2k. I emailed the client to pay off the other accountants before we can start acting for him and i copied the accountant in the email.

His response to be was "if all accountants can look after each other this way, client will stop taking advantage" I must say the client paid and i made sure we received up front payment before we do any work for him.

I will like to see others take on this.

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it is a limited company

but surely I don't need to supply accounts etc which haven't been paid for? Can I put a lien on them? 

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Body

Unfortunately, i think you have to. Speak to your governing body, i am sure they will say you have to provide the information. If ACCA, i can tell you what the answer will be .................. "you have to supply the info requested"

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Partly depends on your professional qualification

Check out your rulebook. Most professional qualifications give guidance on what you should hand over regardless and when.

Essentially, from a professional point of view, you should not hold on to anything that would prevent their accounting and tax affairs being properly dealt wtih. Any information necessary for their affairs to be dealt with should be passed over within a reasonable time. If you were to unreasonably withhold information then a complaint could be made to your professional body. My experience of dealing with someone who was quite unreasonably withholding information (no fee dispute, largely a case of sour grapes over a large client leaving) is that the professional bodies prefer to arbitrate rather than come in heavy in these instances.

A reasonable time is not clearly defined, so this can drop down your priorities list a bit if you wish it to. Also, there isn't strictly any need to supply information that the client will have in their possession. If they have it already, they can pass it on to their new accountants and hence their affairs can still be dealt wtihout you providing it. It is also perfectly permissible for you to charge a reasonable fee for compiling the information 

You can advise the new accountant of the fee dispute in the professional clearance letter. Be sure to stick entirely to the facts on this. It is also probably best to stick to the facts that you can prove with evidence, not any verbal comments made by the client you don't have recorded.

If they don't pay the balance still owing then the small claims court seems a good place to go.

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Risky strategy

As far as the limited company accounts are concerned, what has been billed and what has been paid for?

I am not sure of the professional bodies view on this, but it seems to me that if you returned the client's records to them then they could get their new accountant to prepare those accounts. You could write to the client stating that if they pay for the accounts you will submit them. Otherwise, you will supply the new accountant with the start of year informaton so that they can prepare the accounts from scratch.

There would seem to be a risk of complaint to your professional body but, provided the new accountant has time to meet statutory deadlines, then I would hope they would side with an unpaid member in these circumstances. The important factor would be whether the client's affairs would be put at risk, if a statutory deadline was close for example. It does also weaken your position in claiming fees, as you have not finalised accounts for them, but the work being aborted by the actions of your client may be enough to swing things back in your favour.

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You must reply

... to the professional enquiry on the lines of "We are not aware of any professional reasons why you should not accept appointment", but you are not obliged to provide any details of your work (and it remains your work until the client has paid for it), so you would add "However, you should be aware that the client has not paid our fees and we shall not be providing any of the information you have requested until our invoices have been paid in full".

You must release any of the company's original source documents in your possession but you are not required to release any of your working papers.

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.

 

Your first move should be to insist upon signed authority from the client stating that he authorises you to pass the P&L, Balance sheet, Tax Comp (make a list) for year ending XX/XX/20XX which were prepared on his behalf by you, to his new accountant.  By supplying such a letter he is asdmitting, in writing, that you did in fact prepare the items listed - sticking him in court becomes much simpler once you have what amounts to a confession by him that he owes you for doing the work.

I would then get the case filed in court immediately. At that point the accounts etc become exhibits in a court case and as such even the professional bodies cannot force you to hand them over without risking the wrath of the court.  You will, in due course, have to supply the esx client with copies as part of your case bundle, but not explanatory notes as to how each figure is arrived at.  

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Agree with Euan and CD

I agree with Euan but I think CD has an excellent idea in terms of the authorisation request he's suggesting - if you've prepared the letter and he just has to sign it then he's less likely to engage brain and realise what he's agreeing to. Hopefully the new accountants will back you up too, I'd not start work for a new client knowing the existing accountants hadn't been paid unless there was a cast iron (confirmable) reason for it. Good luck!

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.... but I think CD has an excellent idea in terms of the authorisation request he's suggesting - if you've prepared the letter and he just has to sign it then he's less likely to engage brain and realise what he's agreeing to.  Posted by Flash Gordon on Sun, 05/06/2011 - 18:15

 

Now Bob would call that "added value" & charge for it - I'll pop my bill in the post to you :) 

 

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Move on

@CD - no, I would not call that added value. I would call it devious and I’m glad I don’t think like that.

It sounds like the client is in serious trouble. My first thoughts are could the accountant have done anything to prevent the situation? This can range from assessing the client before acting and refusing the engagement to advice to address the fundamental issue/s?

If aiwalters really feels they are better off without the client (and they could not have done any more for them) then pass the papers over, move on and proceed with the Small Claims.

Bob Harper

Marketing Consultant
 

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Devious ?

@CD - no, I would not call that added value. I would call it devious and I’m glad I don’t think like that.

 

Posted by Bob Harper on Mon, 06/06/2011 - 08:52

 

Devious ?  I think not paying the bill then moving to another accountant who they will also no doubt not pay is "devious".  Actually obtaining services without any intention of paying is a criminal offence. Clients like this are lucky they only get sued for what they owe, and not pursued through the criminal courts for gaining a pecuniary advantage by deception. This of course raised money laundering issues too, and if the amounts are sufficient could qualify as a criminal lifestyle leading to confiscation orders.

Do you really thing its "devious" to nail people like that ?

 

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Reasonable transfer information

 I believe that the ACCA guidelines indicates 'reasonable transfer information' and that is defined as the full accounts and the trial balance. So that is what you should hand over.

If appropriate you should still grant professional clearance.

 

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Intent

@CD - how do you know the client deliberately obtained services without any intention of paying? Your intent is clear and just comes across as vindictive.

Bob Harper

Marketing Consultant 

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.

@CD - how do you know the client deliberately obtained services without any intention of paying? Your intent is clear and just comes across as vindictive.

 

Posted by Bob Harper on Mon, 06/06/2011 - 09:49

 

What's "vindictive" about making sure you get paid whats owed to you?

The object of taking someone to court is to win your case - and there is no room for sympathy or "being nice" in a court room, you do and you will lose. The client in the OPs case has moved to another accountant without paying his bill. Now, who do you think is going to get paid next the old accountant or the new one?  He/she has bounced direct debits - which is the same as bouncing a cheque - illegal.

They havent stood by an arrangement to pay monthly installments so it is clear that they have no intention of paying.  It's not a case of being "vindictive" - its a case of enforcing your entitlement.

 

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Won't pay or can't pay - there is a difference, you know

"They havent stood by an arrangement to pay monthly installments so it is clear that they have no intention of paying.  It's not a case of being "vindictive" - its a case of enforcing your entitlement."

Presumably, then, you would have absolutely no objection to HMRC taking a client to court for failure to adhere to a Time to Pay agreement because they had run out of funds due to a major customer's failure?

I can't see anything in the OP's comments that indicate that the client had no intention of paying ("client says he doesn't have the money") - simply an inability to pay. Of course, the more cynical amongst us might accuse the client of lying - perhaps he is, but there is nothing in the question to indicate that that is so. Failure to keep to an instalment arrangement does not necessarily indicate an intention not to pay.

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Move on

@CD - fine, take them to court but why play small minded legal games and delay handing over papers? The accountant should just move on and put their energy into something productive like I will do by ignoring further comments from you.

Bob Harper

Marketing Consultant

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 Failure to keep to an instalment arrangement does not necessarily indicate an intention not to pay.

 

Posted by BKD on Mon, 06/06/2011 - 10:28

 

But DOES indicate that the OP is unlikely to ever be paid. By formalising the matter in court the client's ability to pay will be examined by the court and a suitable Order made including penalties for non compliance.

If the client "cant" pay, then how I wonder does he propose to pay his new accountant ?  Or will he be moving again in 12 months time leaving yet another bad debt in his wake.

Get a reputation for letting clients get away without paying, and you will end up with every scrounger in the area using your services for free.

 

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Still with CD on this one

The client may not be able to pay as opposed to not wanting to pay but then why are they moving to a new accountant unless that accountant takes on charity cases for free? If they are struggling to pay why not agree more suitable and realistic payment terms? It sounds like they're saying 'we're not going to pay you so stop trying to make us' rather than 'we can't afford x but how about y for now'.

Sorry but if I do some work I'd expect to get paid. Exactly the same as if I got someone to do some work for me I'd expect to pay them what I'd agreed (and without making them wait). It's the right thing to do morally.

And if they're not going to pay then yes get the proof that there's no problem that they're querying and sue them. And to hell with the ACCA telling us what we must do, they don't live in the real world and if we didn't pay our subs they'd not be hanging around playing nicely. 

If they didn't make their payments to HMRC as agreed then yes I'd expect HMRC to enforce payment regardless of the reason. The client could try to renegotiate terms and provide proof of the major customer's failure. It just seems like we're in a real nanny state where people can fail to think ahead and provide for their debts and then when it goes belly up they can burst into tears (I blame reality tv!) and be let off or go bankrupt for 5 mins before starting again. Surely if you know you have tax / vat etc to pay at a future point you allow for that? After all if you have it to pay then logic says you've made the profit in the first place so failure to have the cash is poor cashflow control.  

Has the OP thought about sending round a couple of heavies with baseball bats?! I'd volunteer :)

 

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I do not disagree with CD re his initial suggestion in this thread - it is exactly what I would do, BUT ...

"But DOES indicate that the OP is unlikely to ever be paid. By formalising the matter in court the client's ability to pay will be examined by the court and a suitable Order made including penalties for non compliance."

Nothing to do with the bald statement that failure to keep to a payment agreement is clear evidence of an intention not to pay. Again, "can't pay" is mightily different from "won't pay". Yes, the court will determine which it is - it's not for us mere readers to jump to conclusions.

"If the client "cant" pay, then how I wonder does he propose to pay his new accountant ?  Or will he be moving again in 12 months time leaving yet another bad debt in his wake."

That's for the new accountant to worry about (if he does in fact decide to take the client on), nothing to do with the existing agent's problems.

"Get a reputation for letting clients get away without paying, and you will end up with every scrounger in the area using your services for free." 

I don't think anyone even hinted that was a suitable course of action (except perhaps Bob - but then I would take any advice from Bob as to how to run a practice with an absurdly large amount of salt). My point was not about whether action should or should not be taken to recover a debt - it was about jumping to conclusions about the reasons for that non-payment.

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Just pick up the phone to the new accountant

 I have been in this situation many times before and to be honest I know would just pick the phone to new accountants telling why I am being not particularly helpful and if the new accountants has any commonsense we work together to get us paid and them the information.  I would normally do this on the same day of receipt of the letter as this immediately puts the new firm on warning of the issues!

It does seem to work for us.

 

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Opportunity

@BKD - when things go wrong there’s lots to be learned, this is an opportunity for aiwalters to think about their strategy in terms of client profiling, commitment to proactive advice and terms of business.

Could the client’s situation been spotted earlier by the accountant reviewing books? Was cashflow not managed because the bookkeeping was a mess? Could the accountant have helped with profit and/or cashflow improvement advice?

Like you, I agree using the legal route if all else fails.

By the way, I recommend clients pay on a pay-as-you-go basis and do not offer credit. The value of credit for a small fee £1,000 or so for the credit terms is pence. The downside of not getting paid by a few clients is much higher, not just financial but hassle and bad feelings.

Bob Harper

Marketing Consultant
 

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I disagree

If the client "cant" pay, then how I wonder does he propose to pay his new accountant ? Or will he be moving again in 12 months time leaving yet another bad debt in his wake."

That's for the new accountant to worry about (if he does in fact decide to take the client on), nothing to do with the existing agent's problems.

 

Posted by BKD on Mon, 06/06/2011 - 12:22

 

 

Disagree - he has engaged a new accountant without first paying what he owes the old one. That says a great deal.

The OP had stated that he would not do any further accounts etc until the outstanding bill was settled. Instead of settling, the client goes out and engages a new accountant (another mug).  That clearly shows that he intends to get more work done without paying for what has already been done. 

This is someone who has no intention of paying his debts, and there is only one way to deal with that type of person. I bet he still drives a nice car / has holidays / etc etc. That type always do. 

If he's a "wont pay" then suing him is the only answer, if he's a "can't pay" then he's about to defraud the new accountant too by running up a further debt he knows he can't pay.  

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Jumping to conclusions

"he has engaged a new accountant without first paying what he owes the old one. That says a great deal."

Not really

"The OP had stated that he would not do any further accounts etc until the outstanding bill was settled. Instead of settling, the client goes out and engages a new accountant (another mug).  That clearly shows that he intends to get more work done without paying for what has already been done. "

Perhaps - but it doesn't mean that his original intention was never to pay for the work done.

"This is someone who has no intention of paying his debts, and there is only one way to deal with that type of person. I bet he still drives a nice car / has holidays / etc etc. That type always do. "

Unsubstantiated allegations, unless you know something about the client that the rest of us don't - libellous?

"If he's a "wont pay" then suing him is the only answer"

Agreed

"if he's a "can't pay" then he's about to defraud the new accountant too by running up a further debt he knows he can't pay."

That's between him and the new accountant (assuming the new accountant is made aware of his financial position and agrees to take him on) - again, not the current accountant's problem.

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BKD - The facts speak for themselves. My analysis of the situation is obviously correct from the facts stated by the OP. You now appear to be being argumentative for the sake of it without adding anything of value so I will leave others to make up their own minds

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Why is it obviously correct from the 'facts' stated by the OP?

We don't know anything about the previous relationship between the OP and the client. We don't know anything about the quality of the work carried out by the OP. We don't know anything about the client's financial circumstances and how he arrived there. We don't know what the client's original intentions were. We don't know anything about the client's relationship with the new accountant. And we don't know what the new accountant is already aware of.

In short, we don't know a great deal - we have been given a few words from one party to the 'dispute'. Whilst readers are free to draw whatever inferences they want from those words, there's precious little in the way of hard facts to allow a definitive analysis. One should be wary of one's own prejudices before jumping to conclusions based on an incomplete picture presented on a public internet forum.

And those are now my last words on the matter.

 

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.

We know that the client didnt pay his bill, and we know that he then defaulted on an instalment plan by "bouncing" direct debits (which is illegal).

We also know that he has engaged another accountant whilst not clearing his debts to the first accountant.

 

 

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We've...

... just taken over a client and the old accountant's letter says they will pass us the latest tax returns etc... once they have been paid by the client.

It has certainly made me move the client onto a 'one to watch' list, so I'm glad they mentioned it.

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Me too

Sadly I too have  a client that has moved on, he had cash flow problems (or so he said).  We completed the accounts and have not been paid, he made promises to make payments but none turned up.

So I have told new accountants this and have the papers and been to Count Court and the 1 month comes up now.

Whilst we have not been paid I am tempted to send the original papers to the new accountants without my working papers and suggest that they produce a further set of accounts for the period.  But reading some of the responses here I am not so sure.  Please can someone explain to me and others why we have to do the work to prepare the accounts and not be paid.  Thank you

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Clearance

If I write for professional clearance, and the client has an outstanding fees with a previous accountant, I would expect the accountant to :

Write back and:

1.  Give clearance

2.  Mention the outstanding debt and how much it was

3.  Refuse to hand over anything unless arrangements to settle the debt was made

I would then talk to the client and arrange to have the debt cleared and make the arrangements with the previous accountant to hand paperwork over as the debt was cleared. If the client refused I would refuse to take the client on.

 

If on the other hand it was a client I no longer wanted, I would mention the debt and talk to the new accountant and see what they could do, even if it involved a "settlement" amount. Worse case - move on and write off the debt.

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Professional Clearance when fees outstanding...

We have been in these situations on quite a few occasions in the past.

Firstly always agree / confirm instructions from client - either to seek to retain the client or otherwise agree clearing off outstanding fees.

Secondly respond as suggested by Euan - "We are not aware of any professional reasons why you should not accept appointment", but you are not obliged to provide any details of your work (and it remains your work until the client has paid for it), so you would add "However, you should be aware that the client has not paid our fees and we shall not be providing any of the information you have requested until our invoices have been paid in full".

Liens over clients accounting records do not include your accounting working papers. If the analysis sought is vital / important to the new accountant by all means have an off the record professional discussion that information is being withheld until payment of fees - use that as leverage to achieve your objective.

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pay up

In my limited experience, I have found that by pointing out to the new Accountant that you will transfer the required information to them when the debt has been settled .. then the debt gets settled pretty quickly.

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Luckily ...

We haven't had a client leave without paying, but we have had the departing accountant retaining records because of outstanding fees.

We just chat to the potential client and tell them to either get the dispute resolved (if there is one) or pay up. I don't want clients who can't or won't pay, and I have always been appreciative of being given warning of unpaid fees.

Usually, the client pays up and we get the message across very early that non-payment isn't an option, but on one occasion, we had a load of abuse hurled at us along the lines of accountants 'ganging up together' to make his (the non-payers) life difficult.

It made my day :)

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Lien

We have always responded to the new accountants and specified that we have put a legal lien over all information we hold until the outstanding bill has been settled. As I understand it, the law allows you to hold all information (especially work that you have carried out such as TB, Accounts, etc) until the bill has been settled.

 

Count

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Speak to new accountant

First of all I would ensure I had received the client's authority to disclose all relevant information - and if it is a problem client I would insist it is supplied in writing. I would then phone new accountant and give them the full picture and ask for the new accountants assistance with collection. New accountant may have second thoughts about acting. After all, if this client approached me I would want to know if there was a history of payment problems.

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Working papers

Getting back to the original query, I was once told by the ACCA that I had to release working papers when an ex-client refused to pay her final bill. The new accountant asked for the spreadsheets. I said that they could have the papers but not in electronic form. I told them I would simply print everything out without row/column headings and they could spend a few days with a roll of cellotape in a very large room sticking it all together!

In the end they paid me what she owed as an admin fee, which you're quite entitled to charge. There doesn't seem to be any guidance as to how much though. If you're Big 4 I guess £1,000 should do it.

Chris

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Give them the minimum but protect your collection ability.

Agree with CD. Getting a legal advantage of an unpaid bill is fine. Client could avoid it all if he paid.

I hand over the minimum required by my institute and certainly not any spread sheets or the like. They can get printouts.

In the one case I handed all the source papers back plus a TB arrived at. No supporting schedules. They are mine always. IP and all that. I am afraid I take a tough stance when I do not get paid. If they complain I sick my wife onto them!!

On another note if a client retains your services knowing he cannot pay he has committed fraud.

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The client is clearly trading whilst insolvent ....

... so the clearance letter should alert the new accountant to that fact because it is a matter that may influence their decision as to whether to act. Initially you should respond only on this point and say that the handover information will be sent in due course.

I'm with CD very much on this one. Whoever is behind the company either (1) can pay, but is pretending they can't, OR (2) should be put out of business to protect the people the company would otherwise deal with. The only other interpretation is that they have a "temporary" cash flow issue - but in this case they are not engaging with you to discuss matters, so I think you are entitled to assume that is not the case.

If it were my ex-client I'd get a CCJ and slap in a winding up petition. And I would find a way of not providing the handover information until that process was complete. That way, I would know the real position.

If you adopt the process of going the winding up route in all such cases then you will recover more than the costs over a period - but there may be some cases where it turns out to be wasted money on a case by case basis.

 

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