Fees in Advance

Fees in Advance

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Have only recently started my own practice and have one client who wishes to pay a lump sum up front for ad hoc work throughout year. I recently sent him first invoice and he returned cheque for greater sum saying he'd prefer to pay lump sum now and have a credit balance against future invoices.

Good for my cashflow but presumably I have to account for VAT on the whole of receipt and am I then holding client monies which have to be retained in separate account etc etc?

What do other people do that have set clients up to pay by monthly standing order throughout year? Are they issuing an invoice that corresponds with each standing order receipt?

Apologies if I am being a bit dim here!
Gemma

Replies (6)

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By User deleted
08th May 2008 09:48

Whoops
Having just spoken with CCH VAT helpline I can confirm Alan you are correct - thank you very much.

It has been suggested that my intial invoice should be replaced with a schedule of payments ie effectively the invoice I currently issue up front but not marked as an invoice (as payments are made in excess of 6 months after the invoice date) and then when I receive each monthly instalment I issue a VAT invoice. Apparently I must issue the invoice within 30 days of receipt of payment. What a pain - all that extra admin!

It would be really interesting to hear from other accountants using monthly billing as to how they deal with the invoicing.

Just a quick question for Nicola GL (so confusing so many Nicola's!) - if you sold your practice how would you deal with WIP as you would have WIP and some work done in advance of invoicing as well? Maybe its not a consideration for now but perhaps something you may want to consider?

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By AnonymousUser
08th May 2008 00:14

Nicola , I think you may have a problem
I may be wrong but One of the few instances that you are not allowed to use cash accounting is where you issue invoices in advance of goods/services being provided

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By User deleted
07th May 2008 19:53

Thanks all
Been very helpful particularly the last post which puts my mind at rest about client monies and my misunderstanding thereof

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By AnonymousUser
07th May 2008 17:03

Re client monies
This applies when you hold a client's funds, eg as stakeholder. Advance fees are yours (subject to fulfillment of the contract), so there is no need to hold them in a separate account.

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By User deleted
07th May 2008 14:41

monthly is excellent
My approach is similar to Nicola's. Most of clients are now on monthly fees.

However, I bill a little differently. I offer my clients an all inclusive service which includes their tax return, accounts, several face to face review meetings, unlimited telephone and email questions (with sensible caveats). As the work is often continuous throughout the year, I bill them monthly in line with their standing orders, record the monthly income into my accounts and pay the VAT as invoiced. My engagement letters T&Cs state that if the service is cancelled before the end of the year, the full year fee becomes payable, in reality I probably wouldn't charge the full amount depending on circumstance, but I can if I want to.

With my method I don't have to worry about WIP, I just have to ensure that I do of course keep working evenly throughout the year, so that I don't become completely maxed out at certain times.

The monthly fees are excellent for my cashflow, and my clients seem to like it too. Also, as I am in regular contact with all my clients they do perceive me as giving a continual service to them throughout the year, not just a handover of books at the end of the year.

Bookkeeping however I do bill on an hourly basis, but alot of this I outsource.

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By User deleted
07th May 2008 14:16

Not being dim!
No Jemma you arent being dim!

I too went through similar when I set up monthly billing, but rather than it coming from clients I promoted it to my clients and 'sold' it as a super feature to new clients but basically insisted all clients did it.

I spoke to many fellow accountants on how they operated monthly billing and believe me you will find many, many ways, so ultimately it gets down to a way you are happy with and one in which in future you can control. Once you have 50 odd clients paying by s/o you need to keep track of them.

The way I did it was agree a fixed fee with the client, issue an invoice for the total and then simply get them to pay the total over 12 months. VAT is easy as I used cash accounting ie pay VAT on each instalment payment. It can be a bit messy if clients leaves before the work is done, but in cases like this I'd just issue a credit note for work not done and ocassionally monies have to be refunded.

Dont forget your letters of engagement need to specify how you are dealing with billing/such matters.

Also bear in mind for your accounts you need to be able to identify debtors/WIP etc which can be time consuming with s/o.

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