Should I keep a client who is struggling to pay my bill?

Should I keep a client who is struggling to pay...

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I have a client (Ltd Company) who is struggling with cashflow.  I do quite a bit of work for him - bookkeeping, administration etc.  But I know from his accounts he is struggling to pay the bills (including mine).  We have had conversations on whether he can afford to pay for the service I provide.  He feels he needs me and explained that there are contracts if the offing which will help solve this problem.  I am not sure how to deal with this situation.  Should I just terminate - I feel my invoices just make his situation worse or should I stay?  I do not want to jeopardize myself professionally.

I only have a few clients so I have never dealt with this situation before.  Any advice would be really be appreciated.

Thank you in advance.

Replies (18)

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By philrob
02nd Mar 2010 14:37

What else would you be doing with your time...

I am not 'in practice' but have come across similar situations.

There are a number of things you should be thinking of:

Is the business going to come good or is it just a drawn out death? If you think that there is light at the end of the tunnel then stick with it, provided you aren't adversely affecting other clients (current or future). If the business is dead in the water then consider a dignified exit - if it can be arranged keeping your professional integrity intact.Can you afford to do it even if you don't get paid? - If you have nothing better to do with your time, that might be the case. If you are turning down fee paying work (emphasis on paying) to service him, then you need to come to an arrangementIs there a half way house where he pays a small amount now (to cover your disbursements and indemnity costs) and the balance in the future?What gives you the best chance of getting the money you are already owed?Hope is not a strategyHow long has he been a client? Small accountants trade on their reputation. If you drop him in the brown stuff (from his point of view) after many years of trouble free payment, how many friends, relatives, other business people etc. will he tell? You won't be able to 'answer back' because of confidentiality. That said, if he is a recent acquisition and you are cultivating a 'tough but fair' persona then you might not be upset to have a reputation for dropping people who can't pay.

This is always a difficult one, to help you to make up your mind write down everything you can think of in a decision making grid.

A decision making grid is a 2 x 2 table. In your case the boxes would be:

Advantages of kicking the client into touchDisadvantages of kicking the client into touchAdvantages of keeping the clientDisadvantages of keeping the client

While it may, at first glance, appear that Advantages of kicking into touch mirror disadvantages of keeping the client, each of the questions is subtly different so brainstorm each one in turn.

Hope this helps

Phil

 

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By cymraeg_draig
02nd Mar 2010 14:51

anyone can work for themselves, getting paid for it is the cleve

Cut down what you do to the bare minimum.

Ignore his claims about future contracts and assess the situation for yourself.  He may or may not be being realisatic about future prospects, he could simply be in denial about the situation.

Always remember - anyone can work for themselves, getting paid for it is the clever bit.

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Universe
By SteveOH
02nd Mar 2010 16:56

Maybe offer him some sort of lifeline.

It depends on your relationship with the client and how much he owes you etc. The point is that if you ditch him now then you can effectively say goodbye to any outstanding fees. If he owes you, say, £1000 you could offer to keep that in abeyance until his fortunes hopefully turn around. But strictly on the basis that he pays current fees, eg £100 per month payable in advance, for new bookkeeping work etc that you carry out. That way, you get paid for work that you do from today onwards, you earn his gratitude for helping him out, you retain him as a client and you eventually receive the £1000 currently owed to you. If he wasn't prepared or able to go along with your proposition then I would cut your losses and part company.

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By User deleted
02nd Mar 2010 17:18

What's the best advice to him?

Should he give up now? Or should he go on? If you advise him to give up now (and it's really the right advice), you shouldn't do more work unless he's willing to pay for it upfront.  If he should go on, maybe its worth going along for the ride?

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By accountancyextra
02nd Mar 2010 17:58

Forecast

Why not sit down with him and help him put together a realistic forecast for the next 6 months or so, including a detailed cashflow forecast.

You'll both see very quickly if he has much chance of turning the business around. If he does, then you need to come to a commercial arrangement with him for payment of future services and how he proposes tos ettle the arrears - and make sure he sticks to it.

If you can't see a way forward from the forecast, then you both know the answer I'm afraid.

So within a couple of hours you'll know exactly which way both you and the business owners hould go. He'll probably be really grateful for the help and support too!

Continually burying heads and hoping things will come good just isn't a way forward. 

 

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By zarathustra
02nd Mar 2010 18:07

Personal guarantee

Consider asking him to give you a personal guarantee (signed as a deed). This wont help you with money already owed but will enable you to recover future money from the director in the case of the company defaulting. If he feels he needs you hell probably give it. then get him to pay £X per week off the balance o/s today.

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By Richard Willis
03rd Mar 2010 09:09

Surely the company is insolvent, or is he just dragging his feet

Nobody seems to have said outright that the inference is that the company is insolvent!  However I bet he still pays his salary.

If it is that bad should you should be giving firm advice about the next step (I.P.?), even if this means that you may not or will not get paid.

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By refs8
03rd Mar 2010 13:40

A - Z Clients

I always A to Z my clients. If it is A client then you stick with them a Z client you walk away. I have often struck with a client problem like this and it often pays dividends - know your client but limit your work as necessary - I would often arrange "a clear the air" meeting - hope this helps.

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By amberlight
05th Mar 2010 12:42

Client struggling to pay

Some very good advice has been given here. Recently I had to take 2 clients to court to recover the amounts due. I tried every which way to avoid it, but now they have CCJs on record for 6 years and I have lost 2 clients. Act fast and try to encourage clients to pay by DD or SO.

Jenny

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By GarethHughesFCCA
05th Mar 2010 13:02

I agree with IT Tutor

Most posters here have centred their comment on the accountants fee, and how to best extract this from the client, without looking at the bigger picture.

The company would appear to be insolvent, and if that is the case (and there are no reasonable expectations it will recover) then it should cease trading before prejudicing creditors any further. The first step would be to do a summary of the financial position of the company.

Accountants Solihull | The Hughes Partnership

 

 

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By Laurence52
05th Mar 2010 13:15

A piece of advice for anyone in business

Many years ago, a course lecturer said that the only point in getting a client or a customer was once the money was in your bank account. It is pointless in getting a huge client if you never get the money.

His words were the most sensible bit of business advice I have ever heard.

 

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By Andy3T
05th Mar 2010 13:38

Alternate payment?

Assuming that the company is solvent, and worth keeping as a client, have you considered payment in company shares rather than cash?  As short term cashflow issue which can be managed (likely only with your help if the business is struggling) could (literally) pay dividends in later years to your mutual benefit.

Or how about some referrals - the company may be in trouble, but as has been said small businesses often know other potential clients and discuss their accountants - a few referrals and comments about how positive and helpful you are could lead to fees from new clients that would justify reducing or waiving your fees to the struggling client - you will still lose the client if they are insolvent, but would have shown you were willing to help them and so reduce the risk of being bad mouthed after the business fails - and if the owners start a new business when the economy picks up who are they going to go to?  Good service tends to be remembered, particularly when the client was in trouble and needed a lifeline.

I'd repeat what others have said though, go through a proper cashflow forecast with the client to see if the company is viable, look at means of financing short-term issues (HMRC's BPSS, alternate banking facilities, debt factoring, sale & lease-backs, etc) to see if the business is viable, if it isn't, the plug should be pulled sooner rather than later - and in particular before the director begins to trade insolvently!

A final thought, if you have 'nothing else' to do with your time (unlikely but possible in a commerical sense), your time costs nothing - 'losing' a client for a few months through not charging for your services is better than losing them permanently, so unless you can replace the client easily slugging their tough time through with them may be worthwhile.

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Photo of Peter Windatt Accountant
By Peter Windatt
05th Mar 2010 13:53

Peter Windatt

Companies don't tend to fail because their balance sheets don't balance, they fail because of cashflow problems.  Being unable to pay your debts as and when they fall due is the other test for corporate insolvency (and the only test for individuals) and trading on a limited company after the time when a "reasonable director" would have stopped could give rise to personal liabilities on the Director through "Wrongful Trading".  Their duty ceases to be principally to shareholders and is a duty to "minimise losses to creditors".

If you don't already have a good relationship with an IP I would encourage you to develop one (same goes for any accountant - get to know one before you need one!) - one you can get to know and trust so that you can get what is best advice for your client and not just another job for the IP!  There are all sorts of pitfalls and traps when the wheels start to fall off.  Directors should still be wary of any advice which requires them to pay for the IP personally, they should have short arms and deep pockets, especially where they have lots of personal liabilities through guarantees etc.  Most cases referred to IPs don't result in work for that IP.  Hopefully they will help you/your client see the wood for the trees and find a way forward, if there isn't a future then, in addition to all the costly options, there are lots of relatively low cost ones (directors, as well as creditors, can petition to wind up their company compulsorily) and if there is nothing in the kitty creditors could be informed and invited to wind up.  The Official Receivers are humans too and no one should be persuaded into the arms of an IP simply to avoid the OR.

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By Moonbeam
05th Mar 2010 14:54

My cashflow

When I see a client is in the difficulties yours is in, I say that unfortunately I won't be able to do any further work until the bill for what's been done has been paid, and at that point I will need to invoice (small amounts) in advance before doing further work. I am friendly when I tell them this, but they know from my terrier-like chasing of outstanding amounts in the past that I mean what I say.

I can't afford to work for nothing and think it's unbusinesslike to do so if the client's cashflow is grim.

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By User deleted
05th Mar 2010 15:15

Chasing fees & Insovency

Make absolutely sure that the scope of work you do does not make you a shadow director. If you think it does you need to consider your position v carefully in conjunction with a friendly IP.

By all means take shares but do NOT accept a Directorship if it is offered in the circumstances you outline

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By beverly chester
07th Mar 2010 19:40

I have been in this position several times

I have had many client's come to me that have been "dropped in the proverbial" with their previous accountants because they could not afford the fees. They have often been with larger firms who have often charged extortionate fees for what certainly looks to me like very little work done when I get the papers. As a female I have relied on gut feeling a lot with these client's but I have of course closely examined many years of previous accounts to check the trading pattern. If I think they have a viable business/are honest traders and they are the sort of client I would like to keep I have quite often done work up front with little prospect of immediate payment. It is easy to see who is in poor financial shape at that moment. If they are OK financially but things are tight I have generally set up a monthly standing order for a reasonable fee at the outset with the option of revising that up or down depending on final costs. (I don't like fixed prices as I thing Accountants either quote too high a price at the outset or only do sufficient work for the fees they have quoted which may lead to the figures not representing the trade properly and the balance sheet being qualified causing ill feeling on both sides and a potential tax investigation in the future). Over my 26 years of private practice each and every one of these clients have paid me back a thousandfold in respect for my time, consideration of my own personal needs (we have a disabled child so I sometimes have to cancel appointments at the drop of a hat as I am a sole trader) and have ALWAYS paid their fees in full, frequently on a voluntary basis before I have even asked for payment. They have almost always become good friends as well.

If you are already acting for this client you should be able to put your fees aside for the moment and look at what you know of the business to decide whether their prospects are simply dreams or potentially reality. If you think they are pie in the sky you should kindly but firmly advise your client that voluntary cessation is a better option at an early date rather than do that in the fullness of time because you are hoping you might get your fees paid in the meantime. You might be writing off what you are due but you will not be adding to the problems however I don't feel that your fees should be the primary consideration when looking at what is best for your client. I have seen the effect on health that the stress levels can cause when an insolvency situation is dragged out. The client will not like the suggestion but once the worry is taken off his shoulders and he can stop hiding from the phone, worrying who is at the door etc he will respect your advice. In any case the worst that will happen is that he will go to another Accountant and you will only lose what you were likely to in the first instance. You might even be able to come to an arrangement with the new accountant that he supports you in getting payment from the client in the long term in exchange for giving as much information as you can provide.  I have done that before and been paid.

However, if the business is viable I would suggest giving your client some leeway on fees and reviewing the position on a regular basis - say quarterly so that you do not sink too much more into it yourself. There is a difference between those that cannot pay and those that will not pay and you should be in the best position to assess which person your client is. If you support your client and work with him to help him through this difficult time you will almost certainly have a darned good client for life, if you dump him because of the outstanding fees my guess is the only thing you will earn is a bad reputation. Remember it takes five minutes to lose a reputation and five years to gain one.

If you already have fees outstanding I would suggest that you at least give your client the opportunity to set up a monthly standing order that he can genuinely afford towards paying off these arrears and then advise on how he can help to reduce your work load so that future fees do mot accumulate so quickly. My bet is that when he is back on top you would be top of his list of recommendations and he will be happy to pay the balance.

I have 148 clients albeit all small business people but most have come to me from recommendation by clients I have helped through a difficult period. I have had my share of confrontations with clients over fees but have taken the time to explain how they have arisen and have offered advice on how they can be reduced. These clients have become really, really good friends. Hey is it just me, I thought that helping clients through difficult times was the best part of the job!

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By User deleted
08th Mar 2010 09:48

Thank you..

Thank you for all your sound advice and comments.  It is the insolvency issue that worries me at the moment.  It is a new business, only a couple of years old, currently making no sales.  I do not give any advice or make any decisions on how to run the business - so I do not think I would be classed as a shadow director.  My terms of engagement stipulate what is expected of me.  He wants to give it until May - but I cannot make him put the business into insolvency.  Or should I be pushing the point more?

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By AdShawBPR
26th Mar 2010 19:41

... it's not just the money

I have a similar problem: The company is insolvent, no question, with one creditor - HMRC - to the tune of £100k.  The directors used to pay themselves dividends so had no PAYE system going.  Last year (when still with their long standing accountants) their sales dropped but they continued to take money out of the company.  They didn't have sufficient P&L reserves to pay dividends so payments were taxable and they didn't realise - now the big bill.

I took the job on - got an all clear from previous accountant - and what a mess!  (There was no fallout with the ex-accountant and I'm still talking to him.) I've not been paid and I don't know that I will be.  But I've never been in this position before and I reckon I'll get some valuable experience.  I've spoken to an IP for a view so take some comfort from that.  We're working out the exact position and will go to HMRC with that and, hopefully, a business plan showing how we think we can get out of the hole.  That's when I will know whether the business really is viable and whether there's likely to be any money in it for me.  (Fundamentally the business is good but the directors have made a big mistake and need more discipline going forward).  But if it works I'll get one extremely grateful client who owes me big time.  If it doesn't, I've given up some time, will have gained valuable experience, and who knows what these guys will get up to in the future.

Good luck with your guy.  It is all a worry, but you're the only one who can really decide, and I do think you can get something out of this besides money.

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