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How to agree fees and avoid disputes

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4th Apr 2016
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Finola McManus explores how practitioners can agree extra work with their client and without causing disputes.

Fees and how to charge for work done and recover your time is an ongoing issue for practitioners. Whilst fixed price agreements become the norm it is a challenge to identify what is included within that fee and what is outside the scope of the fixed fee. Then there is the issue of how to discuss and agree extra work with the client and bill it separately.

How often have you spent time and energy researching and delivering advice to a client only to find they don’t appreciate what was involved and are unhappy to pay for it? This leaves bad feeling between both parties and is a situation that can easily be avoided.

The golden rule is to never do any work on a client’s affairs without agreeing the fee with them first.

If a fixed fee agreement is in place then you have to exercise discretion about what element has been allowed for within that fee to cover incidental phone calls and e-mails. As a guide, I suggest that if you have to go away and research or put something in writing then that work is likely to be beyond the scope of the fixed fee. In such cases, have a discussion with your client at the start, explaining what needs to be done and the likely cost. They then have control to decide if they do actually want that level of advice and are happy to pay for it or if they didn’t realise what was involved and it was only a passing thought. In either case you don’t end up with unrecovered time or the client with an unexpected bill. Both parties are happy and the client relationship preserved.

A partner has the experience to deal well with the above scenario. Challenges often arise when it is other team members who are expected to exercise discretion. Talk them through what you would do and get them to shadow or sit in on discussions with clients when you are addressing such a situation. This is valuable training.

Accounts preparation work is another area where the partner agrees a fee and then the time taken to complete the job, due to poor quality records, bears no relation to fee or budget!  For the purposes of this article we will assume it is not a training issue that is causing the over run on budget. You need to address this at the planning stage. Even the smallest of jobs should have a brief planning discussion. Talk about how you arrived at the fee and what standard you expect the records to be in. The team member should then be trained to report at the earliest opportunity if the job is taking longer than budgeted. It is at this stage you have the discussion with the client. Explain what extra work needs to be done and why the records are not as originally quoted. Give the client the choice to take the records back and rectify the problem or offer to take care of the issues and agree an additional fee for the extra work done. If you leave such discussions until the final accounts meetings it is often too late.

A client shouldn’t have to pay an unexpected bill. It is your role to ensure all fees are agreed at the earliest opportunity- no different from any other customer/supplier relationship. We can’t assume the client/trusted adviser relationship justifies charging and expecting to be paid even when the client didn’t fully understand what was involved in the work we do before we complete it.

There is a growing trend to abandon time sheets and measure production through service target levels. This works well for firms who have a streamlined service offering based on basic throughout of compliance work. Even firms such as these still have to put systems in place to ensure there is a mechanism in place to provide business advisory and additional support to clients and agree additional fees upfront.

Practitioners will say that the nature of some advisory or tax work can’t be measured and quoted for in advance. This holds true is some cases and one solution is to agree a weekly phone call to talk through what work has been done and at what cost and billed out on account with a settlement plan in place with the client. Keep records of phone call discussions and this will avoid any confusion going forward.

Value based charging is still popular with some practitioners especially for tax planning work. This really is at the practitioner’s discretion and depends on how well they know their client. Some clients will like this ethos whilst others will prefer a more traditional charging method based on time spent as opposed to value of work done. No two cases will be the same.

Taking on new business start-ups is another area where fees agreed are ‘spent’ in the first year set up process and long before the first trading period accounts or tax compliance work is completed. There should be a basic fee set for the first year, payable in monthly instalments to cover set up and support at the required level. Three months pre year end a meeting will be held to review the level of trading activity. It is at this point you can agree the fee for the first years’ accounts and compliance work. How can a practitioner quote a new business start-up what their first accounts will cost when they can’t accurately predict the volume of transactions or level of trading activity?

Transparency is the key, I believe. Clients respect a straightforward approach and much prefer to agree a fixed fee for the year ahead as far as possible to include compliance work and regular business advisory meetings. They will usually be happy to agree that any additional work be agreed in advance as the need arises. This approach preserves good client relations and helps them manage their own cash flow. Clients often leave and go to a new adviser on the basis of ‘poor client service’. In reality, the real issue is usually unexpected bills and fee disputes. Fees weren’t agreed in advance and the practitioner is left not wanting to spend any more time on a client (hence perceived poor service levels) whilst the client doesn’t understand why they aren’t getting the attention and advice they need. Don’t fall into this trap.

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By johnjenkins
05th Apr 2016 09:02

The article says

"How to agree fees and avoid disputes". yet the first line says "How to agree EXTRA work".

It's about time you "added value" merchants stopped trying to con us into conning our clients.

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Replying to tom123:
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By VIOLA26
05th Apr 2016 11:31

You've got an exotic bird picture on your profile - perhaps it should be a dinosaur!

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By Michael C Feltham
05th Apr 2016 09:24

My Approach:

Is very simple.

A new client signs a contract note which specifies the task/s agreed. This contract refers the cient to the practice's "General Terms and Conditions of Business"; and a copy of this is sent/delivered to the client, together with the Letter of Engagement, which itself, further delineates the task/s and duties. I will not lift a pen until the contract note is signed and returned.

However, it is expressly stated what are deemed "Extras" and the cost of disbursements.

If I meet a prospective client and early on it is abundantly clear they are "Fee Shopping", then I wish them well and depart.

If clients are unable to recognise the service provided and its value, then personally, I do not want them.

It is all too easy to waste many hours, for example, on sending and receiving (and considering) emails: the clever clogs client will, if allowed, treat their accountant as a free advice service; if you let them!

I won't.

 

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By pauljohnston
05th Apr 2016 10:58

We extensively use fixed fees

For those projects we cant we advise the client of the hourly rate keep him/her advised of progress and try and bill regularly.  From 30 April we will bill monthly once the accumulated time is above a set limit.

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By johnjenkins
05th Apr 2016 11:39

Correct me if I'm

wrong viola but aren't dinosaurs much loved and are the longest species to live on this planet. They must be doing something right eh.

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Replying to Hugo Fair:
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By VIOLA26
05th Apr 2016 11:55

They're extinct!  Outdated! 

They're extinct!  Outdated!  Even lawyers now accept that to remain competitive (and perhaps even in business and norecognise that they have to move away from a time spent on the clock basis to a more value added proposition

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Replying to exifern:
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By Michael C Feltham
05th Apr 2016 15:23

Hm: Added Value - Again!

VIOLA26 wrote:

They're extinct!  Outdated!  Even lawyers now accept that to remain competitive (and perhaps even in business and norecognise that they have to move away from a time spent on the clock basis to a more value added proposition

Ha ha!

Bearing in mind major lawyers are the top experts in bill-padding...

What are you suggesting, VIOLA, accountants transition to the private dentist model?

Hygienist £120 hour: normal check up £75: "Oh well, you urgently need a root canal treatment; which will cost £850...."

Porquoi? A professional's time is loaded by various cost factors, as with any other business: establishment, ICT systems and annual software updated, staff.

Essentially, one costs any business activity on its latent cost basis.

Perhaps we should move to an American model? Engage with clients on a time/risk/reward (i.e. Contingency) basis?

Unfortunately, time is embedded in any business: be it manufacturing, distribution and logistics and professional practice.

A fee quote can only ever be an estimate of probability.

Added Value: doncha just love al these ersatz "Management" buzz-speek words and expressions?

Any accountant in practice MUST add value to a client's business and/or personal wealth affairs: if not then the client is a disaster zone and thus so is the accountant.

ALL professional activity must by its nature of what they do, Add Value: Surveyor - spots problems: Lawyer - hopefully (Grits teeth) sorts problems:

Doctor and particularly, consultant: "Well Mr Patient, sorry to inform you, we have carried out all the correct diagnostic tests and you are suffering from Glencarry's Knuckle Syndrome, which can be fatal".

"However, we can cure this!"

Value Added: the patient now, hopefully (Tooth Again Gritted) will not pop his clogs. And thus gains the value of more years of life.

 

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By Ian McTernan CTA
05th Apr 2016 11:56

Client Satisfaction

This article reminded me of a conversation I had with a long standing client of mine not so long ago.

We got around to discussing the level of the fixed fee to be agreed for the following two years (he's a long standing client, been with me for 10+ years, mature business).  His attitude was that he knows it doesn't take that long to deal with his affairs normally (I've told him this in the past several times) but he regards the fixed fee as a retainer, knowing he can pick up the phone or email me with a query or a thought and know I'm not keeping a clock on it. He knows I will bill additional fees if it gets beyond a certain level and is also happy with this, and also knows if his queries ramp up then the fixed fee will be adjusted to reflect this.

My advice to people with fees if to establish with new clients what they expect from you rather than dictating to them how you want things presented, and then tailor your fee to what the client expects and how they keep their records rather than what you dreamt might turn up.  You can avoid a lot of year end problems by taking a look half way through the year, or even quarterly if it's a VAT registered business.

Another example I have is a new client using Cloud accounting software, who's determined to do it themselves.  They are a new start up.  They are on my usual fixed fee for a small limited company.  I am spending a lot more time on it than I thought I would, but they are slowly getting the hang of things.  Rather than lump a newco (with cash flow issues, as is normal at their present stage) with a large extra bill, I'll happily wear the additional time costs as I know that next year everything will be running smoothly and I'll both increase my fee with a happy client and be spending very little time dealing with their affairs.

Remember it's not all about extracting maximum amounts in the shortest time, it's about building relationships that last.  Know your clients- if you treat them as numbers, then don't expect any loyalty.  And whatever you do, never compete on cost (unless that is your business type, expect huge turnover of clients).

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By johnjenkins
05th Apr 2016 12:08

Are you an ex banker

by any chance Viola? We won't discuss the mess they got into by "adding value".

Dinosaurs are not extinct. Have you not heard of Jurassic Park.

I take your point about lawyers. When I went to see mine the other day he asked if I wanted to see his juggling act or was it the new jingle he put on his website. See I know all about the jingles that are supposed to endear you to a particular thought process.

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By ShirleyM
05th Apr 2016 13:12

Just for info

Birds are descendants of dinosaurs. :)

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7om
By Tom 7000
05th Apr 2016 14:43

as long as

You tell them in advance what you are going to charge then charge exactly that,,,no arguments..

 

Its down to you to decide what you think is fair....and if they dont like it they can toddle off somewhere else

 

we are all different

dinosaur

exotic bird

polar bear

penguin

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Replying to paul.benny:
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By North East Accountant
06th Apr 2016 09:22

Pray do tell

Tom 7000 wrote:

You tell them in advance what you are going to charge then charge exactly that,,,no arguments..

 

Its down to you to decide what you think is fair....and if they dont like it they can toddle off somewhere else

 

we are all different

dinosaur

exotic bird

polar bear

penguin

We would love to and do on all Accounts, Tax, VAT jobs etc.

We act as trusted advisor to many clients and we have numerous "projects" that are unscopeable at the outset.

I would appreciate your input into how to do so on these type of jobs, for which may thanks.

 

 

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