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Top 10 Tips For Improving Recovery Rates

20th May 2010
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 As I travel the country and meet with accountancy practices I am often hearing the comment, lot of fee resistance, recovery rates are owe etc.  I am not a great fan of recovery rates, I prefer marginal decisions eg will I make money out of this client.  In the longer term the limiting factor in most accountancy practices is partner time so recovery rates are still important.  Here are my top tips.  Enjoy!

1. Get the fee right!

The number one factor determining recovery rates is the fee. In a straw poll done by us over 100 firms we asked "How much would you charge for a set of limited company accounts, corporate tax return and a personal tax return for the sole Director?" The accounting records of the company are in Quickbooks, the analysis is good and the bank reconciliation takes about 3 hours as most of the time the Director puts in the bank statements himself and balances the figures. Tax returns are basic.

The fees charged varied by over 250% depending on both the location but mainly on the attitude of the partner to charging fees. The lowest was £750 and the highest £2,500. Presumably they all had broadly similar cost bases.

2. Weed clients

Some clients just won't pay you the correct fee and the time spent in fee disputes is not worth the aggravation that will inevitably follow increasing the fee. The guidance is that we should weed 10% of our client base every year. In year one this makes very little difference but over a five year period you can dramatically change the way you do business.

Weeding clients only works if you have good quality new clients coming in at the top end. This is why marketing and selling is important even if you are "busy".

Remember someone else's good clients may also be your bad clients - so they are eminently sellable.

3. Ask good clients for referrals

People deal with people who are like them. If you ask your best client for a referral then they are likely to send people who appreciate what you do. Similarly your most fee resistant clients are likely to refer you only because you are cheap.

4. Have an idea of the elasticity of demand for your services

If you increase your prices by ten per cent what percentage of your clients will you lose. The answer for most firms is almost none. From our experience the demand for accountants' services is inelastic for two reasons. First clients deal with you because they trust you and it takes time to build up that trust. Second the size of the fee is often just not large enough for them to worry about. Our caveat to this is that there is a "glass ceiling" above which the client drop off rate increases dramatically.

5. Make sure the job is well planned

A well planned job generally will improve recovery rates dramatically. The rough rule of thumb is that about 20% of the job should be spent on planning, 65% on doing and 15% on finishing off. If the planning percentage is put too low then the recovery rate reduces. Put in practical terms, if you just tell the staff "the client is ready, go and finish the audit" but don' t tell how not to over-audit you are asking for trouble. Software can help. The new electronic audit software takes [in the slightly tongue in cheek words of one consultant] copying last year's audit file to new heights. You need to think through the process to make sure it is done well. This takes planning.

6. Keep the right level of staff on the job

This takes careful work planning to make sure that the clients who are bringing their work in are those who fit the staff available. It is best to plan in all clients and warn them if they bring their books and records in late the price goes up.

7. Consider Outsourcing

Well I would say that wouldn't I!  Certain sorts of work lend themselves to outsourcing particularly well. This is particularly true of computerised records with a high analysis or reconciliation work content.

8. Train your staff well

Many firms try and avoid training saying it costs a lot of money. Generally not training staff costs even more money - think of how time consuming first year trainees are!

9. Set budgets for jobs

If you do not tell staff how long you expect a job to take then unsurprisingly the work expands to fill the time available. Ideally the staff should agree the budget before starting as then they buy into the process.

10. Don't link the budget to the fee

I remember saying to a partner once "the reason my recovery rates are so low is because your chargeout rates are too high and your fees too low" [I had a short career at the firm - even though my comment was largely correct.] The length of time a job takes to do is nothing to do with the fee on a job otherwise our pro bono work would not take any time at all. Using budgets is a way of controlling costs not setting fees - fees should be based on the value to client and what others are charging.

I hope you found the foregoing useful. If you need any help you can contact me via Witney Accountants or Accounting Outsourcing (the accountancy outsourcing division of Smith Kennedy Limited).

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