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Practice cash flow management: Get paid on time

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21st Apr 2017
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Why is it that practitioners are very good at advising clients on how to manage cash flow yet often fail to get paid on time for the work they do?

This feature on cash flow management is in two parts and looks at why it continues to be an ongoing issue for many practices as well as giving simple solutions to try.

Why is it so important?

Everybody knows the answer to this question. Practitioners continue to fail to address the issues of unbilled work in progress, irrecoverable time write offs, lack of available working capital to grow the business and invest in training and recruitment, fee disputes, bad debts, unhappy clients, struggling to pay their own tax and VAT bills, unable to draw down adequately on your current and capital accounts, decreasing the value of your firm and therefore selling themselves short when it comes to succession planning… the list goes on.

The problems practitioners face

Practitioners can hide behind the excuse that it is the economic climate and clients becoming increasingly demanding and unwilling to pay for the work completed. Similarly, they can’t find suitably experienced staff and recruitment is a costly process and there is no control over staff choosing to leave. Staff want more money yet these costs can’t be recovered via charge out rates.

The painful truth

Clients do not dispute fees. If the service is excellent and they value you as an adviser then they feel they are getting value for money. When a client complains about a fee they are really complaining about your service offering. You run the risk of losing that client to a competitor.

Successful firms look after their staff, have a documented business plan and work planner to identify recruitment needs ongoing. They adopt an ongoing recruitment policy to attract the best people, systemised interview processes are in place, individual training and development programmes and a flexible remuneration package are provided to suit the individual staff members’ needs. Staff are invested in and valued and know it - therefore they stay with a firm and give fantastic service to clients.

There are separate articles on how to improve both client service and recruitment processes if you need to review these areas of your firm.

How to start to turn things around

Many practitioners claim the problem is just too big and will take too much time to address. They don’t know where to start - especially if there are a large number of clients and more than one partner in the practice.

The easiest place to start is at the pre year planning meeting. If you haven’t already agreed a fixed fee then this is the ideal time to do so.

A word of caution; when agreeing fixed fees and payment plans for the year ahead ensure the client knows this doesn’t cover any debtor balance still outstanding or unbilled work in progress. There have been cases where clients agree a standing order and fixed fee plan for the first time and assume it covers all debtors and work in progress as well as the year ahead. You need to be transparent, put what you agree in writing and cover these three areas:

  • Fixed fee for the work you are going to do in the year ahead
  • How will the client settle any existing debtors balance
  • Is there work in progress to bill out and how will this be paid

Many firms new to this process decide to talk to each client and agree a new plan at the next client meeting or point of contact. They start with their largest clients and work their way down. Following this approach systematically means that within six months the majority of clients are on a new plan and the cash flow starts to improve. It makes the change in policy manageable and shows positive results immediately.

Summary

Now is the time to Spring clean your practice and move towards having negative work in progress and a positive bank balance while being able to draw out all profits made.

 

In my next article I will look at how to deal with some of the challenges you may be faced with.

Replies (3)

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By BrendanJ
25th Apr 2017 10:40

Ah I love this topic and so glad you addressed the part about really defining the scope of the initial offering.

Fixed fees are great for all involved, as long as you aren't lazy and just let the work pile up beyond the scope of the original offering.

Instituting a review period doesn't hurt either. Around their year end is a good idea. Check that their monthly fee still reflects the hours you are putting in.

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By Kaylee100
29th Apr 2017 16:27

I'm lucky in that we don't have any of these issues so I don't need to change from chargeable time basis, quarterly bills for VAT and payroll work and annual bills sent with accounts for approval. However, I've often wondered about fixed fees and how they work in practice.

I've a handful of clients who I know would be on the phone weekly and email constantly if I offered a fixed fee. Time cost billing controls that. How do you manage these sort of clients or do you not have them? Are the fixed fee terms very restricted in terms of these "extras".

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Chris M
By mr. mischief
06th May 2017 20:30

I am 100% fixed price for every client, of which there are 145. In 7 years I have only ever felt 1 client abused the free phone calls.

Conversely clients feel free to raise issues at an early stage, this means I can nail down little issues before they grow into big ones. Many clients raise this aspect, that they raise issues with me they did not with previous accountants due to the notion that the meter would be running and the phone call lead to a bill.

Quite often these calls lead on to extra work and fee variations.

I write really tight letters of engagement. So for example if a client says they are going to be giving me view access to download statements, and have good separation between business and personal, that is in the letter of engagement - on page 1 well before all the tedious legal drivel.

It often happens that clients indulge in mission creep, of course. At that stage, before undertaking the extra work, you raise a fee variation. It either gets accepted or not. If not, I won't be doing the work. If that leads to any sort of kickback then I walk.

I decide who I want as a client. I can honestly say that where I am now there is not one single client on my books I dislike, not one single one where my heart sinks when I get a phone call or e-mail from them.

In my first few years I had quite a lot of clients I felt that way about. Basically I needed the business back then and now I don't.

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