Ex-client = bad debt?

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Firstly, I apologies for the anonymous post - I know it’s not the done thing, but ...

I took on a client about 18 months ago, who outsourced their entire finance department to us; weekly bookkeeping, monthly  payroll, bank payments, monthly management accounts & all compliance. This isn’t an unusual service for us to provide. Clearly not an insignificant amount or work, or fees, hence why I have a 3 month notice period in my engagement letters (I know that some larger firms that have a similar offering have 12 month  notice periods).  

After unanswered emails / calls / texts chasing info for 2/3 weeks, I received an email from a more local, smaller, cheaper set of accountants, requesting immediate professional clearance. Naturally I tried to speak to the client, who continued to ignore me. It was very near the end of the month (and their vat quarter), so I released the payroll info so the wages could be run. Still not hearing anything from the client, I issued him with an invoice for the 3 months notice that he hadn’t given me. Suprisingly, he rang me within 5 minutes, saying he wanted to leave on good terms, liked me, but wasn’t going to pay it etc etc. I insisted that he did, but a few weeks later released the info for the 75% of that quarter’s VAT info, on the 6th of the following month.

The client and the new accountants have both said that the 3 month invoice won’t be paid. The new accountants have asked for a breakdown in fees charged v billings. In an attempt to appear willing to reach a compromise, I sent them a summary report from our timekeeping software, showing that time far outweighed fees. The new accountant have queried this, basically saying that I’ve made it up (which I haven’t). They requested a far more detailed breakdown and asked how I could have so badly quoted for the clients work as well as some other things they shouldn’t be concerning themselves with with. I politely wrote back and told them that how I run my practice is up to me. 

I am currently holding 9 months worth or client paperwork, which the new accountants are coming to collect (it’s legally the clients). They also asked for a CSV download of the bookkeeping data (suprisingly not the management accounts  working papers), which was completed on a Xero subscription, paid and NOT recharged by me, to which the client didn’t have any access. I know that we’re not meant to withhold anything, but I’m not planning on releasing the bookkeeping data unless my invoice is paid. I have offered a 25% discount to cover the fact hat I’ve not done the first year-end account & tax - about 1/2 days work as I have management accounts for that period. 

 

So so the questions are:

1. Am I in the wrong?

2. What would other people do?

 

Thanks. 

 

********* UPDATE *******

I’ve just received a letter from the new accountants demanding I respond to their letter questioning my charge out rates and time recording, otherwise they will take legal steps. As a reminder, a fixed fee was agreed with the client in the engagement letter and was paid for the 10 or so months until they left. 

Unless I’m missing something basic, what possible legal matter could they be on about, and what relevance does my time charged to the client have if a fixed fee was agreed? Surely I’ve not gut anything to worry about? 

I want to reply and say mind your own business, it’s a) nothing to do with you and b) not relevant anyway. Not sure that would be productive, so may just continue to ignore their letter(s). 

 

Thanks for all all the advice so far, and I will be chasing them for the unpaid as per your suggestions. 

Replies (10)

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By Tim Vane
16th Jan 2018 08:47

1. Stop talking to the new accountants about your bill, it's nothing to do with them. Deal with the client only until the bill is paid.
2. Raise a claim with moneyclaim online to get your client to pay up.

Thanks (3)
By Tim Vane
16th Jan 2018 08:48

Duplicate

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By mrme89
16th Jan 2018 09:07

If the client had wanted to leave on good terms, they would have a) contacted you before the new accountants and b) not ignored your calls.

I would not hand over any information / paperwork to the new accountants unless you have written permission from the client to do so.

As Tim had said, if they don't pay up, then I'd sue them. But before starting a claim, I'd follow the usual procedure of a letter before action once the terms of the invoice have passed.

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By andy.partridge
16th Jan 2018 09:52

You rushed to act instead of sitting tight. Why on earth you released payroll data to the new firm without having approval from the client to do so in anyone's guess. You would have soon had the client's undivided attention if you had ignored them. Anyway, that over-eagerness has highlighted the weakness in your strategy which has been exploited.

Why on earth you are persisting with the new firm and sending timesheets etc. in odd in the extreme. Cut it out. Do you think they are independent arbiters or something?

Bizarre.

Just go through the county court moneyclaim online process and stop trying to be nice to people who are being [***] to you and will continue to be so.

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Replying to andy.partridge:
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By Maslins
16th Jan 2018 10:30

I basically agree with what Andy said, but I would've said it nicer :)

It seems you care more about the client's business than they do...this is kind of honourable, but it's worked against you.

Don't get into any conversation with a new accountant about whether they're better than you/vice versa...inevitably they'll be feeling a bit superior because the client is moving to them from you. They'll likely regret it in 6-12 months when the client is grumbling about them instead of you.

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By Vaughan Blake1
16th Jan 2018 12:06

Handing over the payroll info without your clients written permission was very wrong indeed!

Even with authority, don't under any circumstances give the new accountants anything other than the bare minimum and certainly don't discuss your unpaid fees with them.

I hate it when a client leaves and the first you know about it is a letter from another accountant, I think it is just discourteous. Why therefore make it easy for them? My reaction is to acknowledge the new accountant's letter along the lines of "we are awaiting instructions from our client in this matter, as we have no authority to forward stuff".

Then depending on how miffed you are you can:

1) Do nothing, and await your client's instructions.
2) email the client saying that you have had a strange letter from X and can they shed any light on it. In the meantime you will not do any further work for them. Then do nothing until you get a reply. In view of the payroll and VAT this latter method would have been the most suitable.

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By pauljohnston
23rd Jan 2018 10:00

So now you have been (too) nice its time to get tough. Goto https://www.thomashiggins.com/ andthey will issue a letter advising of going to court. Dont reduce your fee (you said 25%) you can use it as a bargining tool if need be later

As others have said do nothing more.

If you have to go to court you dont need to use Higgins I did and had a phone call offering a credit card payment for the lot.

Sadly we all go through this learning curve. I would suggest in future that you consider the Amazon approach ie fee up front - at the begining of the quarter.

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By David Gordon FCCA
23rd Jan 2018 11:11

If you are truthfully recounting the matter- you are being taken for a ride.
The papers may legally be the client's. But you may still exercise a lien, my car service garage will not release my car to me unless the bill is paid, even though it is not the garage's car. The garage has case law to support it.

Is the new accountant an ICAEW or ACCA member? If so send your statement to the professional body with copy to the new accountant, and ask ICAEW to comment and or arbitrate.
Also ask your PI insurer for help.
You are going to lose money on this so why panic. Let them sweat.

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Character from Adam Sandler film "50 First Dates"
By 10sectom
23rd Jan 2018 11:47

With regard to the Xero/data withholding issue. I have been through this. Legally, you can hold an asset as a lien against payment. Unfortunately, one notable exception to this is data. This was also confirmed by the ICAEW, who I consulted as I was being threatened with being reported for professional misconduct. I was holding the Xero subscription and decided to transfer it to the client.

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Replying to 10sectom:
ALISK
By atleastisoundknowledgable...
09th Feb 2018 23:24

I posted this question a few weeks ago - who owns the data. Xero’s rules I thought were a bit unclear but I ended up thinking the person who had the subscription. HMRC rules as other did (and have in this) say that the data, no matter who created it, belongs to the client.

WRT the fees, ignore the new letter - if the client / new accountants what to waste time & money chasing a dead end, let them. Just respond by sending your letter before action, followed by the court claim.

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