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How do fixed monthly fees actually work?

How do monthly fees work in terms of the point at which an accountant is engaged?

Hello.  Thanks for reading.

I recognise that many accountants are moving towards a fixed monthly fee for accountancy services, rather than the old annual fee note system.

How does this work in terms of the point at which you are engaged?  For example.

Today is 14 February 2018.  I meet three new Ltd Co clients all of whom wish to pay monthly, as follows:

Client A's year-end was 30 June 2017 and I would be preparing and submitted accounts within a month
Client B's year-end is 30 April 2018 and I will be preparing and submitted accounts around June 2018
Client C's year-end is 31 January 2019 and I will be preparing and submitted accounts around March 2019

Under my current system, I would:

Client A - bill 2017 and probably 2018 upon completion and then start a monthly standing order in July 2018
Client B - bill 2018 upon completion (June 2018) and then start a monthly standing order in July 2018
Client C - offer monthly standing order to start April 2018

As you can probably tell I am still thinking along the lines of an annual invoice and 12 payments on account.

I don't know how to transfer this to a monthly fee system:

If I start Client A on a monthly standing order, I would be preparing 2 years worth of accounts within the first 5-6 months, and losing out
If I start Client B on a monthly standing order I would be preparing 1 set of accounts after 5 months.  What if they then decide to terminate the engagement?
Client C is much more straight-forward, but is it far that I would probably take 12-15 months payments, before doing any work (if no VAT/payroll)

Thank you

Ryan

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14th Feb 2018 10:38

It works however you would like it to.

It always seems highly dangerous to me to have clients in arrears myself.

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14th Feb 2018 11:01

The starting point IMHO is to distinguish between whether your clients will be paying monthly instalments or monthly subscriptions. Here's my take on the difference between the two:

The former are similar to your electricity direct debits: overpay and you'll receive a refund (and vice versa). It follows that if your client ups sticks and leaves halfway through the year then you owe him a refund of six months' instalments.

The latter are akin to your mobile phone contract: if you don't use up your monthly minutes or texts included in your subscription package then you'll receive no refund. It follows that if your client departs mid-year then you owe him nothing, nor he you.

I guess the instalment model matches well with an annual service / annual fees, especially where these are variable; whereas the subscription model is better geared for a monthly service / monthly fees, especially where these are fixed.

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By Maslins
14th Feb 2018 12:14

Agree with I'msorryIhaven'taclue re subscription model. For smaller clients where you're not just doing year end work, but holding their hand throughout the year, payroll, VAT, bookkeeping assistance etc, it's not really one annual set of work. It's regular work, with the statutory accounts just being a small part of it.

In terms of your examples, what we'd do in brackets afterwards):
Client A's year-end was 30 June 2017 and I would be preparing and submitted accounts within a month
(big up front fee, monthly from 1 Mar)
Client B's year-end is 30 April 2018 and I will be preparing and submitted accounts around June 2018
(small up front fee, monthly from 1 Mar)
Client C's year-end is 31 January 2019 and I will be preparing and submitted accounts around March 2019
(no up front fee, monthly from 1 Mar).

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14th Feb 2018 12:41

Ditto-ish here - I've been running an annual subscription model for 10 years, providing a quote for the year commencing 1 April, for all work expected to be needed in that year, then sending them one bill, that they can pay off in 10 instalments.

The benefit of this is that there's only one, rather than 12, bills to worry about and that, over the years, more and more clients just pay it off in April.

I am however prepared to be flexible over any client who wants to move during the billing year. So, if I've billed them for the year to include the accounts or tax return and they want to leave before I've done those then I'll come to an agreement with them over a fair credit note to reflect a retainer element and any work I have actually done so far in the year.

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14th Feb 2018 12:50

Assuming that the only thing you;re doing for them is the YE work, we would
A: bill for 2017 accounts, split the 2018 bill into 4 months (March - June), then bill monthly from July 18 in advance.
B: Either split the 2018 bill in 2 (March + April) or bill it as 1 on completion, monthly payment from May 18 in advance.
C: Monthly payments from Feb 18 (or in reality March 18, starting with a double payment).

My logic is that when I do the accounts is irrelevant, I want them to have paid for the relevant year before I do it. Otherwise you can end up in a tricky situation whereby they've paid, say, 4 months, you've done the PY accounts then they leave.

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By marks
14th Feb 2018 22:16

Our monthly fees are based so they have paid their fee by their year end or fee paid before we submit anything if they have a catch up period.

So in your case

1. We would bill the 2017 accounts when done to catch that year up and once paid we would submit with CH and HMRC. Monthly DD to be set up from March spreading the 2018 accounts over 4 payments then normal DD from July 2018 to cover the 2019 accounts

2. One off bill when we prepare the 2018 accounts and once paid then we will submit. Monthly DD to start from May 2018 to cover the 2019 accounts

3. DD to start in March spread over 11 months so 2019 fee paid by Jan 2019 then normal DD from Feb 2019 to cover the 2020 accounts.

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14th Feb 2018 22:46

Yours truly went through a routine of offering new entrants a half-price deal for their first year's accounts, on the basis it was better to charge those whose accounts were eleventh-hour imminent something rather than nothing.

The backfire with that was start-ups, 21 months in, had their first accounts prepared at half-price. Ouch! Anything up to 33 months of hand-holding before your first decent payday! Whose silly idea was that? Avoidance recommended.

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