We are a small practice and have always operated a 30 day time to pay with regard to our bills to clients. This seems to be mighty generous (especially in todays economic climate) and does not stop people taking the michael and extending this- sometimes taking 3 months or more to pay. We do have a late payment interest and fee clause but very rarely use it because of the hassle.
We need to review our billing and debt collection procedures because it has caused us cash flow problems in the past and wonder what works for other small practices. For instance, we are considering rewriting our letter of engagement to shorten the time to pay to 14 days with a formal letter following if payment is late and then another stronger one if 2 weeks late etc. but this does become time consuming.
In severe delay cases we clearly have to make a decision as to whether it is worth keeping the client as it is usually those who are last to pay that are the first to moan. Other things to perhaps consider are getting money up front or getting people on standing order.
What we do not want to do, though, is to upset any of the many good clients we have with a wholesale change to more draconian measures
All thoughts gratefully accepted!!
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Our method
Unless a client is on monthly direct debit, we ask for 50% up front, and the balance on approval of the draft accounts, or tax return.
We never hand over the accounts, or submit accounts/tax until the final payment is received.
Once you have submitted the accounts/tax you have given away any incentive for the client to pay quickly.
If we get a rush job, or an overdue tax return, we ask for 100% up front.
We never get any resistance from existing clients, and many just pay 100% up front voluntarily. The occasional potential client objects but we don't bend. I think (am fairly sure) that the people who object would probably be the bad payers anyway and I am happy for them to go elsewhere rather than do free work for freeloaders.
Pay or no can do
We never hand over the accounts, or submit accounts/tax until the final payment is received.
I'm the same where clients don't pay in monthly instalments.
Most clients do pay in monthly instalments by standing order and welcomed it, it takes the pressure off worrying about cash flow which saves a huge amount of time.
Start billing monthly
Presumably you offer tax planning or management advice during the financial year of your clients. It may be a good idea, therefore, to invoice monthly; payable by standing order/direct debit.
I do that and it certainly helps with cashflow; I am rarely owed anything. If a standing order bounces then I don't do any more work until it is paid (maximum loss = 1 month's fee). If I do one off jobs, then I invoice after I have completed the work but before that work is presented to the client.
I would never go back to invoicing in arrears and chasing payment for weeks/months on end.
EDIT: ShirleyM beat me to it - by 3 minutes. Gadzooks!
Time to pay - don't do it
We started to move our accounts clients and larger tax clients on to standing order a few years ago and we have had quite a lot of success with that, although you do need to spell out precisely to the client exactly what the standing order does and does not cover.
For one off projects and clients that have not moved on to standing orders we give them a fees quote when we receive the books. We carry out a quick review of the records to ascertain anything obvious that is going to blow the budget and ask them for 75% on account before we start work and the balance before anything is submitted to companies house or HMRC. This gives the client the opportunity to discuss the fees with you before you start the work and gives us the opportunity to establish any risk of blowing the fees budget, both sides know exactly what to expect.
Anything outside of these scenarios are offered a 7 days payment discount and we chase for payment as soon as the 7 days are up. We try to do this across the board and discuss it with clients at meetings and reiterate our terms in the records request letters.
We also had a nightmare with allowing clients time to pay a few years ago and it takes a lot of hard work and time to recover from it - and it is not pleasant working through it. Like you I was worried that existing clients would be averse to changes - they were not, in fact a lot of clients were pretty supportive.
Don't be worried about asking for payment up front - most of your clients are in business or have been in business so they should understand the mechanics of cash flow. More recently I am finding that new clients are actually asking either to pay by standing order or to pay an amount upfront as they are getting used to the fact that most professional services providers require monies up front.
You are not a bank so don't let your client's use you as one. Banks do not like to see large debtor balances in accounts and will probably restrict any help they can give you if things get tight because of it.
There will always be one or two clients that still think that paying their accountant is something that can be done when they feel like it - you need to clamp down hard on them and don't be worried to withdraw your services if they fail to pay on time. You have already mentioned that you are spending a lot of time chasing debtors - think how much more productively you could spend that time if you can turn it around. It goes without saying that if you are expecting clients to pay promptly then you also need to carry out the work promptly to meet your side of the bargain so in the much bigger scheme of things getting bogged down with late payers means that you are letting down your good paying clients.
Spell out your terms clearly to your clients, reiterate them in your letters of engagement, your request letters, your letters sending the accounts and on your fee notes - and don't be afraid to use a good debt collector if you have to. You have to get it right - you are funding other people's businesses or lifestyles by giving them time to pay - who will fund yours?
Good luck
Time to pay
Thanks very much for the feedback.
This is very valuable and does seem to spell out the way we need to go i.e. up front fees and monthly standing orders. What is reassuring is that there has been no upsetting of existing good clients.
Me and my partner will have a good discussion about this at the weekend, over a decent bottle of wine (or two) and set changes in motion!
Clients prefer monthly payments
Most of our clients prefer monthly payments by SO so don't be afraid to ask. We issue an annual invoice and stagger payments half before year end and half after. This reduces our admin time. We also believe that this removes one of the barriers (anticipation of large bill) to bringing books in promptly after the year end so reducing the chasing letters/emails too.
The Others Have Said It All
Standard procedure should be payment of a considerable proportion before work starts, and the balance at defined interval(s) to ensure full payment at the least on the day the work is complete, if not sooner. Monthly or quarterly payments are always in advance.
Standard terms should be invoices payable on presentation, confirmation of bank transfer acceptable.
You're not a lending bank so why act like one?
David Winch
How do I migrate from 30 days to SO in advance
Like the OP we too have always worked on a 30 day time to pay with regard to our invoices. The majority of clients do so but there is a hardcore who drag things out to 3months, 6 months or occasionally longer
I too have thought about moving to a monthly SO but my hesitation is not that it would upset existing clients, I think that most of them would welcome it, but that it would hit my cash flow even harder.
If all of my clients have a ye of 31st March, when do I start charging them for their 31/3/13 accounts? If as the suggestion seems to be that I start charging them now so that we can get 12 instalments into place that means that those clients who have not yet brought in their ye 31/3/12 accounts (100% as of today) will be paying for next years accounts before we have received, completed or invoiced for this year.
Or do I wait until this years figures are done, which could be anything up to mid-Jan 2013 and then put them onto an SO for the April 2013 accounts
I think I have just answered my own Q!
If I warn them now that we are moving to SO system with effect from 2012/13 ie for all accounts with a y/e after 6/4/12 and we put the SO in place as soon as the invoice for 2011/12 is raised then that would work for most clients except those who bring their bags in this year in January 2013 but bring next years in in April 2013. Hmm Then I end up exposed again!
For those who have successfully migrated existing clients from 30 days to SO in advance, how should I best go about it?
Many thanks
Martin
Progressively
I found that we had to do this progressively - start by talking to clients and get a feel for how they react to the concept. Of they join the POA scheme part way through the year then spread the POA over 3/6/9 months at first depending on how long you have to the next cut-off point, then do the full 12 months spreading. It won't happen with all of your existing clients but we have got to the point where we are happy with the mix.
At the same time shorten your time to pay arrangements with clients not on standing order - we gave them 7 days and operated a discount scheme to encourage earlier payment and for regular stuff like payroll we added on an admin fee for clients not paying us on standing order.
All new clients with fees over £200 are asked to pay on standing order and we find that most clients actually prefer it. If new clients refuse to pay on standing order we tell them that we expect 75% of the fees when the books come in and the balance payable prior to submission of accounts and returns. If we don't get the money up front we don't do the work.
It is all about managing clients expectations and turning around their way of thinking - if you tell them what your policy is then they know what is expected of them.
When we first started bringing this on board we were in an awful position with around 50% of our debtors book standing at 60 days and more. It took some doing but now we have turned it around we have very few that exceed 30 days.