Partner An unnamed firm
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When a client refuses to pay fees

How much leeway would you give a major client in the current circumstances? The Imprudent Accountant considers a tricky case when a client refuses to pay fees.

11th May 2020
Partner An unnamed firm
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Terms of payment

Over a convivial beer and glass of wine respectively, separated by about 40 miles, my friend Charlie and I were discussing a coronavirus dilemma faced by the firm from which he retired as managing partner a couple of years’ ago.

Its biggest client has a number of different interests underpinned by a large blue-chip residential property portfolio. Apparently, depending on the activity in any year, this client represents between 15% and 25% of the practice’s fee income.

Long ago, my pal took three years to reel in what is effectively a family company, sweetening up the father with so many invitations to Arsenal that it would have been cheaper to buy him a season ticket.

The old boy is now 90 plus, living in an expensive private care home having transferred control of the business to three sons and a son-in-law.

According to Charlie, their business has been booming, each of the directors lives in plush mansions and the property portfolio is solid although, as my friend and I accept, how solid can anything be in the current disaster scenario?

Here is the issue that we were discussing after Charlie’s successor called him for a candid discussion. Despite the fact that standard terms require payment within 14 days and most clients settle fees in a month, this group runs at 90 days which quite often extends to 120 days.

It is sod’s law that by mid-March, every fee from November was outstanding and was larger than usual, including work on a significant consultancy project and the final audit.

The firm was as strong as most others but has been watching clients facing what could be terminal difficulties and felt the need to furlough most admin and junior staff, including the credit controller.

In any case, on this account, the current managing partner is very much hands-on. She has been liaising with the management about the unpaid invoices from before the world had ever heard of COVID-19. Despite knowing that the firm was well aware of significant assets secreted in Switzerland, the Board has long pleaded poverty.

Given the importance of the relationship, this was accepted, albeit with gritted teeth and a wry smile. Indeed, Charlie said that this group was literally a permanent agenda item at meetings of the management team.

The next paragraph will come as no surprise. As soon as the lockdown occurred, the group sent out an email explaining that it had no funds and would not be paying any suppliers. There would be no exceptions.

In this scenario, the firm would literally struggle to survive, unless partners cut their drawings massively. They did anyway to be on the safe side.

To add insult to injury, the brother who manages the group has been in touch to commission a big financial restructuring project, necessitated by current events. On being asked about the outstanding fees, he first sold the sob story about having no money, then said that, as a big favour, he would be willing to try and persuade his brothers to inject 30% from their own funds if this would be accepted in full and final settlement.

The options

As the third or fourth wine and beer went down (I had lost count by this stage), Charlie and I argued over the approach that we would take. Broadly, there were the following choices.

  • Take 30%.
  • Try and do a deal at (say) 50%.
  • Carry out the new project and accept that there is going to be a long delay in getting paid.
  • Agree to do the new project but only if outstanding fees representing (we argued over this) 100% to 150% of its value were paid before commencement, on the understanding that this would be equal to 2 to 3 months of unpaid bills.
  • Accepting that the client was likely to threaten to take its account elsewhere, refuse to do any further work until full payment arrives.
  • Sack the client and take immediate legal action.

We amicably disagreed on the best solution. What would you do?

Replies (10)

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By Refs1
11th May 2020 22:47

As I have advised one client recently there is plenty of work out there - more than we cope with at present. Please explain what incentive is there to open your file over another client? This is true situation and we got paid fairly quickly. Know your client is key and others we will happily give six months extended credit as always been good payers.

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By ireallyshouldknowthisbut
12th May 2020 11:11

The first thing I would do is open their accounts package and look at their current bank balance.

Accountants are in a unique position with when it comes to debt payments as we have much more information than normal suppliers. I would not be shy in making those facts known. When dealing with dodgy clients who don't pay, you need to play dirty.

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By pauljohnston
12th May 2020 10:19

The problem apperas to be two fold. Poor payment history and maybe bad debt and second