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Terms of payment

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
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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 (11)

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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 secondly over dependance on one client.

In my opinion the second is more important than the first. I would address this with vigour so that it becomes a less important client - this stops the accountant having to dance the tune played by the client.

With regard the first problem. Taking 30% may hurt but from that point onwards 30 days is the max time. No payment no work, builder are very good at this so you should be too. If the client leaves there is nothing you can do so do it under your conditions and control not his

Thanks (1)
nsa newquay
By adam kay
12th May 2020 10:23

When I left a big firm to set up my own small firm with my wife, I decided to not full into the same trap that so many firms do, that is allowing extended terms to valuable clients. As accountants, we should place a high value on our service, in order to maintain that service, and that includes sustainable credit terms. Over the past 7 years we have maintained strict 14 days terms or arranged monthly account payments. This has meant we have never experienced bad debt. This means this has now allowed us to offer temporary 30 days terms, sometimes a but longer, to help our clients without threatening our firm. It means we can quickly come to their help, without first having to raise the issue of overdue invoices.
If a client truly appreciates your service they will pay you. If they don't appreciate you, how can you maintain a good working relationship. Based on the circumstances, we would suspend the account and our services until full payment.

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By ShakingMyHead
12th May 2020 10:51

They are taking liberties.

You've pointed out that they're living the high life - directors living in plush mansions, and the fact of the matter is... YOU are paying for it. If you would like to live better - ask for your money. If you're happy to downgrade (so that they can stay where they are) - then accept the pay cut. I'm astonished that you'd even consider a 30% as a 'full and final' settlement. It's as if you've overcharged them in the first place?

I think every man and his dog will use Covid19 as an excuse to not pay. Just remember - this outstanding amount came about WAAAAY before this pandemic. As you said - in November, so their lack of disaster planning really isn't your problem. But because you've allowed it to creep up, it has now become your problem.

Personally, I would be extremely wary of doing any more work for these types of people. They don't respect or value you as a business because you're having to suffer hardship (take a pay cut) and they're not. They're in a mansion - living it large. It's not right. Think of all the resources you've wasted (time, effort, energy) in helping them in their business and for what? To live on fresh air for 4 months?

Taking legal action may be a step too far in this current climate (courts have a backlog so it could take a while to resolve), but if you're all still friendly, I'd suggest you ask for your outstanding fee - even in instalments. Tell them to apply for a bounce back loan and pay your bill. Point out that there is no-one to do their work and nothing to pay them with.

It is remarkable that they just seem to think you can 'exist' ?! I'm shaking my head.

Finally, promise yourself to NEVER let any one client be more than '10%' of your total turnover. Ever. Spread the risk over more clients. It's better for you.

Good luck!

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Replying to ShakingMyHead:
By [email protected]
12th May 2020 15:33

Sage words

and even if they are your biggest client - don't let them know that

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By vickyh
12th May 2020 11:16

From a purely ethical perspective I would have binned this client a long time ago "significant assets secreted in Switzerland" I think not!

Heavy reliance on a single customer is also rife with ethical issues. How can you be independent in such circumstances?

I would also not appreciate being held to ransom and would swiftly disengage and take legal action or suck it up and move on.

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By [email protected]
12th May 2020 15:29

Ask them to Settle the OS Fees before you'll even speak to them

Anything less and they will just string you along for ever

Ask yourself how much does this client cost me to service (inc credit control, cost of money etc, etc, ) the answer will probably suprise you and change your view on what at first appears to be a lucerative client.

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12th May 2020 21:03

Well at least they have not deployed the invented issues with the quality and/or standards of your work tactic. Then you do know you do have a battle with somebody who is simply avoiding payment.

This is now a new generation and its time to restate ones standards/rules of trade, ideally by sitting tight, until you reach a time when they really need you.

You could of course point them in the direction of bounce back loans, if they do not have the monies to pay your fees.

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Jennifer Adams
By Jennifer Adams
21st May 2020 19:44

Late or non payment of fees is very difficult in the current situation but I think you need to consider what you would do if the virus was not around.
I have a couple of clients who have outstanding invoices despite payment by instalments on account and I've been told in no uncertain terms that they will pay when they have the money.

Usually I would have gone into 'CCJ- mode'. That is 2 x statements then a final demand and then straight to CCJ. Usually just the threat is enough but I'm holding back because they have promised they will pay in full (not like yours and do a deal) and I know that they would pay if they could (as has been said - know your client).

However... your client obviously knows what he's at and will prob ignore any CCJ threat anyway. Also it will take a while to get to court - pre corona it was about 6 months anyway.

What is the worse is that they think they can do this and expect you to lie down and take it. I wonder whether they would not pay their solicitor?

So I would say do the last point in your list - sack them and take them to court. You will lose them but you also will have your pride in your work that you've done a good job and they are just taking the p-ss.

I wouldnt accept their offer of 30% - that demeans your work.

You will also not have to worry about them any more.
You will find other clients to replace them - ones that appreciate what you do and will pay ontime and in full.

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Mark Lee 2017
By Mark Lee
03rd Jun 2020 19:28

However lax the firm has been to date you can validly use the current situation to make clear that your terms of business have changed. As such you must be paid in full the fees charged to date (subject to any queries over the work done) before you can do any more work for a client that owes you money.

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