On average it takes anywhere from 31 to 44 days on average to collect payments for B2B businesses in the UK, including accounting and bookkeeping firms. This seems a little crazy to me.
If you’ve done this correctly, you’ll have had a great contract or engagement letter drawn up (either digital or word doc), and at this point both you and your client have mutually agreed on the scope of work to be completed, by an agreed period.
Now if you take this one step further, you may have, by chance, even agreed on a set of fees up front with the client, so they know exactly how much you’re going to bill them based on the scope of work you’ve both mutually signed and agreed upon.
So far so good. You’ve got a signed, legally binding contract, you’ve done your AML checks. But - have you talked about billing the client yet? Was this even discussed?
When you let your clients dictate when they pay you, you’ve given up control of your cash flow. Based on my estimates from all the conversations I’ve ever had with an accountant or bookkeeper, some clients will be good (maybe 70%), some will be poor (20%) and some will take you for a real spin and do your head in (10%).
At this point if you actually sign off and allow your clients to pay you when they feel like it, you’re doing it wrong. You’ve got one chance to truly set up your clients for a successful working relationship with you and you’re missing the point right here.
Who should be in control of your cashflow? Your client or your firm? The obvious answer is your firm, but in a lot of cases, the silly answer is that accountants are letting their clients dictate when they pay them.
When you agree on the scope of work and even better agree on the fee structure the next best thing you can do is set them up on a recurring billing schedule or at best capture their billing information up front, whether it’s recurring or not.
At this point you minimise your risk of never getting paid for work you’ve mutually agreed to do.
If you don’t even have an engagement letter at this point with your clients, then I fear you’ve got worse problems then letting them decide how good or bad your cash flow is.
The alternative to this: you’ve had a great meeting, you’ve defined a clear scope of work, you’ve agreed on payment terms AND THEN you’ve captured your clients billing information up front, whether for recurring or adhoc/project work.
At this point I can make the assumption that unless your client has given you dodgy billing information or their payment just happens to be rejected on that specific day for life reason (meaning we all have those days where a payment doesn’t go through for that unexpected reason), I’m anticipating you will have next to no debtors.
After all, you’d never recommend your clients carry any debtors, and I’m sure you would be advising them to improve their billing process, in order to minimise their debtor risks.
We’re in digital age where the entire industry is moving towards a value based pricing billing model (and if you haven’t yet you probably will one day), you’ve introduced monthly and/or weekly billing, you’re adding advisory services to your compliance clients and seeing a 20% lift in fees on average (probably).
From the business model to the way you interact with clients, the accounting profession as we know it is changing every month. Let’s get smarter about how we build our businesses.
Besides cashflow, the second best thing about this zero debtor model is your team will never have to chase a client again for a late payment. They’ll never have to have an awkward conversation on when they’re going to pay your bill.
Remember the bill you both mutually agreed upon. The one you both signed off on digitally or physically whilst agreeing what the fee structure was. Where there was no way in the world this should be a problem because you did the right thing, and they seemed trustworthy, and you both just hit it off really well.
The reality is every client can be a great client until you give them the option to do the right thing.
Take the pressure away, implement a suitable payment process that you’re both comfortable with and remove the tension. Remove that risk.
Now THIS is a great time to reassess your billing and payment process and ask yourself one question: who is in control of your firm’s cash-flow? Is it you? Or is it your clients?
And with that now being said, please let your path to carrying ZERO debtors in your firm begin.
About Trent McLaren
Winner - AccountantDaily Thought Leader Of The Year for 2017
I lead a team of spirited people looking to make a difference in the accounting industry as we know it. Elimination of debtors, automated invoicing and the thought of never having to touch your firm's billing again is a reality we deliver to accounting firms all over the world.
I believe that in order to achieve your goals, you must be a leader and a believer. Your peers need to feel part of something real and exciting in order to succeed. Turning up to work is just not enough.
I believe in creating a positive environment that stimulates and motivates people. An environment that allows people to grow, develop and most importantly enjoy their work.
I am the head of accounting at Practice Ignition, a Sydney based start-up born out of an accounting firm, Interactive Accounting. We eliminate debtors and automate your invoicing through our digital proposal and engagement letter builder solution. We service 1000's of accounting firms around the world including the United Kingdom.
In prior roles I have extensive history with Intuit QuickBooks, Xero, eWAY (online payments) as well as the retail sectors.