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Getting paid: Upfront, take a deposit or once the task is complete?

Following an AccountingWEB reader's deliberations on getting paid, Kevin Whitehouse gives his take on the age-old question: when should you charge for work?

10th Aug 2020
Owner and founder Prime Entry
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Doing a bunch of work and then not getting paid for it, or having to wait to be paid, just sucks. I know this from bitter experience.

A recent discussion on Any Answers shows that getting paid continues to be a thorn in the side of practitioners. The reader was approached for a one-off job and wanted to know whether they should charge upfront, bill later, charge 50% upfront and then 50% once the work is done.

The AccountingWEB community warned the reader to not work on credit. As one member said: "[I've] been burnt a few times by trusting people I thought I knew."

I’m going to suggest that the answer to the reader's question goes deeper. Some will suggest the answer is “it depends”, but I think that’s a lazy way of looking at this. Let’s be more analytical and break down the thought process behind this question.

First, answer a different set of questions

Being paid for a product or service is the basics of business – it’s a quid pro quo. I do something for you, in return for you giving me something, and of course, it doesn’t always have to be money.

Whether we get paid in advance, take a deposit and or get paid after we complete the job, all starts with a different set of questions. We must first establish: “What does your client want?” Followed by the next critical question: “Do they believe you are the right person to help them?”

And this part of the process is why some will say “take a deposit” or “get paid after doing the job,” because it’s a lack of belief. Sure, you believe the service you are going to deliver is your best service, you’re going to work hard, and deliver on time. But that’s kind of a minimum requirement.

Added to this lack of belief, both you and the client may not even have clarity about what it is that needs doing. Say, for example, you believe they need a budget and forecast and you know it will help them. Your client might not understand what that looks like and certainly doesn't understand what the benefit of having one will do for them.

Which takes you back to the first real question: “What does your client want?” They don’t want a budget and cashflow forecast, or a graph or a set of accounts or a tax return, because they don’t understand the benefit it gives them.

That doesn’t suggest you are wrong and they don’t need it, it simply means you haven't communicated enough. But, let’s say you believe they do understand the benefit, let’s say they really understand your reports and the work you are going to do is exactly what they want. If you have established that, do you not think they also will expect and believe that you know how to deliver this? Of course, they do.

If both you and the client know what the benefit of the task or job is and you both know you are going to deliver your very best service, then we have the next part of the analysis.

“What's the quid pro quo?” If it is agreed that you are to be paid with an amount of money, then firstly, you don’t really get to decide how much. You can quote, but that is just a figure you hope to get. Ultimately your client decides what it is worth to them, but that’s another topic on its own.

Putting that aside, if both parties agree to the amount of money to be paid for the service you do, only now do we address the question everyone is asking: “When do you get paid?”

If you are confident that your solution brings a real measurable benefit to your client, then there is no doubt you won’t be paid for what you are about to deliver and thus there is no reason why you shouldn’t demand your fees to be paid in advance.

If your client resists then you haven't answered the questions properly. “What does your client want?” and “Do they believe you are the right person to help them?”

Trust

The action of being paid in advance also speaks volumes about you and your relationship with your client, and this leads to a topic the industry says is really important and that is trust.

Being paid in advance signifies a different level of trust both ways. Your client trusts you to deliver, so much so, they are willing to pay you in advance, and you trust them that the work will be received and used as you intend.

If you wait until after you have completed the work and send your invoice expecting to be paid in 30 days, or even if you take a part payment, then perhaps you don’t believe what you do is of real benefit and maybe they don’t trust you enough.

But what about a part payment? Isn’t that a compromise? There is no compromise, you're in business to make money and you are offering your time, your service and once spent it can never be recovered. Why then should you be risking any of it to help someone else if they don’t trust you?

A part-payment would be if you don't have full clarity over the task being done, so in effect, you have more than one task and thus more than one quid pro quo.

I understand personally why the question is being asked. I’ve been running my practice for nearly 30 years and I used to lack confidence and lack knowledge about how to go about charging. I’ve done it the hard way and the easy way and know without a doubt that being paid well and being paid in advance, not only helps me but more importantly, it really helps my clients.

You might believe I’m wrong, you might be happy to have a big pile of work in progress and debtors on your balance sheet, your clients might also be happy to trade that way, just remember you have no right to complain and moan when you don’t get paid because there is a better way.

Replies (11)

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By jonharris999
11th Aug 2020 07:30

Interesting, Kevin. But - you could equally argue about "trust" to the opposite conclusion. By giving my client long payment terms, I demonstrate my trust; and I do so in a way which brings a marketing/BD benefit. Of course, the risk that I will not be paid is a cost for that benefit. But I can consider that cost as well-spent in just the same way that I might consider (say) advertising, or sponsoring the programme for the school play or the rugby club, well-spent.

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By Rgab1947
11th Aug 2020 09:50

Turning to the "trust" which seems to imply a lack of trust somehow can be blamed on you not being confident or whatever.

Turning to reality, some people are just not honest or plain selfish. Some (like one client) is a borderline (harmless) psychopath but if it comes down to his steak/wine and me getting paid I know exactly who gets the short straw (me and he will show no guilt whatshowever and will not understand why I am upset.)

So no trust has nothing to do with the quality of my work or whether I correctly identified the clients real need. Its do I trust the b*gger whom I dont know. Answer? No!

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By graydjames
11th Aug 2020 10:01

I am glad I do not run my practice in this arrogant manner. I cannot for the life of me see why not asking for money up-front means I don't believe that what I do is of real benefit or that the client does not trust me enough. On the contrary, trust means acting in a business like and proper manner and expecting your money when you have done the work. That is the normal quid pro quo. It is the way most people expect to work and with good reason. Yes, I expect to be paid on presentation of my invoice, but, with occasional exceptions for one-off jobs for new, previously unknown clients, I do not expect to be paid for work I have not yet done. I do not think my clients would respect me in the same way that they do if I worked in any other way.

I have a few slow payers, but I have not had to write anything off in years.

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By jonopus
11th Aug 2020 10:54

Personally think it is insulting to ask a new Client to pay up-front.
God forbid we become like the legal profession with their mandatory up-front payment demands. Instead we offer 12 month interest free payment terms which Clients greatly appreciate and win on the PR and referral front-In 25 years very few Clients have reneged on this.

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By BryanS1958
11th Aug 2020 11:09

As I am currently having to take a couple of clients to court for not being willing to pay for work they have asked to be carried out I am firmly in the 'get paid before you give them the goods camp'. Not necessarily cash up front, but at least cash before the client gets something they can just go and file themselves.

Clients say 'why didn't you tell me it would cost more because I asked for more or my records were crap or I was always late supplying information', the answer is that we do not know in advance how long it will take to sort out their crap, etc and I have no wish to spend my days getting authorisation to do the work, then getting re-authorised if more work is needed than anticipated and so on (and on and on) - all this is my time and my clients would not want to pay me for that time, so it would end up being lost time or I would need increased charge out rates for other work to cover the additional non-chargeable admin time.

Nor do I wish to join the race to the bottom with fixed fees - my fees would either have to be very high to cover every eventuality and ensure I make a profit, or they wouldn't be fixed because I would need a hundred get out clauses:-)

To be fair, luckily the majority of my clients are 'happy' to pay my fees. I have found the clients least likely to pay are those that want the most and do the least amount of work themselves to help keep costs down - one of life's lessons, I can now recognise them a mile off!

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By Gillian Mill
11th Aug 2020 11:22

I seem to fall between two camps.
I offer a monthly payment plan to existing clients who appreciate the help to their cash-flow. This covers their standard annual workload and any extras are agreed in advance and charged on completion.
New clients are offered the monthly plan for accounts and compliance work with extras and variable fees (such as bookkeeping) charged at the end of every month even if the work spans more than one month.
Any new client who doesn't want monthly is charged 50% in advance for the bigger jobs as I've been caught out before.
We have a fees sheet which we hand out at first meeting so there's no surprises.

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By peter morgan
11th Aug 2020 13:19

Now data is real time Accountants should be closer to clients and delivering value on a different cadence to the old days. Monthly fixed fees with an annual review works great - bill the value as you go, and build in the year-end stuff as it should be proportionately quite small given the ongoing work. If you have to bill on completion, at least take a deposit as the client is then invested in getting the data to you as they want the job done quick.

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By peter morgan
11th Aug 2020 13:19

Now data is real time Accountants should be closer to clients and delivering value on a different cadence to the old days. Monthly fixed fees with an annual review works great - bill the value as you go, and build in the year-end stuff as it should be proportionately quite small given the ongoing work. If you have to bill on completion, at least take a deposit as the client is then invested in getting the data to you as they want the job done quick.

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By David Gordon FCCA
13th Aug 2020 14:52

ok
Personally I do not understand why between grown-ups there is still this ongoing discussion.
When I first started in the profession Mr Maione the tailor would bring in his papers, the firm would charge him ten Guineas, and collect the money when he brought in the next year's papers.
Those days are with the Dodo.
Consistency and certainty are the words. I have said previously:
I interview the new client. I assess and ask him to sign a monthly standing order for fees, for a twelve month period. That is it. If the person will not sign- I do not take him on.
Client gets a summary of what accountancy and tax and or other services included in the s/o
We both get consistency and certainty. Job done.
I know I will be able to pay Tesco each week, client knows that a meter will not start ticking every time he/she may pick up the phone.
System has worked beautifully over more than twenty years.
Yes, there will be one-offs and or specials, nevertheless the core costs of my practice including my basic remuneration are predictable because covered by s/o. (within bounds of human fallibility)

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By AndrewV12
14th Aug 2020 10:59

'The AccountingWEB community warned the reader to not work on credit. As one member said: "[I've] been burnt a few times by trusting people I thought I knew." '

Yes I have had my fingers burnt by trusting people I thought I knew...and trusting quite a few people I did not know.
Another point is the amount of time that needs to be spent chasing Debtors, a DD has to be the way to go. but its like everything else it all goes around on trust, until there is a four year correction.

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By CardiffAccountant
16th Aug 2020 14:10

Seems to me that this article is about two things: a) what is the client buying/what are we selling. b) when do we get paid.

a) we provide ‘peace of mind’. Mr Electrician client, you go and ‘fit plugs on kettles’ and I’ll make sure your accounts, tax return, payroll etc is taken care of.

b) depending on what the client wants, generally agree fee upfront. Subject to size of fee (dictated by amount of work) will agree an interim payment. Final payment taken before release of information. For regular clients, agree a monthly payment to cover the expected annual costs. Always agree that should additional unexpected work be required, then a one-off additional fee is charged.

Seems to work for both us and clients. Never been questioned about upfront fees.

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