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Don't call us, we'll call you – Time to cull your clients? By Rob Lewis

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30th Jul 2007
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Way Out signThey never ring, they never write, they won’t even send you their bank statements – and don’t expect a cheque any time soon, if at all. How are you supposed to work with these people?

One AccountingWEB member recently told of her experiences with three new clients who had been subjected to “daylight robbery” by their old accountant, claiming one had been charged “literally thousands” on leaving. But when it comes down to getting paid for the work you’ve done, where do you draw the line?

“It’s an ethical argument,” says Sandeep Takwani, head of ethics and assurance at ACCA. “Certainly, we would say to the incoming accountant you should encourage your clients to settle up with your own accountant on the basis that you could be on the receiving end.”

From the billing perspective, large fees often occur because the client has proven troublesome, and the accountant was reluctant to continue acting for them. The problem is, rushing to judgement about who you do and don’t want to work for can leave you missing out on business. “It’s a matter of judgement,” as Takwani puts it. “The fees won’t really sway it one way or the other. You need to find out what the client’s about.”

He ain’t heavy, he’s my client

Keep an open-mind, is the advice of Swansea-based Keith Ferguson, chairman of the ICAEW’s sole practitioner panel. After all, if there are awkward clients, then there are awkward accountants too. “There have been cases where clients have come to me and they’ve been very badly treated by their previous accountant, and there have been clients who no accountant could make happy,” Ferguson says. “There are two sides to every story.”

But how can you know? There are the usual warning signs, like late documents, unanswered queries and outstanding fees from your predecessor, but none of them necessarily mean the client should be turned away. Tardiness and general non-cooperation can, and should, be factored into your billing structure.

Ferguson admits that billing is an art rather than a science, but says careful reviewing of every invoice means he’s only had two queries in 23 years. “As to outstanding fees [from the previous accountant], our responsibility is only to remind the client he owes the money,” he adds. “That’s very clear in the ethical guidance we have from the Institute. Although, if he has been a difficult client, it puts you on alert right at the start.”

Only as a matter of last resort has Ferguson ever told a client he can no longer act for them and usually it’s been because he’s been asked to do something unethical. He’s never tried to jettison unwelcome business by multiplying his fees, although he knows of accountants who do. “What never ceases to amaze me is that quite often the client pays,” he says.

If things do turn out for the worse and bills are left unpaid, accountants have two-time honoured means of debt recovery at their disposal: exercising lien over client records and the solicitor’s letter. Ferguson says both have proved fairly successful for him, although withholding information “leaves a bad taste” in his mouth. While lien can be a legal and ethical quagmire, if it gives an accountant the security needed to take on a client he might otherwise reject, perhaps it serves some purpose.

“A bad client isn’t necessarily a bad person,” Ferguson concludes. “They’re nice people, a lot of them. That’s part of the problem.”

Don’t call us, we’ll call you

Nevertheless, if you want shot of the problem, get shot of the people. That’s the advice of ‘client cullers’ like Steve Pipe, chairman at AVN, who argues there’s actually a sound business case for waving goodbye to your less desirable customers.

“It’s a strategy that many firms have adopted and found to be exceedingly successful,” says Pipe. He cites author Ron Baker’s airline example of maximal versus optimal capacity as his winning model. Switched on airlines leave a significant amount of capacity at the front of the plane for people who are willing to pay 10 times the price, the argument runs. It means empty seats on every flight but airlines know that reserving capacity for the right sort of customer pays dividends. In fact, it makes up most of their profits.

If they followed suit, accountancy firms could reap even greater rewards, Pipe believes. “I’m talking about unappreciative, demanding customers who never look for any additional services,” he says. “Even if they’re not actually loss-making, their contribution is marginal. Much more importantly, they’re swallowing up your capacity for better clients and cheesing off your team.”

The only other way of creating capacity is to recruit more staff and wait for the work to come in. However, this requires up front investment. Dropping clients you’ve sweated blood to win might not be too appealing either, but the business case is compelling. If you have the time to build a relationship with top-end clients, not only will they pay you that initial fee, their requirements for additional support will grow too. “Because you can spend the time on them, your lock-in factor is massively higher,” Pipe explains.

It may be risky, but in terms of the overall market, doing nothing may be an even riskier proposition. Alan Taylor, ICAEW’s director of practice innovation, has already expressed concerns about outsourced accounting. It may work very well at the moment, but what happens when the outsource provider begins to sell to the client direct?

“Smaller firms who offer the really routine work are going to be lost, unless they want to compete at £10 per hour.” says Pipe. “To me, that’s another reason why you’d want to focus your practice on better quality clients.”

Emotionally, it may be a wrench. The mantra many accountants have is that any fee is a good fee. However, Pipe doesn’t suggest you show your clients the door: it won’t do your word-of-mouth any good, for starters. “Take them to market,” Pipe advises. “Selling off the bottom end of your client base is the closest thing to white slavery we’ve got.”

There may be somebody who’s willing to take those clients off your hands for one times the gross recurring fees, potentially five or six years’ worth of profits for no further work. However much they make you want to tear your hair out, there might be someone down the hierarchy who aspires to the kind of clients you’ve got (or, at least, someone who’s never met them).

Your cast-offs are somebody else’s crown jewels: that’s the message from the proponents of yield management.

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By MartinLevin
01st Aug 2007 12:56

Cull your clients
My practice dis-associated itself of six troublesome "C" category clients some years ago. The time that was released was phenomenal. They were replaced by better quality clients, but the Practice's time was able to be spent on much better quality work, with increased client satisfaction.

The fact that my Practice for years has issued each of its clients (where relevant) with a FREE ABC ACCOUNTS BOOK (£8 to outsiders) has also cut down the amount of time in-house. Clients have good records that have been used in defence of any attack by HM Revenue & Customs. Clients are also in control of their businesses. They DO appreciate this service.

In short: classify your client into "A", "B" and "C"s.
Look after the "A"s - they look after you;
Tolerate the "B"s - they might become "A"s; BUT
Kick Out the "C"s - they are timewasters

Issue them with good book-keeping records (like the ABC Accounts Books)

www.MartinLevinABC.co.uk

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By Chris Smail
01st Aug 2007 13:41

Once upon a time
I worked for an importer who sold onto the wholesale markets. We had salesmen who contacted their customers twice each week and then we delivered into the markets.

The man who owned it all had a rule that no salesman could properly look after more then fourty clients. At the end of each financial year each salesman was required to drop his three least profitable clients (just total gross margin, no arguments) and recruit three new clients.

This rule was very strictly enforced (it was a German firm) and in thirty years was profitably distributing world-wide.

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By User deleted
01st Aug 2007 15:08

Easier said than done!
For the past few years I've been dealing with the tax affairs of someone who has been a client of the firm for 50 years or so. He's pleasant enough to deal with but always baulks at fees and,perhaps of his long standing connection,has always got away with fees of very much less than time occupied costs,even allowing for the time spent on fee disputes and other excess time. I decide that I'd had enough of this and told him that the fee would have to increase considerably,about double what he had paying,to reflect the actual costs. I told him that he could probably get his tax affairs dealt with cheaper elsewhere and that I'd even suggest some alternatives to him. That's the end of that,I thought,but he responded by saying that he didn't want to change and would pay an increased fee!! Moral of the story is,of course,that we should have called his bluff much sooner.

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