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Practice Tip: Culling clients

28th Feb 2005
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After my recent article, Can you be all things to all people?, several people have asked me how in practice I get rid of clients.

I think this is a good question, although I was slightly surprised it was asked until I had a look at some of the practice procedures manuals I have and the standard engagement letters contained in them. None seemed to address the issue of how the contract that the engagement letter created might be terminated. The standard wording went something like 'This letter shall remain in force until replaced'.

This suggests two things to me:
1. that, as ever, accountants are acting as if they're not in business;

2. there is a systemic risk failure in those engagement letters because the accountant isn't being given the option of getting out of an onerous arrangement.

Both are worrying. I admit I don't have this problem. For quite a number of years I have issued engagement letters that cover all the usual things that our professional bodies require and also look like commercial contracts, because that is what they are. Amongst the many additions this requires are quite extensive cancellation clauses. And the reason why they're there is that I have never yet advised a client on a contract and not said 'make sure you can get out of it'. It would be negligent not to do so in my view. So why would I not do the same for myself?

My contract / engagement letter always says that I can cancel my engagement immediately if:
1. the client goes bankrupt or compromises with their creditors (which is bog standard commercial boilerplate);

2. payment is not made by a due date.

It also provides for cancellation if:

3. either party is in breach of its obligations and has not corrected it within 30 days of being asked to do so;

4. if 90 days notice is given for any reason.

There are also usually specific contract break clauses. Examples might be:

5. in the event of failure to supply information by the end of October in the case of a tax return client;

6. failure to complete a tax return for a year by 31 January;

7. failure to supply company records within 4 months of the year end for a corporate accounting client;

8. failure to supply VAT data within 10 days of the end of a VAT quarter.

And so on. With that armoury available it's quite easy to cull clients. So, my first recommendation is to get your engagement letter rewritten, quickly, and put yourself on a commercial footing.

What happens if you haven't done this? Well, you're on dodgier ground, but in practice I have three real reasons for getting rid of clients:
1. they annoy me, which usually, but not always, is associated with an unwillingness to pay on time;

2. I don't want their work any more;

3. I've lost touch with them.

The first case is easy. I have a standard paragraph that goes into the 'goodbye letter'. It says:

'The relationship between an accountant and their client is one of trust, including trust on the part of the accountant that they will be paid on time. That relationship of trust between us has failed due to your persistent failure to pay your bills on time. As such I regret to advise you that I am no longer willing to supply you with further services etc.'

This has never failed to do the trick. There are two things to bear in mind though:
1. under Practice Assurance you have to accompany this with a 'disengagement' letter saying what services you have covered or will remain responsible for, and what you will not be responsible for and covering matters such as access to records, if applicable;

2. some people get quite upset at receiving such a letter and beg to come back. Think hard about retracting the notice and do so only if you can get a substantial deposit to be held in perpetuity against fees and a 20% (minimum) fee hike.

If I don't want the work anymore the communication goes something like this:

'As with any business we review our business plans from time to time. We have recently done this and have decided to focus our efforts on a narrower range of work than we have accepted in the past. This does necessarily mean that we have to concentrate our resources in those areas. Part of our professional obligation to you is to provide the highest quality of services that we can. Unfortunately the services that we supply to you / (or business sector in which you work) are not now in our range of targeted activities. I cannot therefore be sure that we will be able to meet this professional obligation in the future. In that case I believe I should now advise you that I no longer feel able to supply those services and regret that as a result our professional relationship must end. I will, of course, be pleased to assist you in finding another accountant, etc.'

And finally there's the client who has gone AWOL. I've noticed lots of comments about these with regard to 31 January filing dates, most saying they missed the previous year too. In which case send them a letter saying 'We note we have not heard from you in response to your tax return for the year to 5 April 200X. As such I regret to advise that we no longer consider you a client of this firm and that we shall from the date of this letter have no further professional obligation to you.' This will save enormous amounts of time and effort.

And why in writing, you might ask? Well, partly because it is easier. And because I want evidence, as in all things, and nothing is better than a letter for providing that.

Richard Murphy
[email protected]
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. In addition to accounting, writing and lecturing Richard develops and markets software tools and guides to help accountants in practice systematise their operations.


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