Save content
Have you found this content useful? Use the button above to save it to your profile.

Practice Tips - what a bill should say

15th Jul 2005
Save content
Have you found this content useful? Use the button above to save it to your profile.

I realised that the art of billing was important in the 1980s when I was working as MD of a company in Ireland. Ernst & Whinney (as they then were) audited us and used to send me fee notes from time to time. All they ever said was “To work in progress” and then requested a sum of money plus VAT. I have no doubt at all that the partner there was not happy with my usual reply which was “when you’ve finished whatever it is you’re doing, and I know what it is and that I’ve had it I’ll pay, but not before”.

Several years after this exchange began, and not until I had taken considerable periods of credit, did he begin to understand that unless he gave me the information I wanted I simply was not going to pay for an indeterminate service supplied.

Fee notes have often seemed to me to be traps for the unwary. Perhaps half of all the complaints I have received in over twenty years of practice must have arisen from mistakes in their drafting. That is precisely why I became keen on the subject. When I was senior partner of a firm all complaints reached my desk, and anything that avoided the hassle they caused was good news as far as I was concerned. As a result I think there are some basic rules on what a fee note should say.

The first rule would appear obvious. The fee note should be correctly addressed. There are several reasons why, excluding the obvious one that it is deeply embarrassing to send it to the wrong client. That’s not what I really mean anyway. The key issue here is that many clients have more than one persona for billing purposes, e.g. there are several companies in a group, and maybe the owner is also a tax client, and so on. Sending the right bill to the right person for the right sum might be critical to its acceptability - for example, one company in the group may not be VAT registered so it is highly unlikely it wants to receive the group audit fee note. Some companies do not want to be billed for tax services supplied to a director. They must be billed separately if P11D problems are not to arise, and so on.

As importantly, there may not be an engagement letter in place covering the services supplied with some of the client’s incorporated persona, but there is with others. The right recipient is the one who has the engagement letter to cover the services supplied if liability risk is to be minimised. Addressing a fee note is not quite as simple a task as it might at first appear to be.

The second rule is that the fee note must state the period over which the services billed for have been supplied. It’s not enough in my experience to simply rely upon the date of a fee note to determine the cut off point for billing purposes. There are several good reasons. The first is that this might not be the cut off point, but to suggest it might deny you the chance to bill for work done between the date of raising a cost report and billing. Secondly,  no client wants to think they are paying for services twice. Since, for many practitioners services are supplied fairly continuously whether they are billing on a fixed fee or time basis it’s vital that the fee note make clear what costs it is making claim for. So specify a start and end date for the period covered by the bill.

I think this simple addition to me fee notes saved more difficulties with clients than just about any other change I ever made. The claim that a client made that they had been billed twice for similar services described on successive bills was eliminated when it was explained that the service was either continuous, but split into parts before or after a date, and therefore different, or were in fact undertaken at quite different times and related therefore to different episodes. But do be warned. If you say that services were provided over a certain period and you bill too late (and 14 days may be too late for this purpose) then you can create VAT tax point problems in some cases unless you are on the VAT cash accounting scheme, so it is worth also bearing in mind the need to bill soon after the end of the period to which any fee note refers if this problem is to be avoided.

The third rule of billing is to say what you have done, but no more. For example, in my opinion it’s enough to say in respect of the preparation of a set of accounts: “Preparing your accounts for the period to XX 2004 from the books, records information and explanations supplied and without audit and supply of the same to you for approval.”

This is not the time to elaborate and accept more liability than you need to. But equally this is the place to make sure you have limited your liability. That is precisely why it is worth repeating here that the accounts were based upon the client’s books, that they weren’t audited and that the client was asked to approve them. The client needs to be continually reminded that they bear a significant part of the burden of risk in this type of work. Failure to repeat that on the bill exposes the firm to risk in my opinion.

The next thing to do is to make sure that any added value is clearly and separately identified. For example, preparing a set of accounts is one thing. But putting them in Companies Act format is another, so I would bill separately for this, saying: “Formatting your accounts in accordance with the requirements of Company Law.”

You can’t pass the burden of risk here. The client has engaged you as an expert. But you can still make clear it is their accounts you dealt with, not yours. And you can bill separately for this work. Which means a separate price can be shown for it.

This practice of breaking the total charge on a bill down into its components parts has also got a lot to recommend it, again whether or not the bill is time or fixed fee based. If there is ever a dispute (and there will be, eventually, with someone) this usually helps you agree that only part of the fee is under dispute, rather than all of it. Any compromise is then easier to make, and the chance of resolving the issue whilst retaining the client is increased as a result.

There are three final issues:
Clients hate being charged high hourly rates and disbursements, so keep these to the minimum possible;
State your credit terms;
Tell the client how they can pay however often you have done so in the past.

Then post the bill. Or better still, email it because anything that gets the fee in front of the client as soon as possible has to be good news.

Richard Murphy
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. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone


Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.