The accountant's guide to fees and billing

19th Jan 2018
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In the old days, billing was often relatively easy. Clients were grateful for good service and therefore it was possible for many accountants to look at the fee for the previous year, increase it by about 10% for inflation (those were the days) and receive payment by return. Now it is rarely that simple.

This series has been written with a view to helping those in practice to maximise their income by ensuring that their policies and procedures around the creation of fees and billing are optimised.

While one would expect the primary target might to be those who are going to send out the bills, clearly anyone working in industry can also learn a considerable amount about how best to negotiate with professional providers by understanding some of the tricks of the trade.

The watchwords that will probably save vast amounts of angst are care and control. Rather than blindly rushing in, you should always take a few minutes to consider the impact that your fee or proposal will have on the client. Then make sure that you are fully prepared for any response, ideally heading off obvious negativity and the potential for anger leading to a protracted debate or even fight leading to the ultimate loss of your highly valued client.

In the cutthroat world of commerce, a great deal of emphasis is justifiably put on bringing in new work and instituting efficient working practices.

Sometimes, it seems to this writer that too many accountants neglect some very basic steps that will guarantee that their recoveries are maximised, while cutting the associated administration time, particularly at partner level, to a minimum.

Perhaps more pertinently, when colleagues carry out exit interviews to determine why clients have taken their trade to other firms, the most common answer is that fees were too high. While this might sometimes be a simple get out to avoid embarrassment on both sides, in many cases it is probably the truth.

This means that getting fees right not only makes life easier but it also helps you to retain highly valued clients, which is one of the main ways to preserve and eventually grow your practice.

One way of looking at this topic is to consider how much effort it would take to bring in an extra £1,500 of fees. For the moment, let’s assume that your charge out rate is £200 an hour.

Put simply, assuming that you can recover 100%, which is very optimistic, it will take a day of your time to make this money. At 50% recovery, it would be two days.

On the other hand, if you are negotiating a disputed fee with a large client and can persuade them to pay £11,000 rather than £9,500 you can bring in exactly the same amount in five minutes. I know which of these choices I prefer.

It is sometimes also necessary to decide whether your goal is short-term profit or long-term prosperity. Charging clients more than they are comfortable to pay on a single project will generally result in reluctant payment after a period of argument.

However, it might also persuade your client that there are other accountants in the market who will treat them better. Even if you do not get direct pushback to what is perceived to be an excessive fee, the client could still be smouldering and waiting for an opportunity to leave. In addition, if friends asked them whether they are happy with their accountants it isn’t difficult to guess their answer.

Having said that, many very successful firms have an unstated business model that is based on charging high fees, while accepting that this may result in higher than average client turnover.

In practice, far too often, those responsible for this area of business leave everything until the last day of the billing month/quarter/year and then try to sort bills out in a mad, unconsidered rush. The inevitable consequence is that far too little care is taken and fees are sent out that are not as high as they might have been, clients are antagonised and you and your colleagues end up with a headache.

It is easier to propose than achieve but spreading out the work over a number of weeks will be a considerably pleasanter experience as well as almost certainly leading to a series of much better outcomes.

In the same way, anticipating potential problems can make them (rather than the clients) go away.

This series will attempt to break down the billing process into a number of stages before a final article summarises the key points that might help you to attain something a little closer to perfection.

  1. Introduction and Philosophy
  2. Quantification
  3. Communication
  4. Overruns
  5. Negotiation
  6. Key Lessons

Replies (8)

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Hallerud at Easter
19th Jan 2018 20:19

The philosophy applies to all business entities, not just accountants.

We are a property group collecting just under £1million of rents a year, we set our rents keenly because when one adds up the lost rent re voids, the professional fees finding and documenting new tenants, the costs like rates and insurance lost during voids, a philosophy of keeping things more modest, not trying to max market rates, in the long term works- we secure a long term stable cashflow with few interruptions, with the added bonus that tenants stay loyal and when they need to increase space or reduce space they will think of us as their first port of call; some of our tenants have occupied a number of our properties during their evolution over twenty year periods, and this is units normally running on 3-5 year lease terms.

The other consideration is that the current crop are known knowns, with new tenants one does not really get a feel for them re paying on time, do they moan about trivia etc, until you have them as tenants.

Chasing existing business away with higher prices is foolish as you have no idea what you will get in their stead.

I agree with your philosophy completely and believe more business entities ought to spend far more time on what they have and less on chasing new business; one only needs to think of utility companies and their awful service levels, the need to constantly monitor your agreements with them, to appreciate that customers walk on both price and service but if a business treats them fairly they can be retained for a very long time.

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By Tom 7000
23rd Jan 2018 11:49

I was speaking to a big car sales business... he said the secret isn't what you sell it for, its what you buy it for....

Think on that mes amies

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By Ian McTernan CTA
23rd Jan 2018 12:13

I'm lucky in that I don't compete on price. A lot of my clients are also on fixed monthly fees, so they can call/email any time and not expect a big fat bill for their efforts- a major cause of other firms losing clients.

Clients don't like unpleasant surprises, so if something over runs this year don't send them a massive bill over and above what you quoted. Explain to the client that it took a lot longer than you planned for, but you won't be charging for it as you quoted and it's important that you stick to your quoted price. Tell them how much the over run was, so they can feel your pain. The client will be extremely pleased!

You can then raise the issues of what went wrong, and how the client can improve information supplied to reduce the amount of work it will take next year. Then set your fee at an appropriate level for next year- and more than likely the client will be happy to agree the higher fee. Include caveats regarding the changes you expect to see- if they don't happen, then the client knows how much extra it will cost them in advance, and they can decide whether that is worthwhile to them.

It's usually much better to wear one year's problems and retain a happy client than try and maximise 'yield' from every client and lose them.

Thanks (4)
By Barry Adams
24th Jan 2018 17:46

All our clients are on fixed monthly fees. Our clients know exactly where they stand. Rather than spending time on time sheets and billing we spend our time working with our clients.

Thanks (1)
By North East Accountant
25th Jan 2018 09:15

How do you do fixed monthly fees for work that can't be scoped in advance such as Enquiry case etc?

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By indomitable
26th Jan 2018 12:22

People buy people! Not services! You can try and analyse as much as you want why someone leaves. Invariably in most cases it is down to a breakdown of trust.

You should never be too expensive or too cheap and it is easy to check your fee levels in the market.

Clients most of the time DO NOT base their decision on price. Those that do I prefer to let go, which luckily hasn't happened that often.

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Replying to indomitable:
By North East Accountant
26th Jan 2018 13:39

How do you check you fees in the market?

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Replying to North East Accountant:
Hallerud at Easter
26th Jan 2018 21:52

A Google search re other firms to see which ones quote on their website is a starting point, not perfect but gives some sort of ballpark parameters on which to check one's own pricing.

You can also chat with friendly firms .

I had an outline conversation with someone I know at another local firm early this week (we act for different members of the same family) as I mentioned I was thinking (cannot make up my mind) if I should just pack up before VAT MTD arrives (have been sitting on my hands to get a clearer view of what will be needed ). I was not sure if the sorts of fees I charged would be too cheap for them if I passed them some of my clients, however we were not that far apart. (If I do pack up I want my clients to go to good homes, people in the profession I know and trust)

Over a working life you must get to know a fair few of the opposition, and be on friendly terms with some of them, albeit I do find it strange that most are now younger than I am.

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