The accountant's guide to fees and billing
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.
- Introduction and Philosophy
- Key Lessons