When it comes to running a fledgling accountancy firm, there are two big things you have to do. Firstly, you have to win and retain new business and secondly, you have to make sure your practice gets paid on time. These are the two basic blocks of building any business, never mind accountancy practices.
If your clients don’t pay you, or delay paying you, then put bluntly, your business will not grow, you will not flourish and you will likely fail.
So, the big question is, how to make sure you get paid on time? This article will provide you with some tips to help you along the way.
Issues with late payments
An in-depth report compiled for Sage by independent consulting firm Plum examined the impact on small to medium-sized enterprises (SMEs) when invoices are paid late.
It concluded that:
- Late payments are a significant issue, which can cause SMEs to curtail investment, reduce staff bonuses and pay, and in turn pay other suppliers late
- Late payments come from all types of firms, meaning any action to tackle them should not be targeted at only one size
- Often firms are told there is no reason for the late payments, indicating there is a great opportunity for intervention
- Late payments are most often not chased to protect client relationships – meaning a shift in culture is required to reduce stigma of chasing payments.
So, what can you do to solve the problem? You have to work at it. The best chance to do that is when you first sign up a client and set the ground rules – the terms and conditions of your relationship. Starting on the right foot will help in the long run.
Utilise direct debit
Firstly, if this is retained business (business that occurs every month and not just a project), get your client to pay by direct debit. You’ll get paid on time and it takes the temptation away from the client to delay payments either through forgetfulness, or tactics.
Now, getting a client to organise a direct debit is not always easy. The client might feel this is constricting (because they will occasionally have to delay a payment), or shows a lack of trust. Now, this comes down to how firm you want, or need, to be.
You might say, no direct debit, then no relationship. You might say, well fair enough, it’s worth the risk in that it may be a prestigious client, you’ve asked around and they treat their suppliers well, or the client has their own payment policy and a direct debit is not part of it.
You could say of course:
Dear client, you have two options, either organise a direct debit or pay half up front immediately and the remaining half after 30 days.
When taking on a new client, and when references and checks are not always up to the job, there is nothing wrong with asking for some form or surety such as a direct debit, or upfront payment. After all, you are risking your own money and why should you do that, unless the client gives some confidence that you will be paid. Remember, there is no point in having a client that does not pay.
Keep on top of invoicing
Now, a new relationship is the ideal chance to have a clear deck, to put things in place so as to avoid any embarrassment later on. But what about an existing relationship, where your invoice relies on the good grace of your customer?
The trick here is to stay on top of your invoicing. And to understand that, what a stable business requires is a stable cash flow. You want an even flow of money, not huge peaks and troughs, because the calls on your business will be regular: wages, rents, loan payments and so on will be asked of you every month.
So staying on top of your invoices will make life easier, although ironically, even for many accountants, this gets left to the bottom of the in-tray. But the key is to invoice quickly, to monitor the progress of the invoice and stay in touch with your client until that invoice is paid.
But, whether you get the direct debit organised, or get some money up front, or decide to give your clients 30 days’ (or indeed 60 days’) credit, then you must invoice immediately.
This is made far easier with accounting software, which allows you to create and issue invoices within minutes.
This is vital – if you delay your invoice, you risk your client saying it has not been received in the agreed time and therefore not in their system, and open to delays. You cannot really complain about that, as finance departments can be sticklers for rules and generally unbending when it comes to applying them.
Once the invoice is in, track its progress. Make sure your client has received it, the right person has received it (maybe the buyer needs to forward it to their finance department) and it is logged in their payment system. Take nothing for granted. Don’t wait 30 days hoping that everything is fine, wonder where your money is, then ring up and discover no one knows about your invoice.
Treat each invoice with full care and attention. And don’t worry if you feel that your client will be offended by your professional approach. If your client is as good as they think they are, they too will be doing the same thing with their customers. No one can really accuse you of being too professional when it comes to being paid.
Top payment tips from accountants
Paul Donno is the managing director of 1 Accounts Online Ltd. He says: “Clearly set out your payment terms to your customers and stick to them. Automate your software to send statements and reminders and keep your bank feeds up to date so that you have the information available to know who is not paying.
“Look at your trading terms and collection methods. Our accountancy business only accepts payment by direct debit. This is one of the conditions of being a client of ours and we don’t have any trade debtors.”
Sid Moore is the owner of Moore Accountancy. She says: “Here are a few things we like to do. Get a direct debit or standing order for invoices so that clients are paying over the year for the service.
“If it is a small job, then the invoice should clearly state the terms, seven days, for example. After eight or nine days, then automatically chase the client, and then weekly thereafter.
“Thankfully we have a low debtor ratio. If it is outstanding for over a month, then we will start mentioning late interest accruing – which is in our letter of engagement – and call the client too to find out why they have not paid. If they are in financial difficulties, then we will actively work to get a payment plan as some money in is better than none.”
Final thoughts on ensuring your practice gets paid on time
With both Paul and Sid, you will notice they are on the ball when it comes to invoicing – and that is basically the answer. Don’t let your invoicing drift, stay in touch with your clients and be firm. Doing so will pay dividends.
What challenges are you facing when it comes to getting paid on time and how are you overcoming them? Let us know in the comments below.
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