When it comes to running an accounting firm, there are two big things you have to do.
- You have to win and retain new business.
- You have to make sure your practice gets paid on time.
These are the two basic blocks of building any business, never mind accounting firms.
If your clients don’t pay you, or delay paying you, then, put bluntly, your business won’t grow.
So, the big question is, how do you make sure you get paid on time? This article will provide you with some essential 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 shouldn’t be targeted at only one size
- Often, firms are told there’s no reason for the late payments, indicating there’s 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.
Say goodbye to unpaid invoices
Download our guide for 7 tips to get your invoices paid faster.
Utilize direct debit
First, if this is retained business (business that occurs every month and not just a project), ask your client to set up ACH payments.
You’ll get paid on time and it takes the temptation away from the client to delay payments.
Now, getting a client to organize a direct payment isn’t always easy. The client might feel this is constricting (because they will occasionally have to delay a payment), or shows a lack of trust. This comes down to how firm you want, or need, to be.
When taking on a new client, and when references and checks are not always up to the job, there’s nothing wrong with asking for some form or surety such as a direct debit, or partial upfront payment.
After all, you’re risking your own money and why should you do that, unless the client gives some confidence that you will be paid. Remember, there’s 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 your bills will be regular: wages, rents, loan payments, and so on will come around each 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.
Whether you get the direct debit organized, or get some money up front, or decide to give your clients 30 days’ (or indeed 60 days’) credit, 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 hasn’t been received in the agreed time and therefore not in their system, and open to delays.
You can’t 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’s 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 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
We spoke to some of our Sage Business Expert accountants to see what tips they have about ensuring payments arrive on time.
Sort advanced payments
“Charge up front where possible,” suggests Shaz Nawaz, chartered accountant and owner of AA Accountants.
“Make advance payment non-negotiable and share this requirement on your website, as well as all marketing material and during the sign-up process. A lack of clarity creates resistance.”
He adds: “Better than charging interest on late payments is to set your fees in light of the fact that certain clients might pay late and then discount that fee to your standard fee if they pay on time via monthly payments or whichever frequency you prefer.
“The carrot usually works better than the stick.”
Send automated reminders
Paul Donno is the managing director of 1 Accounts Online Ltd and adds, “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 accounting 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.”
Ensure ACH is on the table
Luke Streeter is founder, accountant and chief delivery officer for Flinder, an innovative and award-winning financing outsourcing company for SMEs.
Streeter says that his firm stops working for clients if the monthly direct debit fails.
He says: “We take a very clear cut approach, because the time we spend chasing a cancelled direct debit mandate or collecting outstanding debts is very disruptive to our business – and very disruptive to the client’s business too.
“They have to pay to get the services we’re going to deliver.”
Simplicity in fees is also a good approach, Streeter continues: “We don’t nickel and dime with clients. It makes it quicker for us to quote and engage with someone if we have a simple pricing structure, and we list it and we advertise it on our website.
“Transparency is key, if a client pushes back, we say, actually, it’s all very visible.”
Make sure your invoice states payment terms
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’s a small job, then the invoice should clearly state the terms, seven days, for example. After eight or nine days, automatically chase the client, and then weekly thereafter.
“Thankfully we have a low debtor ratio. If it’s outstanding for over a month, we’ll 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’re in financial difficulties, we’ll 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 all our accounting experts, you’ll notice they are on the ball when it comes to invoicing – and that’s 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.
Editor’s note: This article was first published in September 2018 and has been updated for relevance.
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