Problems stemming from fee billing and collection have always plagued CPA firms, but there are basic steps you can take to avoid or manage most of these issues. Client screening is the first step toward controlling losses and enhancing your clientele, but at this late stage of busy season, let’s look first at billing and collection tips.

Billing tips

• Bills that are standardized, clear, concise and descriptive are more likely to be paid sooner. If the bill or its description of services is unclear, clients will be inclined to put it aside and to call about it later, lengthening the time it takes for them to pay the bill.

• All professionals with the firm should be accountable for their timesheet and billing deadlines, but their billable time should be protected by using administrative staff with appropriate training and support to prepare bills and collect payments.

• Timely billing leads to better collections. It’s sometimes best to bill more frequently than monthly, as smaller bills are generally paid sooner than larger ones.

• Different services often require different billing practices. Consider alternative fee structures, such as hourly rates, fixed fees, value pricing, refundable advance retainers and replenishment, or a combination of structures. If you need professional help for billing practices, don’t hesitate to get it.

Collection tips

• Communicate frequently with the client and gently remind them of future services needed. Speak to the person in charge of authorizing the bill payment when it’s due. If there’s a large balance, call 10 days before the due date to be sure the invoice has been received.

• Collection calls are relatively effective, inexpensive, immediate, personal and informative. Staff should be trained on the rules under the Fair Debt Collection Practices Act (FDCPA), which prohibits unintentional harassment of debtors. Anger management and mediation training will also help staff to deal with difficult people.

• Once you have sent 30-, 60- and 90-day letters, turn the account over to a professional collection agency to avoid spending valuable time and resources on deadbeats. If a client offers a reasonable partial payment, consider taking it and disengaging. This will free up more of your valuable time to pursue better clients who pay their bills on time and in full.

Client screening tips
By re-evaluating your relationships with clients on a regular basis—at least annually—you’ll be able to identify the problematic or less desirable clients that may be keeping your firm from developing the clients it wants. The end of tax season is a good time to screen clients for actual or potential problems, as there is ample lead time for a tax client to replace you, in the event you decide to disengage.

Here are some of the warning signs that it may be time to disengage from certain clients, ideally, after they have paid their bills.

• The client is nonresponsive. Does the client provide the documents you need and return your phone calls? Or is the client nonresponsive, causing delays? Difficult behavior should be explored. It may be an indication of business, financial or personal problems. Uncovering the source of the problem might help, but be sure to take swift action to remedy the situation or disengage before it worsens.

• The client has withheld information. When a client does not provide the information you need, carefully consider the problem. Is it sloppy recordkeeping, or is the client deliberately withholding information? If it seems deliberate, be cautious—especially if you are urged by the client to proceed with work without having proper documentation. Client behavior such as this is a red flag, and repeated delays could be the result of unethical or illegal activity.

• There are changes in the client’s business. Changes in a client’s business may lead the client in a direction that causes you to reconsider the relationship. A client may, for example, buy a business that requires work you are not qualified to perform. Or a startup client may grow and decide to go public, and you may not want to perform public work. Such changes can alter the professional relationship and result in a situation that causes you to disengage.

• There are changes at your firm. When your firm changes, you may also need to change your client base. The loss of a partner with expertise that the other partners don’t possess will require a decision by the firm regarding continued service to the former partner’s clients. The firm may decide that it no longer wants to continue performing a particular type of work. Or it may decide to go in new directions. Review your client base whenever your firm changes, and determine whether or not all existing clients still fit the firm.

Potential conflicts of interest
Consider all client situations carefully in order to spot potential conflicts of interest, which may affect your objectivity or independence—even if you are not engaged to do attestation work. Examine potential or actual conflicts of interest from a broad point of view, considering the client’s perspective as well as those of other stakeholders such as owners, investors, partners, beneficiaries and spouses. Troublesome scenarios can include a partnership break-up, a failed investment, bankruptcy, a trust, merger, divorce or anything else that can create opposing or disappointed factions.

Disengagement
When you decide to disengage, terminate the relationship professionally and formally with a disengagement letter. The letter should always contain clear statements, a description of your work and a list of any due dates or filings. Try to provide ample lead time before a client’s deadlines in order to better protect yourself. Your client need not feel antagonized in any way. Done effectively, disengagement can leave your client feeling that you have acted in the best interests of both parties.

Effective communication is a key factor in any CPA-client relationship. When you make the extra effort to stay informed and in control, you are safeguarding your firm. In the end, client screening and disengaging are good practices that will help grow your business and avoid liability.

Randy R. Werner, CPA, J.D., LL.M./TAX,  is a loss prevention executive with Camico (www.camico.com). She responds to CAMICO loss prevention hotline inquiries and speaks to CPA groups on various topics.