Avoiding the Aggravation of Unpaid Client Bills and Past-Due Receivables

By Suzanne M. Holl

Difficulty with collections is an age-old problem for CPAs. During tough economic times, this problem becomes even more critical as CPAs must pay special attention to the careful management of their accounts receivables and keep them from getting out of hand .

Billing and Collection Policies

To help mitigate collection difficulties, you should take the time to review your firm’s billing and collection policies. Effective cash management is extremely important to the success of a firm. Your billing and collection policies should support your firm’s cash management efforts and give clients a clear understanding of the value of your services.

Your billing and collection policies should include, at the minimum, a timely billing practice appropriate for the types of services being rendered; a monthly review of your aged listing of accounts receivable; established guidelines for collection efforts; and provisions for stopping work if clients are not meeting their payment obligations.

In addition, remember the following loss-prevention tips:

Know Your Clients

Screen new clients carefully. During unstable economic times, client screening becomes a vital process for CPAs. You may want to avoid working with clients who appear to have a history of, or are currently experiencing, financial problems; or you may want to establish different collection methods for these individuals (e.g., collecting retainers, etc.).

You should always take the time to talk with the predecessor accountant regarding the client’s payment record. Remember the old saying that past behavior is the best indicator of future performance. You might even consider the use of third-party credit check services (e.g., Dun & Bradstreet Business Information Reports).

Educate Your Clients

Educating your clients is another loss-prevention strategy. To establish your firm’s expectations, clearly communicate to clients your firm’s policies regarding billing and payments. Often, CPAs encounter collection problems if the clients do not understand or agree to the scope and value of the services to be provided and the payment terms for those services.

A preferred method of communicating your policies is through an engagement letter that is signed by the client. This document will then become the first line of defense if clients later allege that they were not aware of, or did not agree to, the specific fee structure for the services or the consequences of not meeting their payment obligations. If clients do not live up to your expectations, you will have already communicated the potential ramifications of this action. For example, the engagement letter might include stop-work and/or disengagement provisions that can be enforced if clients do not pay in accordance with the terms of the arrangement.

Review Your Client Base

Finally, you should periodically review your client base to determine whether you should continue to provide professional services to specific clients. If you have clients who have been slow to pay or have resisted paying your bills, you could have potential impairment of independence issues with respect to the performance of additional services. Take the time to consider whether continuing your professional relationship with those clients makes sense.