How to agree fees and avoid disputes

Fees and how to charge for work done and recover your time is an ongoing issue for practitioners. Whilst fixed price agreements become the norm it is a challenge to identify what is included within that fee and what is outside the scope of the fixed fee. Then there is the issue of how to discuss and agree extra work with the client and bill it separately.

How often have you spent time and energy researching and delivering advice to a client only to find they don’t appreciate what was involved and are unhappy to pay for it? This leave bad feeling between both parties and is a situation that can easily be avoided.

The golden rule is to never do any work on a client’s affairs without agreeing the fee with them first.

If a fixed fee agreement is in place then you have to exercise discretion about what element has been allowed for within that fee to cover incidental phone calls and e-mails. As a guide, I suggest that if you have to go away and research or put something in writing then that work is likely to be beyond the scope of the fixed fee. In such cases have a discussion with your client ta the start, explaining what needs to be done and the likely cost. They then have control to decide if they do actually want that level of advice and are happy to pay for it or if they didn’t realise what was involved and it was only a passing thought. In either case you don’t end up with unrecovered time or the client with an unexpected bill. Both parties are happy and the client relationship preserved.

A partner has the experience to deal well with the above scenario. Challenges often arise when it is other team members who are expected to exercise discretion. Talk them through what you would do and get them to shadow or sit in on discussions with clients when you are addressing such a situation. This is valuable training.
Accounts preparation work is another area where the partner agrees a fee and then the time taken to complete the job, due to poor quality records, bears no relation to fee or budget!  For the purposes of this article we will assume it is not a training issue that is causing the over run on budget. You need to address this at the planning stage. Even the smallest of jobs should have a brief planning discussion. Talk about how you arrived at the fee and what standard you expect the records to be in. The team member should then be trained to report at the earliest opportunity if the job is taking longer than budgeted. It is at this stage you have the discussion with the client. Explain what extra works needs to be done and why the records are not as originally quoted for. Give the client the choice to take the records back and rectify the problem or offer to take care of the issues and agree an additional fee for the extra work done. If you leave such discussions until the final accounts meetings it is often too late.

 A client shouldn’t have to pay an unexpected bill. It is your role to ensure all fees are agreed at the earliest opportunity- no different from any other customer/supplier relationship. We can’t assume the client/trusted advisor relationship justifies charging and expecting to be paid even when the client didn’t fully understand what was involved in the work we do before we complete it.

There is a growing trend to abandon time sheets and measure production through service target levels. This works well for firms who have a streamlined service offering based on basic throughout of compliance work. Even firms such as these still have to put systems in place to ensure there is a mechanism in place to provide business advisory and additional support to clients and agree additional fees upfront.

Practitioners will say that the nature of some advisory or tax work can’t be measured and quoted for in advance. This holds true is some cases and one solution is to agree a weekly phone call to talk through what work has been done and at what cost and billed out on account with a settlement plan in place with the client. Keep a record of phone call discussions to avoid any confusion going forward.

Value based charging is still popular with some practitioners especially for tax planning work. This really is at the practitioner’s discretion and depends on how well they know their client. Some clients will like this ethos whilst others will prefer a more traditional charging method based on time spent as opposed to value of work done. No two cases will be the same.

Taking on new business start-ups is another area where fees agreed are ‘spent’ in the first year set up process and long before the first trading period accounts or tax compliance work is completed. There should be a basic fee set for the first year, payable in monthly instalments to cover set up and support at the required level. Three months pre year end a meeting will be held to review the level of trading activity. It is at this point you can agree the fee for the first years’ accounts and compliance work. How can a practitioner quote a new business start-up what their first accounts will cost when they can’t accurately predict the volume of transactions or level of trading activity?

Transparency is the key I believe. Client respect a straightforward approach and much prefer to agree a fixed fee for the year ahead as far as possible to include compliance work and regular business advisory meetings. They will usually be happy to agree that any additional work be agreed in advance as the need arises. This approach preserves good client relations and helps them manage their own cash flow. Clients often leave and go to a new advisor on the basis of ‘poor client service.’ In reality, the real issue is usually unexpected bills and fee disputes. Fees weren’t agreed in advance and the practitioner is left not wanting to spend any more time on a client ( hence perceived poor service levels) whilst the client doesn’t understand why they aren’t getting the attention and advice they need. Don’t fall into this trap.

April 2016 Copyright - Finola McManus, Practice Perfect

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