Cash flow- why clients don’t pay on time and how to prevent this.

As practitioners you will be well versed in advising clients on managing their business cash flow but often I see practices who struggle to manage their own cash flow. This cripples growth plans and impacts client service levels as partners spent too much time on trying to manage their own lock up. We all know ‘cash is king’ but perhaps need a reminder on what we need to do to ensure clients are happy to pay on time.

Here is a refresher ‘Cash Health Checklist’ to help you;

  • Do you have a handle on ‘lock up?’ Cash, debtors, work in progress. Are your own management figures accurate and up to date?
  • Is work in progress really billable and recoverable or are you fooling yourself? Be brave- talk to the client and agree to bill it or write it off. This takes courage!
  • Do you have Fixed Fee Agreements in place for all clients? This is now industry standard for the majority of accountancy firms and clients prefer it to periodic billing.
  • Do you have a system in place to ensure the basis upon which you quoted matches the actual work/quality of records you end up having to work with in reality? How often did you spend extra time on a client’s affairs only to find they won’t pay for it after the event? Agree extra work up front and identify what is required at the planning stage of the job.
  • Monitor additional work done for clients which is outside the scope of the Fixed Fee. Ensure this is agreed with clients in advance and billed promptly with an agreed settlement date. Many practitioners end up doing extra work for no recovery as the client thinks it is included within the Fixed Fee and the practitioner tries to agree the extra bill it after the event.
  • Are clients paying a regular standing order/direct debit amount in advance of the years’ service which comes to an end when the main compliance work is done ?Follow this approach and you will have ‘negative ‘work in progress and positive cash flow for much of the client service year.
  • Never ever raise an invoice without having agreed it with the client up front. How often do you complete valuable work for a client only to find they don’t want to pay or think your charges are too high? Make the value of what you do obvious before you start.
  • Clients perhaps are suffering poor trading conditions. They should however value your services as essential to supporting their business and see you as a priority when it comes to paying important suppliers first. If this is not the case ask yourself why. More importantly ask the client.
  • I hear commercial businesses tell me they don’t respect their accountant as they don’t practice what they preach when it comes to cash management!
  • Do you have your own budgets and cash flows for the year ahead? This is essential to manage your practice growth and will focus your practice management attention with a monthly cash collection target.
  • Do you have credit control systems in place and do they work in reality? Often the partner is not the best person to chase cash in from clients as the relationship is too close and the partner feels uncomfortable talking about debtor balances with the client.
  • Develop clear systems to detail how you price, quote, agree and accept payment for all work you do. Transparency is key for a good client relationship.
  • Do you grade your clients to ensure that genuine ‘poor payers’ are managed out of your business- they take up too much time collecting monies owed and often don’t value what you do. They are not your ideal client.
  • Monitor your turnaround periods for client work. 30 days is normal best practice for the vast majority of client work. This means you have to have systems in place for planning and efficiency to deliver on client service. It will also increase efficiency and gross margin.

Whilst there is nothing here that you don’t already know; it is a useful reminder to focus on one of the key underlying success drivers of your business. Think about how much of your time and stress would be saved if you didn’t have to continually deal with late payers and disputed fees.

June 2015 Copyright - Finola McManus Practice Perfect

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