Why Do Accountants Get Paid Last?
The relationship between the professional service provider and client is built on trust, respect and timeliness, yet why do so many CPAs and accountants have a seemingly difficult time asking for, and receiving, payment for their own services?
Do they push off back-office and operations-related matters so they can concentrate on more billable activities? Are they afraid they’ll fracture the provider-client relationship and the client will go elsewhere once he or she is asked for payment?
Every firm is different, and while there’s certainly not a definitive answer to these questions, the problem isn’t necessarily why the accountant has a hard time coming to terms with payment; it’s more about the process the firm uses to actually collect its money.
In most professional service business such as legal and consulting firms, the client pays a significant portion of the estimated fee upfront as a retainer. It’s not unusual that 50% of the projected cost will be paid when a project begins, yet accountants typically don’t request payment until after the service has been rendered. The invoice is then mailed out and payment may not be received for 30 to 60 days later, sometimes even longer. According to a study published by Accounting Today, 30% of invoices are paid 31-90 days after the service has been provided and another 5% take over 90 days to receive payment. Essentially, 35% of invoices that go out will become aged.
What % of Your Invoices Are Paid
|Within 30 days||65%|
|Over 90 days||5%|
|** Source – Accounting Today Executive
Research Council, July 2013
In today’s electronic age, this is absurd. Can you image ordering a book from Amazon and paying for it 35 to 60 days later? If that’s the case, then why should accounting firms wait to get paid? In other words, why does the accountant get paid only after a business owner covers payroll, overhead expenses, and miscellaneous expenses? Is it because they often know their accountant won’t complain as loud and won’t ding their credit?
In discussing this issue with many accounting firms around the country, here are three fundamental ways to obtain more control and speed up your payment processing system.
The implications of hourly billing on cash flow can not be understated. Professional service firms that elect to bill hourly create conflict and uncertainty in their billing practices and this makes it harder to process payments in a timely manner. Think about it, how many times have you received a bill from a professional service firm and cringed at the hours billed and corresponding bill, sat on it, maybe even complained about it, and then took your time to request payment as a silent protest. It’s common practice and is guaranteed to slow down your ability to get paid promptly.
By adopting a value billing (fixed fee) system, your accounting/tax fees become well understood and part of the stack of bills which do not get scrutinized closely. They are budgeted in advance and paid regularly like the rent payment.
Billing Processing is Addressed Upfront
At the onset of each new business engagement, it’s absolutely essential to discuss billing processes as part of any expectation of doing business. While many accountants are apprehensive to do this, this is the best time to agree upon the form of payment and particulars to avoid issues. Often, accountants that use ACH payment processing (eCheck) are surprised at how easy it is to obtain agreement from the business owner if this is addressed along with the engagement agreement. Think about it, small business owners realize that you are not performing this service gratis and are more than willing to provide their checking account information to their trusted accountant if the fee is fixed and known in advance. And, it will be one less bill they have to cut a check for.
Use Payment Technologies
Just like there are technology applications to increase your efficiency for accounting, tax and payroll tasks, there are also apps to process payments with more control and efficiency. Incorporating these apps into your payment processing will make it easier to receive payment and gain control over getting paid faster. For example, we have been advocating that our accounting clients incorporate ACH processing into their billing system so they can get paid 3-5 business days after the invoice is generated, which increases cash flow and lowers accounts receivable.
Over the past six months, BYF has developed a payment processing app that is designed to address this fundamental issue, which is vital to running any successful business. Think about it, all successful businesses have the ability to control getting paid. It’s a basic requirement. Anyway, we have designed a payment processing app that integrates ACH, credit card and bank wire payments into one easy to use payment system so you can collect fees faster, and less expensively while lowering accounts receivable. And, it’s secure.
Since last November, BYF has been testing our new payment processing tool with many of our long standing clients. This payment app was designed by Allan Ratafia, tested in his accounting practice, and will soon be ready for accounting firms around the United States. In fact, this payment processing tool is so innovative that a major vendor in the accounting space (multi-billion dollars in sales) has tested it and wants to sell it to their clients as well.
Get More Control Over Accounts Receivable
These are just three fundament ways to get more control over accounts receivable and dramatically reduce the amount of time it takes to get paid. Personally, waiting 30-60 days to get paid after working your buns off for a client is out of control.
Looking back, it’s easy to laugh at paper tax returns, dropping off and picking up write up work, hand written ledgers, and storing mountains of paper for years. Well, it’s more than time to use a little more technology along with best practices to improve your cash flow and reduce the amount of time chasing slow paying clients. As Home Depot would say, “Let’s Do This.”
About the Author
Hugh Duffy is co-founder and chief marketing officer of Build Your Firm, an accounting marketing and accounting website development firm. Hugh teaches a series of Accounting Marketing Workshops and manages BYF’s Outsourced Marketing Program for accounting firms. He can be reached at 888-999-9800 x151, or at [email protected]