Most accountants have to keep reminding their clients about overdue bills, but there are ways to avoid that problem.
Nine out of 10 accountants (94%) need to chase clients for late payments, and an average of 31% of invoices are paid late, according to a
"It's a known issue," said Matt Kanas, vice president and managing director for the Americas at Ignition. "Accountants know this is something that they're going to be doing year after year, but what's striking is it's almost like the cost of doing business. For them, it's just the way things are, that you're going to have to chase those payments, and that a third of all those payments are going to be late. That really does have an impact on the cash flow of the firm. Ultimately, when you look at AR, it's directly impacting firm profitability, and that has all sorts of immediate and downstream effects when we look at how firms operate. In an economic downturn, cash flow is king, so you have to be on top of it."
To collect on late overdue payments, accountants are trying various strategies. "You have to back up and look at what is the root cause of all of this," said Kanas. "It's a tale as old as time: communication. How are you communicating with your clients? Whether it's good or bad, you're going to have to be upfront about it."
The cadence, or frequency, of communication with clients is just as important. That can include updates on how the firm is operating, how it will be billing them, and the firm's pricing, especially during a time of rampant inflation.
"In a year where we've seen everything from Netflix to Apple subscriptions go up, it's also a conversation where accountants need to talk to their clients about pricing," said Kanas. "Clients are consumers. I get emails from all those places I shop on a daily basis. I don't want to unsubscribe and I certainly shouldn't be doing that with my accountant, but I would probably enjoy seeing more updates week over week, month over month, quarter over quarter, or however my accountant sets it, just to stay on top of things. We're advocating for improving those lines of communication and the frequency of those communications."
Regular communication is key to building good relationships with clients. "The root cause of the problem is that accounting and tax professionals are not talking to their clients," said Jennie Moore, partnerships manager at Ignition and founder of Moore Details. "We're all very good at parenting and training dogs, but sometimes we're not good at having that conversation with our clients."
Many accountants are shy about mentioning unpaid bills and having "awkward conversations" with clients. The Ignition survey last year found that nearly all (94%) the accountants and bookkeepers said they have encountered an awkward client situation in their practice, according to a new survey, including 94% having to chase clients for late payments. In addition, 90% of the accountants polled indicated they have clients who are not being billed for out-of-scope work, with 43% of respondents saying their firm just absorbs these costs and work, while 88% experience clients being sent proposals or engagement letters with errors, two to three times a month on average.
"Anytime there seems to be a money conversation that directly impacts their business, they shy away from it," said Kanas. "A lot of it comes down to a fear of losing those clients because they're having those conversations. But if you talk to anyone who's done this, you discover that they get comfortable flexing that muscle and talking about the value they provide their clients. And those clients who trust and perceive that their accountant is providing value have no issue with anything like a price increase. The flip side of that is you may lose those clients that don't value you and don't want to pay, and you're probably going to serve fewer clients making more money than serving some clients that are just bad for business and raise your blood pressure. So there's a benefit to it, but it's definitely a muscle that you have to train and flex."
Getting clients to pay on time helps relieve the pressure for busy accountants. "We have zero accounts receivables, literally none," said Connect Accounting founder Marie Phillips. "I used to have to chase people. Now, we charge our clients the first of the month. It's automatically withdrawn from their bank account or from their credit card account."
Upfront billing may be one solution to lessen the stress levels and produce automatic revenue, while easing money pressures and worries among the staff. "You have to have those, as we call them, 'awkward conversations' with your clients in order to improve profitability and not go burning hours on something you didn't sign up for and that has a long-tail impact within your firm," said Kanas. "If that's happening, you're not making money on that work, and your employees see that. They know there's going to be burnout down the road. And they start saying, 'Is this where I want to be?' Those are harder conversations to have than those awkward conversations with clients."
