5 Ways to Improve Your Collections Practices
Kristen Rampe, CPA / Apr 7, 2020
CPA firms find plenty of reasons to delaying billing and collections. Sometimes, it’s difficulty feeling comfortable charging a client those big fees, sometimes it’s just a hassle; often, accountability is low.
While you may have been able to get by with these practices before now, and still have relatively good collections rates on your receivables (or not), you may be thinking like other partners across the country that now is a good time to update your processes.
We attended a round-table meeting last week with 50 accounting firm partners, and here are some of the practices discussed, along with others we’ve heard happening in the industry:
- Pause work on existing long-overdue clients. You probably have your share of clients that need prodding and pay late, if not a handful carrying balances from well back into last year. Call these clients now, and talk with them about what you need to continue doing work on their account. If the relationship partner for these clients struggles with the conversation, have a second partner strong in this area join the call. Plan what you’re going to say in advance.
- Collect before work is finalized. Some audit practices are moving to a 1/3 down, 1/3 upon completion of fieldwork, 1/3 upon delivery of final report model for invoicing and collections. Others are sending a draft bill when they send draft financials, rather than waiting until final.
- Work on retainer or collect upfront. It’s a good practice in any high-risk client situation, the difference today is many more clients now fall into the high-risk category than even a month or two ago. It may be prudent to ask for an ongoing retainer or full fee upfront to guarantee payment, especially for clients with higher business uncertainty.
- Call on past-due accounts at 30 days, not 60 or 90. Let clients know you’re expecting payment, and at the same time listen closely for an indication of inability to pay or need for different terms. Be flexible while keeping in mind your own need to pay expenses for work performed for the client.
- Offer credit card payment options. Especially for smaller or recurring client work, sending someone an invoice with the option to pay by credit card can be faster to collect, as the client will get an additional float until their credit card bill is due.
With recent jobless claims cresting 10 million, and the larger economic impact still yet to come now is the time to get cash in the door. If you wait, cash to pay your fees may be unavailable very quickly.
The art of collecting on receivables requires a balance between client-care and firm-care. Take the time to develop a strategy as a leadership group, and work to effectively execute (led by those strong in this area) sooner than later.