Editor’s Note: These tips are gleaned from a recent MACPA workshop, “Getting to the Money: Collections & Billings or Who’s on First?” This program will be presented again on January 29 in Southfield, as part of a half-day conference, “Practice Issues Forum...Collections, Lending & Growth.”

Start at the Beginning: Review Your Engagement Letters

1. Both the firm and the client should sign the engagement letter. Who should sign? For the firm, it should be the partner in charge of the account. Make sure whoever signs for the client is authorized to commit the client to the agreed-upon terms.
2. Your engagement letter should include the right to stop work if terms are not met. Many insurance carriers provide sample language or sample engagement letters and guidance.
3. Depending upon the client situation, consider requiring a personal guarantee.
4. Require a “retainer applied to final invoice” for new clients. The amount should cover about 45 days worth of estimated work, which provides enough time for one complete billing cycle and time for the client to pay. Your engagement letter must pinpoint the length of the engagement or specific service being provided. This makes it possible to identify the final invoice in order to apply the retainer.
5. Include a binding arbitration clause for fee disputes to head off unnecessary lawsuits.
6. Remember, before you commit to a new engagement with a client, professional ethics rules say you’re not independent if the client still owes last year’s fee.

Billing and Collection: Use a Multi-Faceted Approach for Success

7. Reconsider your billing and collection procedures. Management and partners should agree on overarching policies. It is vital to have a system in place.
8. Bill early and often. Don’t delay billing and consider new payment policies, such as using e-mail to send invoices, using progress billings, providing a bill with completed tax returns for non-business clients, etc.
9. Your billing system should allow for special circumstances. For example, if a client is having cash flow problems, you may want to bill as soon as work is done, rather than waiting for a regular billing cycle. If a job is spread over three or four months, utilize progress billing.
10. If it’s a long-term client with cash flow problems and the firm wants to continue servicing the client, set up a payment plan on the existing debt and take prepayment (deposit) for new work.
11. The people that have the most contact on the job should be involved in the preliminary stages of putting the bill together. Otherwise, you may tend to write things off that you shouldn’t, or not include billable items that should be included.
12. Some customers may like to pay a flat monthly fee. This works especially well for fixed fee jobs.
13. Make it easy for clients to pay with credit cards, on your website, use payment schedules, etc.
14. If it comes down to a collection problem, you should have a system – an internal policy – in place defining when the customer is contacted, and who makes the call. Usually, the shareholder/partner in charge of the account and/or the person closest to the relationship with the client should not be the one to make the collection call. Generally, an administrative staff member should make the collection call. Start at the client’s accounts payable level and work up from there.
15. Keep a log of phone calls and letters. Your policy should specify the point at which you inform the client that the account will be sent to collections.

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