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 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 These Periods?
Within 30 days: 65%
45 days: 15%
60 days: 10%
90 days: 5%
Over 90 days: 5%
In today’s electronic age, this is absurd. Can you imagine 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 scores?
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 to offer BizPayO to receive prompt payment by eCheck, credit cards, debit cards and bank wires while stopping the practice of waiting for a paper check to arrive in the mail. That’s right, one app integrates payment right into your business bank account.
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 eCheck, credit card, debit 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.
This payment app was designed by Allan Ratafia, tested in his accounting practice, and is ready for accounting firms around the United States. In fact, this payment processing tool is so innovative that Paychex is now selling BizPayO as a standalone app.
Get More Control Over Accounts Receivable
These are just three fundamental 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.
To learn more, BYF will be hosting two free webinars next week. One session is designed for existing users of BizPayO and the second is designed for non-users of BizPayO who would like to get paid faster.