Newsletters - Accounting Office Management & Administration Report

April 2005

Collections Ideas Your CPA Firm Can Use Immediately

Busy season is almost over, and the influx of cash from successful billing should be underway. Clients who are slow to pay, or who refuse to, can quash your firm’s planned investments for the rest of the year and also set a bad example for other clients.

To ensure that your collection efforts go smoothly this time around, AOMAR shares the following suggestions for speeding up collection results. This is always important, but perhaps never more so than when firms are counting on the funds to finance their growth.

Acting sooner rather than later is important as well, since the chances of collecting on late bills drop dramatically the longer those bills sit on clients’ desks, according to the Commercial Collection Agency Association (CCAA; Cedar Grove, New Jersey; www.ccaacollect.com). Consider these rather stunning statistics: The CCAA says the probability of collecting on a late account after three months declines to 73%; after six months, it drops to 57%; and after one year, you have a bleak 29% chance of being paid.

Richard Baumann, a partner at law firm Sulmeyer Kupetz (Los Angeles), who specializes in creditor representation and commercial collection, has plenty of advice for CPA firms having trouble getting clients to pay.

His most urgent advice for partners and administrative managers is to stay on top of all outstanding bills. CPA firms, "especially those that don’t have a big volume of business, can bleed to death if unpaid bills stack up," reminds Baumann. "I counsel my clients not to let these things get out of hand. Treat small wounds early." He suggests that firms rely on the basics, and:

1. Conduct a monthly review to see where all accounts receivable stand, and designate someone on the administrative staff to step in when partners are too busy to follow up on their outstanding bills.

2. Expect prompt payment, and when you don’t get it, act. As soon as a bill is 30 days past due, contact that client. "You’ve got to get on them quickly, so you can resolve any problems quickly," Baumann says. "If not, your bills go on the bottom of the pile."

3. Speak to someone in a position to authorize payment. Maintain a friendly, understanding tone.

4. Ascertain why the bill hasn’t been paid. Is the client having financial problems? Does the client think the amount charged was incorrect? Does the client believe your firm took too long to do the work? "Try to understand the problems," says Baumann. If the issue is the size of the bill, sometimes all you need do is explain the charges to alleviate those concerns. Or, if a client is experiencing financial difficulties, you can offer to set up a different payment schedule or amortization program.

5. Get clients to confirm their obligation to pay and, if possible, to sign a promissory note for the unpaid bill.

6. Consider your firm’s options if the initial nudging, a second call, or a follow-up letter doesn’t lead to payment. Partial payment, bringing in a third-party bill collector, or even filing suit may be necessary alternatives.

7. Consider a third-party collection agency if your firm wants to avoid direct entanglement with a client about payment. Baumann maintains that this can be a good, economical solution since those agencies typically work on a contingency basis. "It removes the role of the heavy" from your firm, says Baumann. "If necessary, the third-party can play the bad cop, while the [partner] who did the billing can be sweet and nice."

8. File suit as a last resort. In some instances, not even an outside collector’s best efforts (and the good cop/bad cop routine) will produce results, leaving CPA firms the final option for collecting on an unpaid bill: to file suit. Remember, however, that this course of action carries its own risks, including bad publicity and the possibility that the client you’re suing will file a countersuit for negligence or malpractice.

Given those risks, Baumann advises CPA firms to step back, look at the situation calmly and objectively, and decide whether the potential payoff is worth the risk. "You have to take the emotion of what the firm did for [this client] out of the analysis," says Baumann. "Sometimes, you just have to write it off."