We’re the stereotypical introverts. Okay, not all of us. But most people still hear accountant and think of a guy with a green visor and a pocket protector full of pens who isn’t exactly the life of the party. Really, it is not even our stereotype that gets us.
Most people just don’t want to have uncomfortable conversations, so we avoid them. But where does that hang us up when it comes to business? Are you still employing someone who truly isn’t a good fit for our team? Are we overextending ourselves for a client we don’t want to come to terms with? What do we lose by avoiding these conversations?
Studies have shown that the number one most avoided conversation for accountants is that uncomfortable conversation that requires asking a client to pay us money. This isn’t specific to collections, although we do avoid that conversation. But we don’t want to have re-scoping conversations either.
A recent survey by Ignition from their client engagement platform showed that accountants are more likely to eat the costs of scope creep than have an uncomfortable conversation. The average cost amounted to over $75,000 a year in lost revenue. Yikes!
In addition to scope creep losses, most participants in the survey were experiencing past due receivables from clients of more than 30 days. More than one-third of all invoices were being paid late by clients, according to the results. Even if you do eventually collect, late payments put pressure on your cash flows and can cause you to make decisions you would not have otherwise made.
What are we to do in these awkward situations?
To start, it can help to avoid the creation of the situation altogether. While this is easier said than done, putting parameters in place to reward the good client behavior you want to see and try to deter the bad behavior you don’t want can help prevent these situations from popping up.
Here are some recommendations you can implement:
Institute and enforce late fees
Most of us have this language in our engagement letters but seldom do we enforce it because we’re afraid of damaging a client relationship. Late fees are there for a reason, though, they are meant to incentivize on-time payments. If they are not fully enforced, you’ll have to have many uncomfortable conversations trying to collect past-due debts.
Most people just don’t want to have uncomfortable conversations, so we avoid them. But where does that hang us up when it comes to business? Are you still employing someone who truly isn’t a good fit for our team?
Consider positive reinforcement for good behavior
If clients want to opt into automatic monthly payments on the first of the month, consider offering a minimal discount to incentivize them. We already know it costs money to collect on the back end, it’s a more positive approach to your cash flow to control the discount offered on the front end to ensure collection.
Make sure engagement letters are clear and the scope is well defined
This seems like a no-brainer, but we have all experienced situations where we wish we had better defined the scope of work that we were and were NOT doing. Making sure each engagement is specific helps to set clear boundaries and expectations upfront.
If you get the impression early on that a client will ask for extras, provide them a quote upfront for what some of those costs may be. You can make them an option so the client doesn’t need to sign off on them at the onset of the engagement, but it provides a nice tool, later on, to refer back to when those requests for extra work start popping up.
Listen well, but be assertive
The level of discomfort can be brought down a few notches if you make it clear to the other party that you’re here to listen to their side and not just chastise them. It doesn’t mean you need to act on what they have to say, but perhaps a client has been struggling financially, and they’re not comfortable having that conversation.
Taking the time to listen may help to create an opportunity for compromise where both parties walk away feeling good instead of awkward conversation. Be assertive in your solutions, though.
In that scenario, maybe you agree that you can take payment over the next 60-90 days to provide some support to your client but be clear that this is a one-time offer in special circumstances and if they can’t meet the terms of the agreement that the late fees will continue to be accrued and collections resumed.
Take payments upfront
Consider pre-payments or deposits before work can begin. Billing in arrears is a difficult spot to be in for a service provider. If you already have spent the time on the work, it’s a sunk cost if you can’t collect. If your practice is still billing after work is completed, consider switching your model to take at least a 50% deposit to begin work, with the remainder due upon completion.
None of these conversations are ever easy. The best step is always to manage our social anxiety in the conversation. The other person was probably avoiding this too. Treat people how you would want to be treated and stay focused on clear expectations. The end goal is to improve the financial position of your firm, which is well worth the temporary discomfort.