Tax professionals provide an invaluable service to their clients but often struggle in pricing, billing and collections. Failing to set appropriate fees and collect payment can cut into your bottom line. You must make a conscious effort to ensure to get paid on your fees in a timely fashion and secure a fee agreement up front, as well as deliver excellent work ahead of schedule if possible, to cement client satisfaction. This increases the probability that the client will pay the bill, sparing you the wasted time and anxiety from having to send statements or hound clients to collect what you’re owed.
Establishing a timely, accurate system well ahead of time will enable you to get paid by your clients in a timely manner. Having a system in place will ensure you minimize problems and identify ahead of time any problem clients down the road. Fortunately, there are a few simple techniques that virtually every tax firm, large or small, can use to make their practices significantly more profitable.
Questions to Ask the Client During the Initial Interview
Here is some guidance on typical questions to ask during the initial interview:
- What do you expect from us, and how do you see us helping you address your challenges and opportunities?
- What growth plans do you have?
- If price were not an issue, what role would you want us to play in your business?
- We know you are investing in quality service. What are the service standards you would like us to provide?
- How important is our service guarantee to you?
- How important is a quick response on tax questions? What do you consider quick response?
- Why are you changing firms? What did you like about your former firm? What did you not like about your former firm?
Structure the Engagement Letter and Get it Signed
If the initial interview indicates a green light, the next step is to tell the client what services your firm is going to perform and how it expects to be paid for them. Many tax professionals are hesitant to use engagement letters, particularly with long-term clients. Don’t be among them; an engagement letter can prevent many problems. At a minimum, two aspects should be addressed:
- The nature and scope of the engagement. Outline the procedures the firm will perform and any reports it will issue, and specify what related services your firm will not provide. Make it clear that services not covered in the engagement letter are not included in the initial fee, and if the client requests other services, he will be billed for those. Inform the client you will issue a revised engagement letter if needed.
- Fee Structure. Every engagement letter should detail how and when the client will be billed. Give explicit billing rates. Present a payment schedule with the frequency of expected payments – for example, monthly, through interim invoices or on-completion. If the firm charges a late fee, state it. Include a provision that gives the firm the option to stop all work or withdraw from the engagement until the client brings the account current. Let the client know that a fee may vary from the original estimate if an unexpected development comes up. Describe the situations that could cause additional work and obtain the client’s acknowledgement that charges may vary in such instances. Use the letter to give the firm leverage to collect, and have the client sign it before you begin work. Make it more stringent for a new client that shows risk factors.
Communicate Your Value
Many tax professionals don’t want to confront or offend their clients by asking them to pay up, but you must recognize that you are a business that needs to be properly managed. A key part of that is establishing and executing an effective mindset in the initial interview that sets the right tone in letting your clients know the value you provide them. You need to learn how to communicate the value you bring in a way that shows your clients they are getting their money’s worth. Clients buy value, not hours.
Clients determine the measure of your value on how you communicate with them. Don’t be afraid to tell them of your ability, experience, expertise and awesome audit history. Emphasize that work will be delivered in a timely manner. Remind your clients that they haven’t had a tax audit or problem with their creditors that have received the financial statements you prepared. Point out how your anticipation skills have prevented problems and saved clients money. A business is defined by the value it creates for its customers. Your price speaks volumes about your value proposition, more so than any other component of your firm’s marketing.
Work into the conversation how you are always available to take their calls and assist clients, and how responsive you have been to their needs. They need reassurance of your ability, expertise and availability, and don’t want to feel ignored. Call them periodically just to see how things are going. Don’t make the only time you speak with a client be when you want a payment. Value pricing overcomes the client’s pricing emotions and maximizes the firm’s price leverage – and they will gladly pay you.
Finally, emphasize the client’s responsibility in providing accurate and timely documents to you. Identifying needs and offering valuable quality solutions at a fair and agreed-upon price is the way to go. Clients talk, and they will know that you charge varied fees, but they will also know that each client pays based on his own specific needs. No two businesses are identical and have the same needs; but I have found that value pricing prevents clients from shopping your fees. Get paid for the value you deliver. There is nobility in earning what you are worth.
When all Else Fails
I like to summarize these tactics in what I call “the three Cs”:
- Create value for clients.
- Communicate the value you create.
- Convince clients they must pay for that value.
If nothing else works, then it’s time to take legal action. Have your lawyer write a demand letter, a certified letter threatening legal action if the debt isn’t paid. Clients who aren’t phased by invoices and/or phone calls often feel pressured enough by a demand letter to pay up.
Editor’s note: Intuit® Pay-by-Refund is another way to help ensure your clients pay you on time. Your clients pay your tax preparation fee directly from their refund, so they won’t have to worry about coming back to pay you later, and you won’t have to worry about whether or not you’ll be paid. Find out more!