How to get paid: choosing the right payment strategy for your business
At the end of the 2017 fiscal year, 27.9% of accounts receivables for accounting firms outside of the ‘Big 4’ were more than 90 days past due. That is according to the IPA’s National Benchmarking Report, which is a good indication that finding a winning payment strategy is not something that many firms have been able to achieve.
The best payment strategy for your firm is any one that gets you paid within the agreed terms. While there is no perfect solution that will guarantee a timely payment in every circumstance, having a combination of strategies at your disposal will increase your chances.
Here, we outline our tried and tested strategies, and other considerations, that can minimize the hassle of collecting current balances and past-due payments owed.
Pre-billing activities
Before getting into specific strategies for getting paid, you need to lay the foundations with some critical pre-billing practices. You will have much more luck if your client understands how you bill and what their responsibilities will be.
Your initial engagement letter should cover:
Your rates for specific types of work
Exceptions that may affect your clients
Your retainer structure (if applicable)
How you will bill them
When payments will be due
How you accept payments
Interest or other penalties that will be assessed on past-due balances
Whatever payment strategy you go with, setting clear expectations up front with your clients will increase the likelihood that they will be used appropriately.
Common payment methods
Accounting firms have the option to accept payment in many different ways, which each come with their own pros and cons. While the specifics may vary depending on your country’s conventions, the basics still apply.
Cash
As the saying goes, “cash is king.” Whether accepted as actual cash, check, money order, debit charge or wire transfer—this is the simplest, least complicated form of payment. It is an immediate settling of debts owed, there are usually no fees attached, and it can be processed quickly by your bank.
But the challenge with cash is that few clients have it lying around in surplus. If your clients have accumulated a large amount in open invoices, getting them to part with large sums of cash may be challenging. Cash will also require manual processing of payment processors that deposit your earnings directly into your account.
Credit Cards
We are a society that loves to swipe, and credit cards will be a desirable option for many of your clients. They have the added the benefit of accruing rewards points, which is another factor contributing to the increased demand for this payment method.
The biggest downside of accepting credit cards, of course, is the processing fees you are charged as the recipient. One option to solve this is to look into a payment solution such as Quickfee that allows you to pass these fees back to your clients. Storing credit card data can also open up your firm to security and compliance requirements—not to mention the hassle of having to regularly reach out to customers to update expired or declined cards.
Alternative payment solutions
Cash payments and credit card transactions are by far the most common payment collection methods offered by accounting firms, but they aren’t the only options.
Recently, PwC announced they would accept payment by bitcoin, becoming the first Big 4 accounting firm to do so. Raymund Chao, chairman of PwC Asia-Pacific, said “this decision helps illustrate how we are embracing new technology and incorporating innovative business models across our full range of services.”
Cryptocurrency might not be the most realistic payment method for your firm today, but other alternatives exist as well. For instance, fee financing options make it possible for clients to create their own payment plans, while firms get paid the full fee upfront. This eliminates the legwork associated with establishing a manual payment plan and chasing down every installment owed. You also have the added advantage of giving clients flexibility when cash is tight, without negatively impacting your own cashflow.
How to collect payment efficiently
The strategy you use to collect payments, whether it’s cash, credit, fee or something else, will influence your billing effectiveness as well.
Paper invoicing
Paper invoicing has traditionally been the most common form of collecting payment, but times are changing. While it might be simple, it takes considerable time and effort to produce, as lacks the features offered by digital invoicing. Sticking with paper invoices also means you have to manually schedule and issue due date or past due payment reminders.
Digital invoicing
Digital invoicing offers plenty of advantages in terms of the payment collection features most programs make available. There are hundreds of options available, so if you choose this method, you need to take the time to ensure you select the right option for your firm.
Credit Card processing
If you accept credit cards you’ll need a method for processing them, whether you take the details over the phone, on invoices, or to charge digitally through an online system.
Depending on your business history and sales volume, you may qualify for a traditional merchant account through your bank, which will equip you with a physical or digital portal for charging cards. Be sure to get an accurate breakdown of the fees you’ll owe for this payment method, however, as banks will often charge separate subscription and security fees on top of your per-transaction fees.
You can also consider payment processors such as WePay, Nuvei, Stripe, Payroc, Square or Paypal to accept cards, but should consider any fees associated with these systems. Other solutions like QuickFee allow you to pass these fees on to clients, depending on the specific laws where you practice.
Establishing invoicing best practices
At the end of a billing month, your staff begins compiling billable hours. Before you know it, it’s the middle of the month and they’ve only just finished reviewing their charges—let alone sent out the invoices themselves. Does any of this sound familiar?
If you give your clients 30 days to pay on receipt of their invoices, their on-time payments could be covering work that was completed nearly 10 weeks ago (and that’s assuming they pay on-time). Even the most fine-tuned payment strategies and systems won’t make a difference if your billing cycles are slow.
As you review the payment strategies available to your firm, consider any internal policies that could be hindering your ability to get paid. For example, can your team process billable hours on a daily or weekly basis, allowing invoices to be sent without different deliverables? Can you do away with timesheets altogether? It may not be a comfortable transition, but it may be the best one for your firm’s long-term success.
The final decision
When it comes to making the call, weigh the different factors described in light of your specific business model and clients. Whatever you decide, remember that no decision you make is set in stone. Do not be so afraid you’ll make the wrong decision that you let your business suffer by making none at all.