How to Do Billing and Accounts Receivable Better

• In my practice, all new clients fill out an engagement letter which spells out exact expectations of the project/training, etc. The client signs the engagement letter and fills out a payment authorization form. The contract specifically states that there is a deposit that will need to be obtained prior to the first appointment. All subsequent payments are made upon service once the initial deposit has been used.
• Depending on the type of business, you might want to offer a small discount for early payment. There’s the old standard of 2-10/net-30, but you can create any type of early payment discount that works for you and your customers.
• Some businesses give a bonus to clients/customers who refer new business. For example, tax preparers can offer preferred status to clients who make referrals – their tax projects get moved up to the top of the list, or maybe they bet a free planning session with one of the partners.
• Don’t’ forget the concept of reverse incentives to encourage timely payment. Late payments incur interest or a penalty.
• Many accounting firms are going to a monthly billing model with direct withdrawals from the clients’ bank account. This alleviates the worry about accounts receivable and also ensures a steady revenue stream throughout the year.

How to Deal with Clients Who Are Late with Payments
Contributed by Shayna Chapman, CPA.CITP, CGMA, www.shaynaco.com

“We know for our clients (and, sometimes, even for us), often sending out the invoice is the hardest part. They just need to GET IT DONE. Make the decision, bill it, and don’t be afraid to collect it. As the old saying goes, ‘A Good customer is a paying customer.’ “

• Know your customer and have a general idea of their industry practices. How quickly does their industry pay? Are they fee sensitive?
• Know common practices of your industry. This often sets expectations.
• Decide if your billing amount is to be set up front, as you go, or determined after-the-fact.
• Decide if payment terms and discounts are appropriate, and if so, clearly state them.
• Check your payment terms in regards to profits to make sure any discounts are not too deep and are not hurting your profit.
• Check your accounts receivable aging regularly to make sure they are turning over at a proper rate and if any repeat slow payers are worth keeping as customers.
• Provide timely billing. Customers are most willing to pay at the time the project provides the most value.

How to Know When to Use a Third Party Billing/AR Software Program
Contributed by Randy Johnston, www.k2e.com; www.nmgi.com

“Billing should take a minimum time from the professionals and the partner/owner involved while accurately reflecting the services and tracking appropriate costs.”

• Determine if a professional electronic or paper bill is needed.
• Assess the amount of time and expense entry required and what should be included on the bill. Are there other internal or third party charges that should be included? If value billing is used, what information should be included on the bill and the eventual statement?
• Look for ways to minimize time required for data entry of any kind. Most importantly, think about how data can be entered once and used in all places needed within your system.
• Identify the billing format(s) required.
• Determine if the existing accounting product in use can deliver the items needed. If not, is there a product available that integrates with the existing accounting system, or is there a third party billing product that can deliver the results as a stand-alone product?