It’s time to do something different in your bookkeeping practice: start using a formal service agreement. In my informal polling of bookkeepers, I find many do not use a service agreement or engagement letter when starting with a new client account. This document is important as it protects you, and it protects the client.
The service agreement I use is similar in format to the engagement letter that CPA firms use. My firm bills on value-based pricing, so I must be specific about what tasks are or are not included in the base monthly services, and what services are at an additional cost. If you are not using a service agreement, this will provide some food for thought!
Here are my thoughts on the top 10 items to include in a service agreement.
1. What we need from you. This section states that I cannot perform bookkeeping services without source documents, so if you, the client, do not provide me originals or electronic access to the documents I need, in a timely manner, I cannot do what you have hired me to do. I specify about five different options for how they can supply me source documents.
Note: I constantly caution my clients against using email for sending confidential documents, including W-9 forms and payroll documents. I subscribe to a third-party cloud service that lets users send and receive electronic documents securely, and I provide a link to my account on my website and in my email signature. Keep in mind there is a difference between sending a document securely and storing a document in the cloud. Examples of some document-sharing services include Hightail (formerly YouSendIt), ShareFile, Box, Dropbox, iCloud, and Google Drive. Each has its pros and cons, so do your research.
2. What we’ll do and when we’ll do it. Next, I discuss how often I’ll touch their books, such as daily, weekly, monthly, or quarterly. I also include an attachment with a comprehensive list of what services I will provide, such as bank account reconciliations, after-the-fact payroll data entry, preparation and filing of sales tax returns, etc.
3. What we won’t do. I take pains to list what I won’t do. I choose to not take on the liability of providing payroll services, so all my clients must subscribe to a third-party payroll service, and I enter the payroll data after-the-fact. I also point out that I am not a CPA or accountant, and I don’t prepare tax returns or provide tax or legal advice.
4. Services outside the scope of your proposal. Here I list a few examples of tasks that are out of the scope of the base services and will be charged on an hourly basis. These include completing workers' comp audit forms, county property tax filings, and other state or federal filings that may unexpectedly arise. Oftentimes, I find the CPA or accountant can prepare these forms for the client.
5. Standard engagement terms. In this section I have a short paragraph on each of the following topics:
a. Professional conduct: I agree to be professional, prompt, and prudent.
b. Confidentiality: I agree to keep their data confidential.
c. Work paper ownership: I use this section to specify who owns work papers, me or the client. There are differing opinions in our industry on this topic, so that discussion is for a future blog post!
d. Tax preparation: Again I state that it is the client’s responsibility to select and hire a tax preparer and file their tax returns.
e. Binding arbitration: Whether or not you wish to include this is a personal decision, but I include it in my service agreement.
f. Governing law: I designate that my state governs the terms and conditions of the agreement.
6. Fees. This is the section where I state the flat monthly fee and what the hourly fees will be for certain tasks, as applicable. I also note when my invoices will be sent (first day of month, last day of the month, or semimonthly). Finally, I state that fee increases will occur from time to time, always with 30 days advance notice, and not for the first 365 days.
7. Guarantee of services. I offer a guarantee of reimbursement for any penalties or fees that may be assessed due to a mistake made on my part. Examples of mistakes include sending a payment to the wrong payee or making a payment from the wrong account. I do not offer to reimburse interest or late fees. There is a disclaimer for errors made by vendors, financial institutions, or payroll companies, and for problems arising due to insufficient funds in the client’s accounts.
8. Payments. I state payment terms in this section, charges for returned checks, and my collection policies for past-due accounts.
9. Original client records. This section authorizes me to open any documents the client sends to me or has an authorized agent send to me. I offer to store any original documents I receive for up to one year at no charge, and my normal procedure is to return all original documents from the prior year by March 31 of the next year; shipping fees are the client’s expense.
10. Termination. This section contains standard language about each party providing 30 days notice to terminate the engagement.
I hope these ideas will prompt you to create a service agreement, if you don’t already have one, or to update the one you already have.
About the author:
Jody Linick is an AIPB Certified Bookkeeper and a QuickBooks® Certified Pro Advisor. Her company, Linick Consulting, specializes in remote bookkeeping services using hosted QuickBooks and QuickBooks Online. She runs a (mostly) paperless office, and helps other businesses to do the same.