5 Reasons to Stop Invoicing Your Clients
As an accountant, you have a lot of concerns, ranging from reducing turnover after tax season is finished to ensuring your clients are reporting qualified charitable distributions and business expenses properly on their IRS tax forms. You shouldn't have to worry about clients who don't pay an invoice on time. Loren Fogelman has some tips to eliminate this issue.
There’s nothing worse than a client who doesn’t pay their invoice in a timely manner. After working to keep their financials up to date, you don’t want to chase money. Overall, it’s costly and frustrating.
Why run the risk of chasing money? Prevention keeps this from happening in the first place. A couple steps regarding your payment policy avoids these uncomfortable circumstances.
Value Quickly Lowers
After you drive a new car off the lot, it immediately depreciates in value. As you know, the used car value rarely equals the new car value.
Your accounting services, like a car, depreciate once you complete the work.
Why does this occur?
It’s a matter of human nature and how people think.
Urgency Raises Your Value
An ever-growing number of accounting firms no longer invoice their clients. Instead, clients pay before any work’s started on a client’s books.
Consider the accounting needs of business owners.
What concerns have you resolved for your clients?
- Dealing with a higher than expected tax bill.
- Gathering financials for a loan application.
- Concerns about fraud.
Since value is subjective, the project’s more valuable before you do the work. It’s similar to the value of a shiny, new car. Once you gain possession of the vehicle, its value lowers.
Urgency raises the value of your services. Pressure stirs people into action. And, their need is greatest prior to you delivering your services.
Once you fulfill a client’s request, the pressure lowers. Relief replaces tension. Sometimes this also lowers the perceived value of your services.
I realize this may not appear logical. However, human nature isn’t always based upon logic.
Don’t Chase Money
What does chasing money have to do with invoicing?
Does your business practice include extending credit to your clients? Well, billing once the work is complete means you’re financing your clients’ services.
It’s similar to credit card companies. When you pay your full balance by the due date, you only pay for your purchases. If you decide to stretch out your payments, then you end up with late fees and interest charges. As you know, interest ranges from 18 to 25 percent.
Therefore, receiving payment prior to doing any work is a sound business practice.
Your Work Took Longer than Estimated
Ever send your client a bill for work you already completed and now she’s questioning the final invoice?
Maybe your client didn’t grasp the full scope of the project. In her mind, the project seemed uncomplicated. As a result, she wonders why the work took so many hours.
- Time. You meet with the client to discuss her shock at receiving a higher than expected final invoice.
- Money. You’re now required to resolve the matter. Do you write off some of your expenses? If so, this lowers your profits. Even if she agrees to pay full fee, you stepped away from other client work to discuss a payment issue.
- Frustration. Most accounting professionals I’ve met don’t enjoy these conversations. Either you, or your client, leave the conversation frustrated.
Receiving payment prior to doing the work saves you time, money and frustration. This simplifies your collections process. My dad repeatedly told me prevention requires less effort than intervention. What headaches would be removed if you received payment first?
Define Your Payment Policy
Systems give you freedom. Before doing anything else, define your payment policy.
Don’t write a long, multi-page policy. A simple paragraph or two will do the trick. Once you create the policy, add it to your work agreement as well as your policy and procedures manual.
Asking clients to pay beforehand differs from invoicing after the works completed. With pricing, you receive payment for a set fee prior to starting any work. Instead of emphasizing time, discuss the benefits your firm offers.
Consider these 5 criteria as you define your payment policy:
1. Educate. When you first meet with them, educate your clients about your payment policy. New clients, who are just meeting you for the first time, are less likely to challenge your policy.
2. Stand by Your Rates. Know the value you offer. Reducing your fees lowers you value. This sends a message to clients that your fees are flexible. Sometimes, clients ask to pay less. If so, then remove some of the services in your package to adjust the fee. Better yet, offer three package options at various price points.
3. Monthly Recurring Service. Set up all your monthly services for pre-payment. Technology makes it easy to schedule recurring payments with ACH or credit cards. This guide outlines all the steps to transition from invoicing to pre-payment.
4. Objections. Consider the objections some clients will raise about prepayment. Prepare responses to those objections. Then practice those sound bites.
5. No More Invoices. Free yourself of time. With your new policy, you no longer send invoices at the end of each month. This eliminates late payers and unpaid balances. And, tracking time is optional. You can keep time sheets for internal purposes. However, clients who pre-pay no longer watch the clock.
Pricing focuses on your expertise; whereas, billing reflects time and technical skills. Charging for your time prioritizes your efforts. Your efforts matter more to you than to your clients. So, let’s focus on what your clients’ value most. Clients invest in the outcomes that your efforts produce.
As I mentioned earlier, your value lowers once the work is complete. Solve this by agreeing on your fee before you begin the work. By the way, with value pricing your rates reflect your expertise instead of your time.
Know Yourself, Value Your Expertise
Imagine no more price negotiation, invoicing or collection issues. The shift from billing to pricing removes the risk of doing work for free. As a result, you no longer need to track time or justify your fees. Instead, you work with clients who value your services and respect your expertise.
It’s possible to communicate this effectively to your clients with no pushback. Give your current clients 30 to 60 days notice about the changes to your payment policy. Include one or two reasons about how they’ll benefit. Prepare for some clients to question this change. Then, patiently answer their questions without defending your decision. As a result, you enjoy an efficient, effective payment process.