Academic journal article Journal of Accountancy

Pricing, Billing and Collecting Fees: What CPA Firms Can Do to Run Their Businesses More Efficiently and Effectively

Academic journal article Journal of Accountancy

Pricing, Billing and Collecting Fees: What CPA Firms Can Do to Run Their Businesses More Efficiently and Effectively

Article excerpt

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CPA firms provide invaluable advice to business clients but often struggle to run their own businesses effectively, particularly in the areas of pricing, billing and collections. Failure to set appropriate fees, deliver bills in a timely fashion and collect payment promptly--or even in full--cuts into a firm's profitability, hurting the business and the accountants in it.

Remedying this situation requires CPA firms to make a conscious effort to ensure they get paid an appropriate price in a timely fashion. To best do this, CPA firms should secure the fee agreement upfront, when their value to the client is greatest, and make sure they deliver excellent work on, or ahead of, schedule. If the job requires more work than was expected, the CPA should contact the client as soon as possible to discuss the need for extra fees. When the work is done, firms should deliver the product and the bill at the same time. This increases the chances that the client will go ahead and pay the bill, sparing CPA firms the wasted time and anxiety that develop from having to send statements or hound clients to collect what is owed.

For the firm's partners, the goal is to free their minds and time for more productive endeavors and ensure that their business is providing shareholders with the revenue needed to compensate staff appropriately and plan for the practice's growth and the partners' retirement.

EFFECTIVE PRICING

Pricing is an art, but many CPA firms treat it as a science. Firms often use a time run or fee chart to determine a bill rather than taking the time to understand the value of the services they provide. Exhibit 1 presents a list of pricing techniques.

CPA firms need to review each service they provide and price it accordingly (see Exhibit 2). They should examine what they do for the client, where they add value and how they apply their training, knowledge, experience and resources to arrive at a successful result. Without that understanding, CPA firms won't bill the appropriate amount, and that usually means they will charge less than they should and could collect.

One way to bill the appropriate amount is through value pricing (see "Pricing on Purpose: How to Implement Value Pricing in Your Firm," June 2009, page 62). If you choose a value pricing approach, consider including the following language in engagement letters:

"We base our fees on time required at our regular rates for the type of services and personnel assigned plus out-of-pocket costs. We also give consideration to the difficulty and size of the assignment, the degree of skill required, time limitations imposed on us by others, the experience and ability of the personnel assigned, the nature of the project, the level of cooperation by the client's staff, and the value of the services to the client."

A problem develops if the fee is not settled before the work is done. In those cases, the firm loses the option of being able to walk away or to reduce the services.

Further, it is much easier to reduce a quote than to raise it, so CPA firms should increase their price estimates. Don't be afraid of losing an established client because of a high quote or a high bill for extra services. You can always negotiate a deal. What CPAs often fail to understand is that most clients have a "sunk" cost in their accountant and want to continue that relationship and maintain their "investment."

Additional revenue opportunities arise when projects require extra work. Keep m mind that clients will want the opportunity to make a decision about whether the CPA firm should perform the work. Informing clients after performing large amounts of additional work makes them feel like they have lost control of the process, leading to complaints about "excessive" fees.

INCREASING FEES

Every CPA firm needs to increase fees regularly. This can be done in many ways, including:

* Calling or meeting with clients to discuss the proposed increase;

* Making a notation at the bottom of the first bill with the increased fee;

* Sending a letter advising of the increase in the current or next bill; and

* Including a clause in the engagement letter saying that rates are increased annually or periodically These clauses usually provide for no special notification. …

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