Q: We have some collection challenges. How can our firm improve our chances of getting paid without escalating these matters into a potential claim situation?
A:Collections can be one of the most difficult parts of practice management for CPAs. Even when the work was performed timely and with due care, unpaid fees can create stress, consume time, and increase the risk of a dispute.
From a risk management standpoint, the goal is usually simple: get paid while minimizing the chance that a fee issue turns into a professional liability claim. One of the best ways to reduce collection problems is to address payment expectations before the work begins. Engagement letters should clearly explain fee terms, billing practices, late-payment consequences, stop-work provisions, disengagement rights, and any mediation or fee arbitration process. Retainers can also help reduce the risk of nonpayment and may prevent the firm from having to pursue more formal collection efforts later. CAMICO’s guidance emphasizes that firms should bill on a timely basis and avoid allowing unpaid fees to build up to the point where the firm feels it can no longer walk away.
Before taking any escalated collection action, the CPA should review the engagement letter and their professional liability policy. The engagement letter may address payment terms, late charges, mediation, arbitration, attorney’s fees, or the client’s responsibility for collection costs. Just as importantly, the CPA should confirm whether their professional liability policy includes an exclusion for suit for fees and/or requires advance consultation. A CPA should not assume that every policy treats fee collection the same way.
As a practical matter, suing for fees is often not the best first option. CAMICO’s claims experience has shown that suing to collect fees can create a high probability of a countersuit by the client, often alleging malpractice. What started as an unpaid invoice can quickly become a professional liability matter. That is a lot of stress and pain for a receivable. CAMICO also recommends considering that the legal fees, reputational risk, lost billable time, and overall cost of litigation often outweigh the fees owed.
For that reason, many CPAs are better served by using practical, business-minded resolution strategies before escalating the matter. In many cases, it may make sense to write off part of the balance in exchange for a prompt lump-sum payment. A discounted settlement can be a good result if it closes the file, gets cash in the door, and avoids the cost and risk of prolonged collection efforts. From a risk management standpoint, collecting a substantial portion now may be far better than spending months chasing the full amount while increasing the chance of a claim.
Another effective strategy is to offer a payment plan. Some clients are not refusing to pay; they simply may not have the cash flow to pay the full amount at once. A short, written payment plan with clear due dates can improve the chances of recovery while preserving the relationship. The agreement should be documented carefully so there is no confusion about the remaining balance, timing, or consequences of missed payments.
If the amount owed is more significant, such as over $5,000, the CPA may want to consider whether the engagement letter includes a binding arbitration clause for fee disputes (which is standard language in CAMICO-crafted engagement letters). CAMICO generally views mediation as useful for all disputes and binding arbitration as potentially effective for fee disputes only.
Throughout the process, communications should remain professional, factual, and non-escalatory. Collection emails and letters should avoid accusatory language and should not overstate the firm’s rights. The CPA should document the history of invoices, prior reminders, and client responses. Clear documentation and carefully limited language matter in all client communications. Also, please note that if the client begins asserting that the work was wrong, incomplete, or caused damage, the matter should be referred to CAMICO as soon as practical.
Overall, collections for CPAs should be approached as a risk management issue, not just an accounts receivable issue. The best collection strategy starts before the invoice is overdue: clear engagement letter terms, timely billing, retainers when appropriate, stop-work provisions, and good client communication. Once a balance becomes significantly delinquent, consider practical resolutions such as a discounted lump-sum payment or a written payment plan before escalating. In many situations, getting paid something promptly and closing the matter carries far less risk than fighting over every dollar.
About CAMICO
CAMICO has been a trusted advocate for CPAs since 1986. Created by CPAs, for CPAs, we know the day-to-day challenges you face in your practice. With CAMICO’s Professional Liability Insurance program, you and your team have access to risk management guidance and tools that can save you time, money and resources. Need guidance with your insurance options? Contact Alpa (Keily) Evans, CIC, CAMICO Senior Account Executive at 650-378-6720 or via email at aevans@camico.com. Click here to learn more about CAMICO.
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