The Pros and Cons of Payment Strategies: Choosing the Right Approach for Your Firm
Let’s get one thing straight: the best payment strategy for your accounting firm is the one that gets you paid.
But considering that firms outside of the “Big Four” had an average of 27.9% of their accounts receivables more than 90 days past due at the end of the 2017 fiscal year, according to the IPA’s National Benchmarking Report, it’s safe to say that many accountants haven’t yet hit on the winning combination that ensures they’ll be paid promptly for their services.
So while there’s no “one size fits all” solution to guaranteeing timely payment, incorporating the combination of the payment strategies that’s right for your firm may help minimize the hassle of collecting current balances and past-due payments owed.
Laying the Foundation
While the rest of this article will get into specific strategies for getting paid, we’d be remiss not to mention the importance of your pre-billing practices. It’s easiest to get paid on time if clients understand how you bill and what their responsibilities are.
Start any engagement with an engagement letter that covers:
- Your rates for specific types of work
- Any exceptions to these rules that may affect your clients
- Your retainer structure (if applicable)
- How you bill clients
- When payments will be due
- How you accept payments
- Whether interest or other penalties will be assessed on past-due balances
Whichever specific payment strategies you choose, setting clear expectations upfront with your clients will increase the likelihood that they’ll be used appropriately.
Strategies for Getting Paid
Foundational considerations aside, it’s time to “show me the money!” Accounting firms have the option to accept payment in many different ways. Each of these options comes with its own pros and cons.
They say “cash is king,” and they’re right. Cash – whether accepted as cash, check, money order or debit charge – is simple. It’s uncomplicated. It’s an immediate black line on your register; an instantaneous settling of debts owed. There are no fees to accept cash, and it can be processed quickly by your bank.
ACH / E-Check
ACH payments and wire transfers offer similarly quick processing speeds, though fees may be assessed, and you’ll need to take extra safety precautions when sending or accepting wire payments.
Of course, the challenge with cash is that few clients have it lying around in surplus. If your clients have accumulated thousands of dollars, tens of thousands of dollars or even more in open invoices, getting them to part with large sums of cash may be challenging. It also requires an extra manual processing step, relative to payment processors that deposit your earnings (less their fees) directly into your account.
We’re a society that loves to swipe, which makes credit cards a desirable option for many accounting clients. Add in the benefit of accruing rewards points that many customers seek out, and it’s easy to see why this particular payment strategy is experiencing increased demand.
The biggest downside to accepting cards at your firm, of course, is the processing fees assessed to you (unless you have a payment solution that allows you to pass these fees back to your customers). Keeping stored credit card data may also open up your firm to security and compliance requirements – not to mention the hassle of having to regularly reach out to customers to update expired or declined cards.
Cash payments and credit card transactions are by far the most common payment collection strategies offered by CPA firms. But they aren’t the only options.
As an example, PwC recently became the first Big Four accounting firm to accept payment by bitcoin. According to Raymund Chao, chairman of PwC Asia-Pacific, in his Wall Street Journal announcement, “This decision helps illustrate how we are embracing new technology and incorporating innovative business models across our full range of services.”
Cryptocurrency may extend beyond most firms’ comfort, but other alternatives exist as well. For instance, fee financing options – such as the model offered by QuickFee – makes it possible for clients to create their own payment plans, while firms get paid the full fee upfront. This eliminates the legwork associated with establishing a manual payment plan and chasing down every installment owed. It also gives clients the flexibility to navigate times when cash is tight – without negatively impacting the firm’s cash flow.
Strategies for Collecting Payment
Cash, credit, fee financing and the other strategies above are types of payment. The strategy you use to collect these payments influences your billing effectiveness as well.
There’s a reason paper invoicing has dominated the industry in the past. As with collecting payments in cash, sending print invoices is the epitome of simplicity. Just decide on a clients’ charges, add them to an invoice template – manually or as part of a desktop accounting program – print the invoice and send it off.
However, times are changing, and firms are moving increasingly towards digital invoicing. That’s because, what you save in convenience with paper invoicing, you lose when it comes to the time and effort they require, as well as the features offered by digital invoicing. With paper invoices, you’ll have to manually schedule and issue due date or past due payment reminders. There’s also no “lost in the mail” when a digital paper trail reveals when your invoice was sent and accessed by clients.
Digital invoicing offers plenty of pros in terms of the payment collection features most programs make available. But they have their downsides as well.
The first is simply selecting the appropriate program from the hundreds of options available (unless you select one that integrates specifically with your firm’s bookkeeping program of choice). Then, there’s both the cost associated with these programs (typically either a monthly or annual fee) and the potential for complexity in getting them up-and-running.
Credit Card Processing
Whether you choose to accept credit cards over the phone as payment on paper invoices or to charge them digitally through a computer-based invoicing system, you’ll need a method for processing credit cards.
Depending on your business history and sales volume, you may qualify for a traditional merchant account through your bank, which will equip you with a physical or digital portal for charging cards. Be sure to get an accurate accounting of the fees you’ll owe for this payment method, however, as banks often tack on separate subscription and security fees on top of your per-transaction fees.
If not – or if you simply don’t want to go that route – payment processors like WePay, GlobalOnePay, Stripe, Payroc, Square, Paypal and others will allow you to accept cards. Just be wary of the fees associated with these systems, as they can be surprisingly steep. Solutions like QuickFee allow you to pass these fees on to customers, depending on state-specific laws where you practice.
Establishing Strong Invoicing Practices
One final note to discuss that, while not a payment strategy in and of itself, is still relevant to the conversation is the issue of invoicing practices.
Does any of the following sound familiar? Say you’ve decided to set a monthly billing cycle, because anything faster would be too demanding on your administrative staff. At the end of the month, they begin compiling billable hours. By the time they’ve reviewed charges with their CPAs – let alone sent out the invoices themselves – it’s the middle of the month.
If you give your clients 30 days to pay on receipt of their invoices, their on-time payments could be covering work that was completed nearly ten weeks ago (and that’s assuming they pay on-time). All the payment strategies and systems in the world won’t matter if your billing cycles are slow that they’re affecting your firm’s cash flow.
As you review the different payment strategies that are available to your firm, take a closer look at any internal policies that could be holding up your ability to get paid. For example, can you require your team to process billable hours on a daily or weekly basis so that you can send invoices out with different deliverables? It may not be a comfortable transition, but it may be a necessary one for your firm’s solvency.
Making the Final Decision
The specific pros and cons shared here are important, but think bigger as well. Providing digital payment systems doesn’t just simplify your invoicing practices. It also positions your firm as one that’s progressive with technology. Not only can this help you attract top team members, it may also make you a more attractive acquisition option if you plan to sell or merge your firm in the near future.
Weigh the different factors described above in light of your specific business model and clientele. If you largely serve older owners who prefer paper billing, transitioning to a fully digital system may not be appropriate. But if, like most firms, your client base is eager for opportunities to either pay by card or installments, adding a solution that makes these payment types available without adding a cost or labor burden may be ideal.
And remember, no decision you make is set in stone. While changing out different payment strategies and solutions isn’t necessarily easy, it is possible. Don’t be so afraid you’ll make the wrong decision that you let your business suffer by making none at all.
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