Skip to content

Better Debtor Management for Accountants By Dave Birch from feeLink on Nov 10, 2014

Better Debtor Management for Accountants

Most partners and directors of accounting firms tell me they don’t have a “debtor problem”. This may be correct, but only in part. Almost all accountants’ debtors do pay – eventually. The sobering statistic is that in Australia the average debtor days for accounting firms has stubbornly sat at around 55 days for many years. Yet, the average credit terms offered by accounting firms is 14 days. So generally, accountants are getting paid nearly four times slower than their terms of trade provide.

So, how did this state of affairs come to be? I remember as a young student at university learning the fundamentals of accounting & law – skills that would prepare me for my professional life. What nobody taught us was the psychology of debtor management. The theory of what to do is quite different to the emotional engagement of actually doing it. Accountants have the theory down pat: calculating debtor days, measuring cash flow cycles etc.  Frankly, that is the easy part. Just think for a moment how often and confidently you advise clients on better debtor management to improve cash flow? Daily, weekly or monthly? And yet, those same basic business hygiene rules are often forgotten for accountants own businesses.

A prevailing attitude by many practitioners to this “slow payment” scenario is apathy, resignation and acceptance. Why? Because, it is simply not in an accountants nature to demand payment. Accountants are better suited to more task tension and often avoid the relationship tension that accompanies asking clients to pay.  It’s not just an accountants problem as we see lawyers, creative & trade’s people all find it challenging to wear the two hats; delivering solutions and then chasing payments.

But things are changing. As traditional compliance margins come under pressure all aspects of running a professional service business are under the spotlight, including debtor processes.  Smart firms are tackling debtors and the very best are using all of our Seven Steps to Better Debtors as detailed below. The result is fewer debtors, more money in the bank and less hassles.

Seven Steps to Better Debtors

Step 1. Agreeing your Terms of Trade
Get this right and you’ll be well placed if you encounter a professional slow payer. Rest assured, there are plenty of them out there, so be prepared. Terms of trade help establish your legal relationship with your debtor. So please invest in some legal advice to ensure they protect YOU and give you every chance to get paid. Ensure your terms of trade are clearly referenced on engagement letters, websites, invoices etc.  Most importantly ensure they include the additional costs of collection outside of agreed payment terms.

Step 2. Credit Assessment – Initial & Ongoing
Before you give credit, make sure you know who you are giving it to and their track record in repaying other people (i.e. Credit check your customers). When that great new client turns out to be “dud” payer you will regret not investing a few dollars to find out they still owe money to their last accountant.

Individuals credit ratings change over time; even more so with a business. It is important if you have an ongoing credit relationship that you continue credit checking your customers. By registering clients for credit monitoring services you won’t be the last “mug” to find out things have changed for the worse and you get left with a large receivable.

Step 3. Payment Options
Generally, clients want to pay you. Make is as easy as possible for them to do so by providing multiple payment options.  As a minimum accounting firms should be offering Cash, Cheque, Credit Card, Direct Credit and Fee Funding as payment options.  Fee funding is a service that provides a monthly payment option for clients but your firm gets paid both in full and in advance.  This will ensure you avoid becoming an unofficial bank with some slow paying debtors. (see for details).

Step 4. Prompt Communication
When you don’t get paid within your terms of credit (e.g. 20th of the month following invoice) DO NOT leave it another 30 days before contacting your customer for explanation and payment.  A quick courtesy call a few days after due date is essential.  Many clients with minor issues will not pay, preferring to wait for you to call.  If you do not call clients it can actually exacerbate their issues. Then finally by the time you do follow up they may have spent the funds earmarked for your account.

Step 5. Planned Escalation
Expect that sometimes clients will be slow payers and others may default completely. Work out in advance what your options are to escalate recovery and how you will respond to different scenarios. This means having prepared scripts & processes to the most common questions. eg. When clients ask if they can pay you, when they get paid? The most powerful phrase you can use for a slow payment excuse is “Under those circumstances we…(insert  action – eg “. This phrase acknowledges the issue, establishes you are in charge and sets the agenda for what happens next.

Step  6. Follow Through
Debtors are just like children. If you threaten them with consequences but do not follow through they will take advantage. You should always be in-control, know your options and implement consequences. This doesn’t mean the consequence for non-payment within terms of trade is they go straight to debt collection. Instead, if a client promises to pay next week the consequence is probably a telephone call (next week) with a little more relationship tension.

Step 7. Resource or Outsource?
If you choose to manage your credit policy and accounts receivable in-house, then make sure that you have the right:

People: Are they trained & enthusiastic to do the job?
Time: Is the job a priority rather than squeezed in between other duties?
Tools: Do you have tools to efficiently manage debtor work flow eg Promises to pay?
Skill: Do you know your legal collection rights and responsibilities?

If you do not have all these things you should consider either up-skilling and resourcing your existing team (feel free to use our free resources) or…investigate OUTSOURCING the accounts receivable role.  Whilst accounts receivable is definitely an important role it is almost never a “core” function for a professional service firm.

For additional material associated with this article please visit:

Fee Funding:


Leave a Comment