Three ways to accelerate cash flow: (lucky) number 3
There is another option to fast-track your cash flow: fee funding
According to the 2013 ‘The Good, the Bad & the Ugly of the Australian Accounting Profession’ report, cash flow (getting paid) is amongst the top five challenges faced by the accounting profession. Looking at the results in more detail, the median lockup days (work in progress and debtors days) is 90 days.
One solution to closing that gap is through fee funding. The key benefit to such a service is eliminating the administration burden of chasing a debt and spending that time developing your relationships with your clients.
But we all know of everyday examples of cash flow needs that our clients experience. Below are a few examples of ways firms face cash flow challenges in the practice with clients as well as ways they might be resolved:
1. Your firm is preparing financial statements for a client as required by their bank and you have been dealing with this client for years. The client relationship is strong and they’ve approached you for additional services they believe will improve their market share; however, they’re already paying a substantial fee for the accounting work. Your client is confident that the additional work will pay for itself, but cash is tight and they need to start now…
2. A referral comes through to help a new client with setting up their self-managed super fund and associated gearing arrangement. They tell you their money is tied up in other retail funds at the moment and they can pay you once the money is transferred from their current super account into the new SMSF. You know that you need to pay the costs involved to set up the 2 corporate trustees, arrange the SMSF deed and the bare trust deed along with your fees for advising on the structure. You expect that you’ll be waiting 90 days for payment…
3. Your firm has audited a client’s 2012 financial statements and they’re yet to pay you for your services. Independence becomes a concern when your firm is deemed a “creditor” for a substantial amount of outstanding fees. The client is waiting for a deal to go through from which they’ll have sufficient funds to pay your fees in full, but your staff need to begin procedures for the 2013 audit to stay on schedule…
Fee funding is a service for your accounting firm, and your clients, whereby the cost of your services is spread into manageable monthly instalments whilst still enabling your firm to be paid in full and on time. Clients enjoy a cash flow benefit and realise the value of your services sometimes even before they’ve fully paid. And best of all, it comes at no cost to your firm; clients pay a sensible interest rate for the privilege of paying over time.
Creating and maintaining consistent cash flow in an accounting business transcends every aspect of your work, from the initial engagement process to following up accounts as soon as they become overdue.
Each stage of the job cycle contributes a few percent to the efficiency of your debtor collections. Agree the work and the fee with the client, complete the work on time and correctly, and issue your accounts in a timely manner. Alternatively, by adopting a payment option service such as that offered by Quick Fee, allows you to commence the work immediately and enables your client to spread your fee into manageable monthly instalments.
By implementing just one of these steps, will see your cash flow dramatically improve, consequently you will be happier and your clients will be thrilled.
Bruce Coombes is the founder and Managing Director of QuickFee, and having been in practice for over 15 years, personally felt the need for a payment option that is easy for clients to access and equally easy for an accounting firm to offer. Bruce was also the pioneer of outsourcing in Australia, starting from scratch and ultimately selling to a listed public company in 2010.
Find out more about QuickFee here or head to the Free Resources tab on the Business Fitness Services page to read more articles and whitepapers like this.