Payment arrangement is a term used to describe an agreement with a client to accept late payment or payment in instalments. Payment arrangements are an essential part of any businesses’ debtor management policies and procedures. Economic pressures resulting from local and global events such as droughts, floods, bushfires, GFC, export bans, and Covid-19, continue to demonstrate the need for businesses to provide their clients with flexible payment arrangements.
Payment terms for most professional service firms are 14 days from the date of invoice (ie the payment Due Date). Debtor management best practice is that Accounts Receivable (AR) staff follow up clients with unpaid invoices within 5 days of the payment Due Date. In this article we look at a range of payment arrangements and how they may best be incorporated into the firm’s credit policy.
In the accounting and legal space, payment arrangements may include …
1. Pay in full by an agreed date (beyond the invoice due date)
The primary objective of AR is to obtain payment in full wherever possible. If this is not possible, they should obtain from the client a “promise to pay” within an agreed time-frame (less than 7 days).
2. Part payments
If the client is unable to commit to full payment within the agreed time-frame, part payments should be negotiated. AR should try for an immediate part payment with the balance as soon as possible eg “half now … half next week”
3. Payment via recurring Direct Debit
If a client needs a longer term to pay (say up to 10 weeks), then suggest weekly or fortnightly instalments on Direct Debit. By setting up a direct debit the firm has more control over the arrangement. Direct debits are easy to set up and manage in FeeSynergy Collect and only cost $0.30 each.
4. Fee finance monthly instalment plan
If clients need longer than 10 weeks to pay then suggest monthly instalments on a FeeSynergy finance arrangement. Under such an arrangement FeeSynergy settles the full invoice/s amounts owing to the firm up front. FeeSynergy set up and manage the direct debits. There is no cost to the firm as the interest is payable by the client.
5. Take payment from tax refund
A payment arrangement used by some accounting firms, The client agrees for their tax refund to be deposited into the firm’s trust account and the firm then pay the refund less their fees to the client.
6. Take payment from money held in trust
This payment arrangement is common to legal firms. The client deposits money into the firm’s trust account to be used to pay for legal and associated fees as they arise.
Irrespective of the type of payment arrangement put in place, it is critical that the terms of the arrangement are recorded in a proper system which partners and managers can view and report on at any time. All of the above arrangements can easily be recorded in FeeSynergy Collect with automated reminders to ensure client accountability.
FeeSynergy are #1 when it comes to debtor management solutions for accounting and legal firms in Australia and New Zealand. Our team have significant experience in helping firms establish credit policies and implementing processes that are proven to improve cash flow and client satisfaction.
For further information please email hello@feesynergy.com.au
