Unhealthy billing practices can have an effect on malpractice threat

Think about this: A CPA carried out bookkeeping and tax companies for a long-term consumer who was worthwhile and asset-rich however had challenges with money movement. Regardless of the consumer’s premature fee of invoices, the CPA rationalized the continuation of companies, because the consumer did make funds periodically. Over time, nevertheless, the funds slowed and the consumer’s excellent steadiness grew till it was too important an quantity for the CPA to disregard.

The CPA pressed the consumer for fee and threatened to terminate companies. The consumer promised to pay the CPA the complete quantity due with proceeds from an upcoming constructing sale and begged the CPA to proceed companies. The CPA relented. Finally, the consumer offered the constructing, however — shock — didn’t pay the CPA. The CPA discovered himself with an excellent greater quantity due and solely dangerous choices: sue the consumer for charges and threat a counterclaim for negligence; proceed offering companies and get deeper into the outlet; or stroll away and be taught a really painful, and costly, lesson.


Billing and assortment practices might not be perceived as an expert legal responsibility threat subject, however proactively managing this threat is necessary to extra than simply the agency’s monetary well being. Why?

Having a big unpaid steadiness lurking within the background might unduly affect a CPA’s determination whether or not to proceed working with a consumer, stopping the CPA from objectively contemplating the consumer’s threat and making it difficult to fireside them.

Sending a consumer to assortment or pursuing different aggressive assortment efforts, equivalent to a charge go well with, typically results in a declare by the consumer for skilled negligence. A CPA agency will seemingly spend extra money and time defending the declare than it might obtain from the gathering exercise. For extra on this subject, learn “Skilled Legal responsibility Highlight: Suppose Twice Earlier than Suing for Unpaid Charges,” JofA , March 2018.

, March 2018. A consumer’s lack of consideration for complying with a CPA agency’s fee phrases suggests they may additionally neglect different obligations integral to the engagement. If a declare or different dispute arises, such a consumer could also be faster to position blame on the CPA moderately than settle for duty for their very own choices.

Shoppers in monetary issue might fail, and events that lose cash typically look to the accounting agency to assist recoup their losses. Auditors, particularly, face a heightened threat of an costly lawsuit associated to a bankrupt consumer.

A consumer’s failure to pay might sign an underlying service or different subject, offering an early warning signal of a future dispute.


To assist mitigate the danger of an expert legal responsibility declare, or perhaps a mere disagreement with a consumer, and assist handle money movement and monetary threat, think about the next practices:

Consider a consumer’s monetary viability and assortment threat throughout acceptance and continuance processes

Run a credit score test. Carry out an web search to acquire publicly accessible data. Contact the consumer’s earlier CPA to inquire about timeliness of fee. Although the predecessor CPA might not disclose this data, or the consumer might balk while you ask to contact them, you may be taught loads from each events’ reactions. Potential purchasers in search of help with delinquent tax filings must be approached with additional warning as ought to prospects with liquidity or going concern points.

Require retainers

The usage of retainers is turning into a generally accepted observe for CPA corporations. As such, corporations ought to think about adopting this billing protocol for all purchasers. At a minimal, retainers are strongly recommended for all new purchasers with unknown fee histories in addition to present, slow-paying purchasers and high-risk purchasers.

Define billing and assortment phrases within the engagement letter

The engagement letter ought to clearly talk the agency’s expectations, together with when fee is due, the results of nonpayment, the evaluation of curiosity and charges associated to any assortment motion, and extra. It also needs to articulate the agency’s means to withdraw from the engagement with out finishing companies if the consumer is delinquent. Think about reviewing engagement letter phrases with the consumer to make sure mutual understanding.

Think about various billing practices for various kinds of companies

The normal observe of billing after hours are incurred might not be applicable for all companies. For ongoing companies, equivalent to payroll, bookkeeping, or consumer accounting companies, think about upfront billing initially of a interval, equivalent to a month or quarter, for companies to be rendered in that interval. For audit companies, think about milestone billing with quantities due at varied factors, equivalent to when the engagement letter is signed, when planning and fieldwork start, and a remaining installment when the report is delivered. No matter the billing observe or service, the objective is to attenuate the steadiness due on the finish of the engagement. This locations asmaller quantity in danger ought to the agency need to stop companies earlier than the engagement is full.

Invoice well timed and monitor collections intently

Invoice when companies are supplied, not a number of weeks or months later. As soon as issued, invoices shouldn’t be “out of sight, out of thoughts.” Monitor collections to make sure fee is obtained on time, and observe up with the consumer swiftly if not. If potential, select somebody exterior of the engagement staff to help with assortment efforts and “be the dangerous man” so that you don’t need to.

Guarantee exceptions are really exceptions

Billing and assortment phrases exist to assist guarantee consistency of observe throughout a agency’s engagements and purchasers. Adherence to the agency’s billing and assortment insurance policies shouldn’t be seen as much less necessary than adherence to different agency insurance policies, equivalent to these associated to independence or conflicts of curiosity. If particular circumstances come up, create and implement a course of for approving exceptions that’s exterior to the engagement staff.

Observe by means of

As any guardian will inform you, threats with out penalties are meaningless. In case you have warned the consumer that companies can be suspended or discontinued for nonpayment and, but, the consumer stays delinquent, stop offering companies till the consumer treatments the delinquency. Think about termination in the event that they don’t.

Nip potential assortment or service disputes within the bud

Whereas it could be tough or awkward, having a direct dialog with the consumer to resolve excellent invoices is commonly one of the best method. It’s possible you’ll study a service subject that must be addressed. Or you could discover out that the consumer is experiencing monetary difficulties and that it is advisable alter to the engagement’s charge construction or scope of companies.

Think about a negotiated settlement

If all else fails, moderately than persevering with to ship invoices month after month or taking a raffle with a charge go well with, think about negotiating a settlement to just accept lower than the complete quantity due.


A generally missed, however necessary, side of a agency’s billing practices is the wording included within the agency’s billing or timekeeping software program and/or consumer invoices. This language must be in keeping with the companies to be carried out as outlined within the agency’s engagement letter or different type of written communication with the consumer. Keep away from indiscriminate use of phrases outlined in skilled requirements, equivalent to “audit,” “overview,” and “study.” If billing descriptions are inaccurate, imprecise, or overstate companies supplied, you could be held accountable for companies you weren’t engaged to ship.

Rising balances

$102,000: Common U.S. shopper debt steadiness within the third quarter of 2022, a 5.8% enhance from the earlier 12 months.

Supply: Experian, “Credit score Scores Regular as Shopper Debt Balances Rise in 2022,” Feb. 24, 2023.

Sarah Beckett Ference, CPA, is a threat management director at CNA. For extra details about this text, contact

Continental Casualty Firm, one of many CNA insurance coverage firms, is the underwriter of the AICPA Skilled Legal responsibility Insurance coverage Program. Aon Insurance coverage Companies, the Nationwide Program Administrator for the AICPA Skilled Legal responsibility Program, is accessible at 800-221-3023 or go to

This text gives data, moderately than recommendation or opinion. It’s correct to one of the best of the creator’s data as of the article date. This text shouldn’t be seen as an alternative choice to suggestions of a retained skilled. Such session is really useful in making use of this materials in any explicit factual conditions.

Examples are for illustrative functions solely and never meant to ascertain any requirements of care, function authorized recommendation, or acknowledge any given factual state of affairs is roofed underneath any CNA insurance coverage coverage. The related insurance coverage coverage gives precise phrases, coverages, quantities, situations, and exclusions for an insured. All services might not be accessible in all states and could also be topic to vary with out discover.

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