How to fire long time 'nice' client

[Margaret CPA in OH]

Today I received payment of $150 (my usual charge, according to her) for a bill of $350 with a $100 discount already. She consistently provides info in small pieces, constantly scrapes for every deduction, pays very late and in several amounts, and more. This year she wanted to meet twice for planning purposes and multiple times changed various amounts (mileage, office expense, etc.).

She has been a client for 11 years, has a grown disabled son and really doesn't make much money but is otherwise quite nice. We are in the same classics book club and she is very smart (well read, PhD.) I always undercharge but, heading into retirement, am loathe to keep giving up money. On the other hand, it's some money that I wouldn't otherwise get at all.

It's draining but, with our social connection, I hate to simply cut her loose. Any advice for those in similar circumstances? It was easy to shed business clients or individuals who weren't nice. This is tougher.

I always mail out engagement letters in January to existing clients. Just don't mail one this year? Actively disengage? Other?

[Lee B]

I would send her a past due letter for the $200. In addition, I would state that payment must be received by

 

December 31st in order to continue our accountant / client relationship. If she pays you, then I would insist on

 

a signed client engagement letter with a fee stated in advance $ 450 or ? for 2014 and if you want to get rid of

 

her insist on 50 % of your fee in advance.

[Jack from Ohio]

No more discounts.  You ARE WORTH your fees!!  Engagement letter telling that you must receive total payment before she gets the return.  No e-file until total payment is made.  You ARE WORTH your fees!!

[MsTabbyKats]

1. This is an example of why not to mix business with pleasure. You cannot be objective about friends.

2. At this point, if she isn't a pita I think you should keep her...or your gonna have a very awkward situation. Be honest..write her a letter explaining that you understand her circumstances and you don't mind helping her out, however, since you give her a discount you have to limit the time you work on her return. In other words....hold off giving the information until she has it all.

I had a similar situation....husband's friend's...wife's sister's friend. She thought we were in cahoots against the IRS. I tried to drop her for years. Finally....she asked me a question that I didn't know...so I said I don't know...and that there was no official IRS ruling. Happily....she dumped me.

[kcjenkins]

First, I would send her a pleasantly worded past due letter for the $200.  That may end it all by itself.  But regardless of the social connections, she is abusing the relationship.  And you are unintentionally encouraging that by letting her get away with it.   It is, you admit, 'draining', so whether you collect or not, I'd drop her for the resulting lowering of stress.  A letter in Jan telling her you are cutting back some, and will no longer be able to do her return, would be my follow-up.  

[jklcpa]

You might also consider including a suggestion that she accumulate all the necessary data and meet only one so that both of your time will be more wisely spent and not wasted on inefficiency.

 

A pet peeve of mine is having to work on something piecemeal because it is very inefficient, wastes time and leads to possible mistakes when the preparer has to stop and start a job.

[Catherine]

One of the lines in my "welcome to tax season" letter - for those few to whom it applies -  is something like "all prior balances MUST be paid before any new work begins" - in bold face, with a statement of past charges.

 

Either they pay up, pronto, usually with apologies -- or I never hear from them again.  Either way, I win.  If it is part of the standard letter, folks don't feel like they are being singled out.  

 

Good luck!

 

Just had to tell an accounting client (a neighbor) to pay up or no more work.  I did it nicely, included a copy of the engagement letter he signed, highlighting the sections applicable, and gave him a specific time limit and three payment options.  If he doesn't cough up, the last thing I do is send his employee a W-2.  

 

But it's never easy.  We don't get into this business because we hate people and want to make their lives difficult!

[jklcpa]

The only problem I have with Catherine's "pay up or no more work" is that it gives those once-a-year clients the idea that they can carry that balance out for an entire year until they need our services again. I don't want to extend that level of credit or have to worry about balances dues out that long. Credit card companies do that very well, and I am not in the business of extending credit.

 

Most of my clients pay when the return is picked up, but I do have a statement formatted on my old invoices that gives them 30 days interest free. Beyond 30 days is when I start charging interest.  Two years ago I started using the bill function within my tax software to generate the invoice, and that 30-day statement is gone, but I would still honor it. There are some business clients that have more extensive work that I spread the payments over several months to lighten the impact, but those terms are clearly spelled out in the engagement letters in advance of starting my work.

[Medlin Software, Dennis]

Thankfully, we do not send software until paid.  We tried invoices many years ago, and it was more headache than it was worth.  If someone really does not have a charge card, they can obtain a prepaid card at any decent store.  Those that prefer checks, mail them (although some actually try faxing them).  If someone cannot bother with paying in advance, they are probably going to cause me other grief in the near future anyway.

 

I am a big proponent of life is too short to deal with things which bother me.  Considering the social aspect, I would "say" not worry about it other than not letting them get behind again.  Maybe refer them to someone else, assuming you know someone else local who you would not be embarrassed to recommend.

 

On the other hand, I don't like being taken advantage of, and would actually insist on proper payment, and if kept for the future, be paid retainer style in advance.  If someone gets mad at me because of not wanting to pay what I charge, that is their issue, not mine, and I would hold me head up high.  This is something I learned because of my umpiring avocation (and happily, my sons did as well).  You do your best at any one moment, usng all available information, accept you may not be perfect, and move on  Those that get upset are not worth the hassle of trying to please them.  Have I lost friends?  NO!  If they were truly friends, they would not have ended the relationship over something so small as a ballgame.

[Catherine]

Judy makes a good point.  Form the most part, my "pay up or no more work" clients are folks who came to pick stuff up straight from work and didn't have a checkbook with them.  Or with whom all is done by email, fax, and file share portal.  And for many it ends up being mainly my fault, in not following up with a statement (paper or email), until the next season starts up.  

 

The letter I just sent is an accounting client who hasn't paid me since July... I know he's both overly busy and very forgetful, but he's promised a check "this week" a dozen times (or more) now, and enough is enough.

[Margaret CPA in OH]

Thanks for all the great suggestions. It's clear that I am not alone in experiencing this challenge.

For the record, she was a client before we ended up in the same book club. That was a surprise as we both knew other participants from different areas of interest.

Another friend suggested that I write a letter (like KC) and state that I am downsizing more and am no longer doing any returns with business activities that involve depreciation. A viable rationale with the new regs!

So I think I will send her such a letter, include her outstanding balance, ask her to pay as soon as she is able and recognize that I bill by the hour per my engagement letter which she signed. This is the first year in many that she actually had a refund, too - $866! Clearly she chose to use that for other purposes. Hmmm, maybe she needs this check more than I do. Maybe I should return it - or not.

[SaraEA]

The problem with firing clients who owe you is that you may never get paid. Why should they pay up if they won't be needing you anymore? I think it's best to demand payment before more work is done. Every year we start the season vowing we will NOT efile any return before payment is received, and every year we end up doing it anyway. Sticking to that practice would eliminate most of these receivables.

[Margaret CPA in OH]

In nearly 20 years of my own practice I have been unpaid maybe 3-4 times. Once was a big one, one I told to pay what they thought it was worth after hearing many complaints (it was a mutual parting of ways), maybe one more I wrote down and now this one. At least this isn't paid in full - yet. Not exactly sure yet what I will do. I do have $150 in hand. My engagement letter states no returns without payments but, yeah, I always invoice later. Guess my trust and luck isn't 100% but not too bad, really.

[MsTabbyKats]

If you want to drop her,....use the depreciation excuse....but blame it on the software and how complex her return is.

[jklcpa]

If you want to drop her,....use the depreciation excuse....but blame it on the software and how complex her return is.

 

I would not make excuses or make up reasons but would rather find a nice way to tell her the truth.

 

My area is very small and all the CPAs and other tax preparers know, or know of, each other, and many of these people are my peers that I've worked with or sat through many seminars with over the last 30+ years. The last thing I'd want is for that (former) client to go to another professional, or worse- someone in our mutual social circle, and say that I couldn't handle the complexity of the work or that I had inferior or inadequate software.  If the person is a slow payer then I need to address that collection issue straight on.  We aren't in this profession to give work away at a steep discount of 60% off unless it is of our choosing.

[MsTabbyKats]

I would not make excuses or make up reasons but would rather find a nice way to tell her the truth.

 

My area is very small and all the CPAs and other tax preparers know, or know of, each other, and many of these people are my peers that I've worked with or sat through many seminars with over the last 30+ years. The last thing I'd want is for that (former) client to go to another professional, or worse- someone in our mutual social circle, and say that I couldn't handle the complexity of the work or that I had inferior or inadequate software.  If the person is a slow payer then I need to address that collection issue straight on.  We aren't in this profession to give work away at a steep discount of 60% off unless it is of our choosing.

You have a point....really depends on the circumstances of the situation. It's hard to be honest without offending....especially if there are social connections.

OP..if you're close to retirement...there's the "phasing out" with a referral option.

Personally...I'd keep her and focus on spending less time. As far as the money...you can figure out if she needs it more than you.

[JohnH]

I seldom collect when the return is completed - I just mail them an invoice. Over the years I've had a few who didn't pay, or didn't pay in full. Not many, but enough to remember. Most of the time I came to the conclusion that not collecting the balance due was a reasonable price to pay for the relief of not having to deal with them in the future.

I did have one guy who was really gutsy. He owed me money, & failed to show up for a couple of years. I assumed he had gone somewhere else. But then he dropped two year's worth of tax info in my night drop, along with a note that IRS was pressuring him to file his past due returns. I put it all in a box in mailed it back to him with a bill for the past due amount, plus an estimate for the cost to do the new work, and a mention that the work would begin when he paid the entire amount. I included a note saying the estimate was probably high, but if his final bill came out lower then we could refund to him after 6 months if IRS didn't ask any questions about the returns after filing. Never heard another word from him. As I said, the old bill plus the postage to send his stuff back to him was money well spent.

[Max W]

Margaret, this woman is a chiseler and manipulator. You can be sure that she does this with everyone she has dealings with.

Just write her a businesslike note -

"Thank you for the $150 partial payment of the $250  invoice.  When can I expect the balance of $100?

Wishing you and your family a Merry Xmas ( or whatever)

Margaret

 

Either she responds and you will never hear from her again.

She will also avoid you at the book club.

[Pacun]

She has been a client for 11 years, has a grown disabled son and really doesn't make much money but is otherwise quite nice.

 

I would not fire this client. Keep in mind that you already have the software, the hardware and the knowledge, 90% of that little money goes to the bottom line. In the future, choose your friends carefully without those two disadvantages.

 

So you have to consider your opportunity cost and if you are not losing a new client in order to keep her, you might not have any opportunity cost.

[kcjenkins]

Pacun, I think you missed the point.  

 

1.  She has already discounted the fee.  The client has insulted her by not only not paying, but disputing it "my usual charge, according to her".  That's on top of paying very late.

 

2.  The client is [as a client] a true PITA.  "She consistently provides info in small pieces, constantly scrapes for every deduction, pays very late and in several amounts, and more. This year she wanted to meet twice for planning purposes and multiple times changed various amounts (mileage, office expense, etc.)."

 

Either one might be overlooked, but combined they are simply unacceptable stressors. It is not about Margaret's costs, it's about her peace of mind, and reducing the stress of what is already going to be a stressful season.  She does not owe this client anything just because the client has problems in her life.  

[Pacun]

Pita clients are not my friends and I would not ask for opinions to fire them. If she is asking for opinions, it is because she is not a PITA.

 

Let me add this: Pita clients will be fired as being my friends and in a couple of years they will be fired as my clients.

[JohnH]

Interesting personal development over tha past few days while I was reading and responding to this thread. I had a client who came on board about 3 years ago whom I was reluctant to take on from the start, but social circumstances & church connections simply did not permit me to say "No". (Long story - we all have them).

Last week, a couple of days after I sent out my client letter, this client called to let me know they were changing preparers. I happily didn't ask the reason and just told them to let me know if the new preparer has any questions about the prior 3 years. I strongly suspect the reason was that each year I had insisted on filing extensions (because their situation isn't simple and I don't want to fool with it before Apr 15.) I had emphasized in this year's client letter a blanket statement that even more, and longer, extensions might be necessaary, especially due to continuing late/revised brokerage statements and potential ACA issues.

Lessons learned:

1) Adopt a strict extension policy and let the clients know up front they cannot control your time.

2) More importantly, learn to say "NO" at the outset, regardlesss of the exterrnal pressures.

I have #1 perfected, but unfortunately still working on #2 even at my age & proximity to retirement.

[Pacun]

I have three people that don't bring their paper in time. I wrote down a document stating: I will charge X if you bring your documents by Saint Valentines day. I will charge X*1.5 if you bring it by march 15th, I will charge you X*2 if you bring it by March 31st. If you bring them in April or after, I won't be able to do your taxes. I signed the document and kept a copy for my records.  I will see how much they want to pay and how eager they want to leave. Of course, I didn't send or show this letter to everybody because most people bring their stuff in time.

[David W Ristau CPA]

Politely ask via letter for the remainder of your invoice outstanding and include a copy of your invoice with payment applied.

Then when you see her at the book club you can either thank her for paying the remaining portion of the bill or ask when you will receive her payment.

I send out invoices and over 35 years have at times been burned on payment.

This year I started enforcing my 2% per month carrying charge and sent out invoices and statements.

Yes, it's a pain to generate the items in QuickBooks, print and mail.

However, I've noticed the deadbeats are starting to pay up.

At 6 months I turn the invoice over to collection agency and split what they collect.

Ask for large retainers.

[Margaret CPA in OH]

Okay, here is what I finally sent. Thanks to all for your input. I don't know how this will play out.

Thank you for the check received, #6306, in partial payment for invoice #1458, copy enclosed. I appreciate your note regarding my ‘usual charge,’ however there is no such thing. As my engagement letters and cover letters clearly state, I charge an hourly rate for the time it takes to understand the documents, clarify uncertainties through email, telephone and personal communication, input the data, review the returns, efile, invoice, and complete all processing. I have enclosed a report of your charges since 2003 and have looked at each invoice. Most years the time involved was 1.5-2 hours at the rate in effect that year.

For tax year 2013, 4.5 hours were documented and I provided a discount of 1 hour due to the health issues you mentioned about (son). The additional time was spent in email correspondence (at least 22 exchanges from April 9-Oct. 21), telephone calls and two meetings to discuss proper listing of specific deductions and review of final returns to file. These meetings and the final review were critical as your figures for expenses changed often over time so it was necessary to input the final, correct amounts in the proper place. You may recall us tracing the correct, final numbers from my printouts of myriad emails with differing amounts and types of expenses mixed together.

The most positive aspects of this extra effort were, finally, significant refunds of $866 for you at the federal and state levels and preserving the loss carryover at the local level. A refund has not been the case for many years.

As a self-employed sister professional yourself, you surely understand that invoicing for services provided is comprised of time, overhead such as software ($1300 in my case each year) and materials, as well as expertise (40 hours of continuing education at my expense annually as well as licensing as a CPA). I appreciate your confidence in my professional services for these many years. However, I choose to value those services appropriately. Even at that, I undercharge significantly compared to many less qualified preparers.

As has been necessary in a few other years per the enclosed report, it may take some time to pay for these returns in full. I understand and trust you understand my position, too.

Best regards now and in the New Year,