When clients don’t pay: How accountants can recover unpaid fees

The article is relevant to members in Australia and New Zealand and was current at the time of publication.

You’ve finished the work and your invoice has been sent, so where is the payment? This is a question that public practitioners like John Zerella FCPA ask all too often. The Founder and Managing Director of AFM Services in Adelaide says, “a week doesn’t go by” without chasing clients who cannot or will not pay their fees.

“As a percentage of our clients, it’s generally a very small number, but because we have so many clients, there’s always an issue somewhere,” he says. 

“I’ve pursued clients through the courts perhaps half-a-dozen times in my 30 years in practice. On every occasion, the outcome has been unsatisfactory. The process can be drawn out and stressful and, unless the amount of money involved is substantial, it often just isn’t worth it.”

Value for money

Cost-of-living pressure means many small businesses and individual taxpayers are feeling the squeeze, but Zerella says most payment problems arise when clients misunderstand the scope of work.

“I’d estimate that this accounts for about 80 per cent of the issues we encounter,” he says. “Clients often assume that everything we do for them falls under the same arrangement, without necessarily understanding what’s included and what isn’t.”

Zerella adds that the other 20 per cent consists of clients who genuinely cannot pay or who undervalue the work. 

“They don’t necessarily appreciate the work involved, particularly the quality control processes,” he says. 

Katherine Psomas, General Manager Professional Conduct for CPA Australia, says practitioners are entitled to pursue outstanding fees “through whatever means are available to them”. 

“We do receive complaints from clients who haven’t paid their fees,” Psomas says. “There is frequently a close link between the non-payment of fees and the client’s dissatisfaction with the quality of the work. However, that does not necessarily mean the member has engaged in any wrongdoing. Any outstanding fees remain a matter for the member to pursue independently, as CPA Australia does not become involved in debt recovery.”

The limits of a lien

Accountants have several options for recovering unpaid fees. For example, registered tax practitioners may be able to claim a lien over client property for outstanding professional fees or charges. 

The Tax Practitioners Board provides guidance, but the Board’s Director of Policy and Legislation, Tariq Kumar, notes the importance of seeking legal advice.

“Registered tax practitioners can only claim a lien over property upon which they have expended labour and made more valuable,” he says.

“For example, the courts have said that a lien would attach over a general ledger, balance sheet and draft income tax return prepared by an accountant.

“However, a lien would not extend to invoices or a sales journal where those documents are provided to the registered tax practitioner only for checking and do not embody the result of the registered tax practitioner’s labour.”

If withholding documents could affect a client’s ability to meet a lodgement deadline, Kumar advises tax practitioners to seek legal advice and to continue to meet their obligations under the Code of Professional Conduct.

Bruce Pasetti, Legal Practice Director at Brisbane-based Stratos Legal, says that while claiming a lien may be a consideration for accountants, the option has become less valuable in the digital age.

“When records are exchanged through the cloud and clients already have direct access to systems such as Xero, the lien may have little practical value,” he says. “There’s nothing for the accountant to withhold if the client already has access to it.”

Exploring your options

Pasetti describes the relationship between an accountant and a client as a standard creditor-debtor arrangement. 

“Accountants have an advantage in that they often have some insight into their clients’ ability to pay,” he says.

One option is to establish a repayment agreement at the beginning of an engagement.

“Depending on the size of the debt, the agreement can also set out the consequences if the client fails to honour it,” Pasetti says. 

“That approach can help preserve the commercial relationship while ensuring the accountant gets paid.”

Impartial mediators can help accountants and their clients to negotiate an affordable repayment plan or settlement without going to court. Zerella says debt collection services are also an option.

“We use a debt collection agency, but we find that the people who eventually pay something are generally those who know they owe the money but don’t want to pay for whatever reason,” he says.

Prevention versus debt collection

Payment problems can often be avoided through a focus on prevention – and this starts with a robust engagement letter and clear communication.

“Accountants will often advise their clients to establish good credit terms but, like many mechanics, they never get around to servicing their own car,” Pasetti says. 

“When we advise an accountant about an outstanding debt, the first thing we look at is the engagement letter. If it’s robust, it may provide for security over the client’s assets, such as mortgages or charges.” 

A challenge, says Zerella, is that clients may question the quality of the work, or dispute the scope and how much that work is worth.

Zerella has a general policy that if out-of-scope work in progress exceeds A$3000, his team contacts the client.

“We call it a ‘tools-down conversation’,” he says. “We get on the phone and say, ‘Listen, we’ve reached this point. Do you want us to continue? We can also give you an estimate of what the remaining work is likely to cost’.”

Zerella’s practice offers payment terms of seven days, but if an invoice remains unpaid at the end of the month, it issues a statement of outstanding fees.

“We find that invoicing promptly can resolve around 50 per cent of late-payment issues,” he says. “The statement at the end of the month then picks up a large proportion of the remaining unpaid invoices.

“If an invoice is still outstanding by the middle of the following month, we generally call the client,” Zerella adds. “We also follow up by email, but we find that the hard work is often done when you communicate directly with the client.”