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Accounting firms are likely to experience more than twice the average debtor days compared to other industries, with the fallout of the pandemic set to exacerbate the problem.
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23 days late: Accounting firms face growing debtor days
21 December 2020
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A white paper by fintech Moula has found that accounting firms are usually paid 23 days late if payment terms are 30 days, compared to 9.9 days for all industries.
The figures blow up to 77 days for total lock-up days, which includes work in progress plus debtor days.
With more than half of accounting firms offering clients more flexible payment terms due to COVID-19, the white paper has revealed that cash flow now ranks within the top five challenges facing practices, despite such concerns failing to feature for three of the last four years.
The white paper notes that there are a range of strategies to help reduce delays, including documenting credit policies, communication of payment terms clearly to clients, confirming upfront fees, invoicing regularly and automating accounts receivable.
Industry consultant Melanie Power believes firms can help manage the issue by setting expectations up front.
“Communication and transparency are crucial when negotiating your terms and helping them get paid faster,” Ms Power said.
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“For a service-based business, I’d recommend finding out about your clients’ cash flow situation upfront — this enables you to offer appropriate solutions that meet their needs.
“This is also important when considering your sales process. By having a robust sales process, you can present a proposal and ensure you are getting your client the right solution.
“Clients want certainty, so being transparent and up front and also discussing money and terms is important. Many people shy away from this conversation, and it’s usually because we are uncomfortable. Learn to be comfortable with being uncomfortable and have the conversation — this will reduce pain points for both parties.”
Moula chief executive Aris Allegos believes firms should consider a range of options to reduce debtor days, including adopting an in-house accounts receivable team or outsourcing the role, using collection agencies, utilising professional fee funding, or considering the fintech’s Moula Pay option.
“Our research revealed that 63 per cent of SMEs experience cash flow shortages resulting from the late payment of invoices,” Mr Allegos said.
“Accounting practices are no exception to this challenge. In fact, they have higher average debtor days than other sectors.
“In response to the late payment challenges facing SMEs, we developed Moula Pay, a better way to offer B2B payment terms, and get paid up front when invoicing.”
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