How to move to upfront payments and improve cash flow

Maximize cash flow and build a zero accounts receivable practice with this guide.

For accounting and tax professionals looking to build a zero accounts receivable (AR) practice, one approach is to make upfront payments a requirement for clients. Upfront payments mean clients agree to pay before or at the start of the work through agreed payment terms and payment details collected in advance. You’ll eliminate the hassle of managing AR and maximize cash flow.

Although such a change may seem daunting at first, there are simple and effective ways to make the switch. This article explores why you should consider upfront payments and shares practical tips to get you started.

If you’re an accounting or tax professional trying to scale your practice, there’s always an element of change management. You have to understand where you want to go. For example, if you want to move to a zero accounts receivable practice, you need to stop delaying the invoicing and the payments. “To stop the bleeding, move to upfront payments,” says Jennie Moore.

There are a number of ways accounting and tax firms can get paid upfront for their services. One approach is to implement a recurring revenue model, where clients pay a fixed fee at regular intervals for ongoing services. Another option is to use retainers, where clients pay a set amount on a regular basis for a certain amount of time. You can also consider implementing automated billing and payment systems to streamline the process.

1. Choose the billing approach that fits each service, such as recurring fixed fees, retainers, upfront deposits, completion-based billing, or a combination of models.
2. Update proposals and engagement terms so clients can clearly see the services, pricing, billing frequency, and payment expectations before they accept.
3. Request payment details upfront in the proposal so the payment process is agreed to before work begins.
4. Give clients proper notice before changing the billing process. At least four weeks is customary.
5. Automate invoicing and scheduled payment collection to reduce manual follow-up and lower the risk of accounts receivable building up again.

Making the move is similar to switching your billing model – such as moving from an hourly or per-project basis to a recurring revenue model. You have to have the proper tools in place to articulate your value.

“You need to have a really great proposal system and a really great workflow,” says Jennie Moore. “Chances are, many of you have already optimized the systems in your back end. But you haven’t optimized your back office. Moving to upfront payments is frankly just going to a billing system that accommodates for that. And that's what Ignition does.”

Technology and automation help practices collect payment details, automate billing, and reduce accounts receivable risk. Tools like Ignition can also help you optimize revenue, reduce costs, and improve your practice efficiency. With Ignition, you can:

• Automate your billing and payment collection process.
• Sell confidently with branded online proposals.
• Get automated engagement letters that outline your services, pricing, billing frequency, and engagement terms.
• Save hours on administrative tasks with app integrations.

Ignition makes it simple to engage clients, bill, and get paid for your services – all in one place. You can request client payment details upfront in your proposal and minimize the chance of non-payment. Once they sign, Ignition then automatically invoices your client and schedules the payment for a specific date, reducing the risk of accounts receivable.

Ignition also lets you choose from a range of flexible billing options, whether your practice uses recurring or fixed-fee billing, bills by the hour, or both. You can bill your clients weekly, monthly, quarterly, or even annually when creating proposals. You can also bill on completion or upfront deposit, giving you the flexibility to choose the billing frequency that works best for you and your clients.

Client communication should be clear, early, and supported by proper notice before any billing change. When you move to getting paid upfront, you need to communicate the change to your clients and give them proper notice. (At least four weeks is customary.) Communication and cadence are key.

Jennie Moore discusses the importance of this in Tips for improving cash flow: Diagnosing accounts receivable. You want to clearly communicate what's happening.

What’s more, you want to give your clients a hassle-free and convenient way to pay. Make sure, when your proposals go out, that they have Automated Clearing House (ACH) or Pre-authorized debit (PAD) and credit card payments enabled.

“Clients can't sign the engagement unless they put in the payment information,” says Jennie Moore. “And if there's a question as to why that is, then you have a script for your team to come back to and articulate what the new process is for the firm. Again, it’s about communication.”

“We used to have over $100K of accounts receivable every month, but after 12 months of using Ignition, that number went down to zero!" says Sean M. Duncan, CPA, and Founder of SMD Consulting & Accounting.

And Sean M. Duncan is not alone. Marie Greene of Connected Accounting has a similar story to share. “We have zero accounts receivables, literally none. I used to have to chase people,” she says. “Now, we charge our clients the first of the month – it's automatically withdrawn from their bank account or from their credit card account.”
 

Building a zero accounts receivable practice through upfront payments is possible with the right process and platform support. Join the growing number of accounting firms that have successfully achieved this goal with the help of Ignition.