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In today’s episode of ‘From the eLearning Trenches,’ we asked one of our learners to identify one recent job they completed where there was a significant client write-off and consider (a) what were the causes of this write-off? (b) What could they have done differently?

The firm engaged a new client within the last 24 months, and I was the main point of contact. He was super friendly and engaging and came across as a switched on and smart manager. He was taking over the family business from his father and needed assistance with the handover and future tax and accounting needs.

We had a conversation about what that looked like and how we could best work together to achieve the goals we discussed.  I followed up the conversation with an email and all looked like it was going ahead smoothly. I also had the client sign an engagement letter.

The first year of trading rolled by and we had some communication back and forth (regarding quarterly BAS’s etc), but he would take longer and longer to respond. I also noticed that BASs were not being paid, despite my reminders, and the ATO debt was mounting. Regardless, I started preparing his annual financials and spent a large amount of time tidying up his Profit & Loss and Balance Sheet. I sent him some queries and didn’t hear back from him.

The next time we heard from him was when court ordered debt collection notices started arriving at our office – the registered office of his company!

The total amount of WIP would have added up to around $3,500, which the firm ended up tagging as a client write-off.

This is a difficult one for me, as I don’t know what I could have done differently in the first instance. He presented, at least initially, like any promising new client. I think the point that I could have stopped doing work for him (in order to minimize any WIP client write-off) would be when I noticed the ATO debt stacking up. I should have called him to check in and discuss options to assist him (pending payment of any outstanding WIP).

Feedback from our experts

Sometimes we can be so busy doing the work that we overlook warning signs from the client and don’t follow up proactively when things fall behind. In this case, it seems likely that the client was quickly drowning financially and didn’t have the foresight to contact their accountant to discuss options.

At the same time, it was clear from the financials that ATO debts were becoming an issue for the client. At this time, a meeting could have identified some potential solutions (or at least stopgaps) to address the client’s cashflow concerns.

Do you ever find yourself in a situation where lack of communication with the client leads to an outcome that could have been avoided if either the accountant or client had simply picked up the phone? Whilst handholding is not often included in the ‘scope of work,’ it’s important to have processes in place to identify client financial issues as early as possible.

There were 2 clear warning signs with this situation. The client was not providing information required to submit BAS statements. And the WIP was getting out of control!

Some potential actions to consider:

  • Establish a process for proactively following up clients when information is requested. Delegate this process to client service administration if possible
  • Contact new clients with ‘how’s it going’ phone calls at least quarterly during the first year of a new engagement
  • Set up an automatic procedure for client contact if tax returns are outstanding and/or ATO debt is increasing without a plan to address issues affecting cashflow

 What would you have done in this situation to assist the client and protect the firm?

This assessment task and response is taken from the Path to Partnership eLearning Course. Click here to explore this course

Also, take a look at the Ultimate Practice Manager eLearning Course

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