Executing a hyper-receivables strategy: 'bad' clients can be good for profits.

• Author: Lacher, Carl J.

Effective management of Accounts Receivable (AR) is undeniably an absolute in any business that does billing on account, including CPA firms. The amount of the balance over 30 days is a key indicator of how well this balance-sheet caption is being managed. There is, however, another side to this: An AR that goes into the over-one-year column can be converted to a good client!

In the conversion process, any business, including the CPA firm, can add significant revenues and achieve profits through better use of "down time." Accomplishing this requires careful management of the credit-granting policies and the nature and timing of the work done for the client. Care in selecting and diligence in managing the client involved in "delayed collections" is the challenge.

A counter-strategy

Does good management dictate never doing work for a client over 90 days in AR? No! The prevailing belief in the management of an accounting practice is to discontinue working for clients in the over-90-days category. Circumstances, however, may dictate "planning" to work for a client to go into the over-90-days category. In both of the cases in which we continued to work with such a client, we had a partners' meeting without the client at which we made a conscious decision to say, "Yes. We're willing to do this."

Obviously, not all clients fall into this category. However, our firm, Lacher McDonald & Co., CPAs, Seminole, Florida, has experienced some unusual situations that fly in the face of the 30-days-only indicator. Start-up clients and clients about to experience tremendous growth are likely targets of this "hyper-receivable" strategy.

In the first case, we achieved full billing for fees significant to us for a start-up client. Up front, the client fully disclosed to us as to when we would be paid and what the downside risks were and that further work could be in the over-one-year category. We advised the client that we would not be independent if the fees went over the one-year mark and that, in our slowest times, we would work on compliance matters that could be extended. Tax returns and even some financial statement reporting would be done in the slower times of the year. The client agreed to this, and we were certain they understood the nature of our timing.

A benevolent challenge

The work was incredibly interesting as we developed spreadsheets and, ultimately, a forecast and worked with the client on the many changes. Seeing the company come to life and...