Q&A billing, collecting and suing for fees.

• Position: Practicemanagement - Michael Davenport of Camico Mutual Insurance Co. speaks about professional fees - Interview

When businesses and individuals are struggling as many are in this economy--they might delay payment on fees they owe. So what do you do when you have provided services and payment is due, yet no fees are forthcoming?

For some guidance, California CPA chatted with Michael Davenport, J.D., a professional liability claims specialist with CAMICO Mutual Insurance Company since 1988. The following provides some strategies regarding CPA fees, billings, collections, suits for fees and arbitration in a good economy or bad--and how to possibly avoid collection issues to begin with.

How can I avoid a collection problem in the first place?

The best way to communicate your billing and collection policies is in your engagement letter, including stop-work and/or disengagement provisions that can be enforced if a client doesn't pay you in accordance with the engagement letter. Also, bill on a timely basis and do not allow fees to build up to a point where you can no longer walk away from them. When unpaid fees become too large, they provide an incentive for the client to sue for malpractice, especially when the CPA has sued to collect fees.

Is there a better option than suing to collect fees?

CAMICO's claims experience shows that simple fee disputes are better resolved through mediation and arbitration than through litigation. That's why CAMICO recommends mediation for all disputes as a first step and binding arbitration for fee disputes only as a second step.

How do I get the client to agree to this?

The best way is to have a mediation clause for all disputes, plus a binding arbitration clause for fee disputes only, in your engagement letter, which is signed by the client. CAMICO members can find suggested engagement letter language on our website in the Reference Library under Risk Management/ Engagement Letters/Suggested Wording/ Mediation or Arbitration. Note that some states do not permit arbitration clauses.

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What are the first steps to take when a client is not paying?

Good communication with a non-paying client will either spur payment or set up circumstances that will make a potential demand for arbitration more effective. This involves sending a series of three letters requesting payment and communication from the client:

1. The first letter politely notes the fees owed, requests payment and asks if there is any reason for the delay in payment.

2. The second letter repeats the first letter.

3. The third letter notes the...