Eliminate Net Write-offs: 5 Steps Towards Success
Is your firm struggling with write-offs? Benchmark reports show many firms are now achieving zero net write offs or even write-ons. What are some of the practical actions you can take to address this?
There is still great variation in the way firms deal with write-offs. Some firms still believe net write-offs are inevitable. Other firms effectively BAN write-offs and charge the WIP balance when the job is completed.
No matter what your approach, the key to success is to set expectations up front. This applies both to the accountant(s) doing the job and to the client. Use the following 5 steps to guarantee success in eliminating your net write offs.
- Establish a job budget up front for all client work. Many firms will develop job budgets for higher value work but will often ignore lower fee jobs where the percentage write-offs can be significantly higher. Also, beware of setting a job budget that ignores the reality of previous year’s WIP and write-offs.
- Inform the client of the scope of work and the fee range for completion of the work. Ideally, your clients should receive an engagement letter at the start of every financial year, outlining what you will do for what fee. The letter should also reinforce that you will charge an additional fee for work completed outside the agreed scope of work.
- Train your staff to identify, as early as possible, changes in scope of work that could affect the fee. A simple example is in the quality of work received from the client. If this deteriorates, why should the firm bear the cost.
- Inform the client of any significant change in scope of work as early as possible. A client informed as work proceeds is more likely to be receptive to an added fee than a client who receives an unexpected invoice amount.
- Most critically, monitor WIP vs budget as you go. Set up a system to alert the client manager when the WIP gets to 50% of the agreed budget. If there is a problem, it needs to be identified early rather than at the end of the job.
By focusing on scope of work, budgets and WIP, you should be able to eliminate net write-offs. Of course, there will inevitably be some jobs where write-offs are unavoidable. However, make sure that you focus on write-ups where the value of the job exceeds the WIP incurred in completing the job.
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