Tuesday, July 8, 2008

Fixed Fee Billing

When interviewing an accountant, whether this is your first time hiring one or whether you are making a change from your current accountant, one factor to strongly consider is how you will be billed. Will the accountant bill you on a per-hour basis or will you enjoy the benefits of fixed-fee billing.

Although hourly billing seems to have been the industry standard for over 50 years, as the client, it’s time that you stand up for your rights and demand a change to fixed fee billing.

Fixed fee billing is a method employed by many newer accounting firms. It involves them gathering enough information about you and your business to estimate what amount of work will be involved in servicing your company. Using this estimate, the accountant determines a set monthly, quarterly, semi-annual, annual, or per-project fee.

Major Benefits of Fixed Fee Billing:

1) You always know what the fee will be before you agree to the work

2) Rather than hesitating to call or e-mail your accountant with a question out of fear that his meter will be running, you enjoy the freedom of being able to pickup the phone or shoot him an e-mail whenever the need arises

3) No time wasted questioning or disputing bills for which your accountant and his staff spent more time on a project than you think they should have

4) Not being subject to “timesheet padding.” When your accountant’s staff is working on your file and they take a cigarette break, grab a cup of coffee, get interrupted by a phone call, have a computer problem, or chat with a co-worker, you can just about guarantee that this time will be billed to you. While all employees deserve a break, you should not be paying them for their rest.

5) Not being subject to billing program intervals. Most billing programs that accounting firms use to track billable hours run off minimum intervals such as ten minutes, twelve minutes, or fifteen minutes. This means that when you spend three minutes on the phone with your accountant, you are going to be billed for at least ten minutes. Doesn’t seem like much, but add up all the rounding for an entire year and you are looking at five-ten additional billed hours each year.

Small businesses can save an average of $500-$1,500 per year in fees simply by hiring an accounting firm that utilizes fixed-fee billing.


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Pat said...

Would a firm that is already established ever consider switching to fixed billing? Are there any advantages for the accountant besides hoping to overestimate the amount of time it would take?

Michael Hanley, CPA said...

I think the biggest advantage to the accountant is the level of trust that fixed-fee billing brings to the table. When a client knows exactly what amount they will be billed and then they receive a bill for that exact amount, they know they are dealing with a reputable firm.

No matter how honest the billing practices of a firm that bills hourly are, there will always be a certain percentage of their client base who feels that they were slighted. Whether it be that they do not know why a task took so long, or why more time & attention wasn't given to their account, or why task x took 2 hours last month, but that same task took 2.5 hours this month.

I find that the trust factor is very important in keeping an open dialogue with clients and results in more referrals to the accountant.