The awkward conversation most firms have once a year

It is the middle of March. A client emails to say they have decided to move to a new accountant. Nothing dramatic, no complaint, they just want a change.

They have been paying you monthly. Nine payments so far this year. Their year end is not until June, so the accounts have not been prepared and nothing has been filed.

A week later their new accountant rings.

"They have paid you for nine months and you have not filed anything. We are going to charge them to prepare the accounts. Can you refund those nine months?"

Why this is harder than it should be

Your instinct is that the answer is obviously no. You have been their accountant all year. You have answered questions, dealt with HMRC, kept things running.

Then you go and read your own engagement letter, and it does not say that anywhere.

Most letters are good on notice periods, and good on fees outstanding at termination. Very few say anything at all about what the monthly payments were for.

And in that silence, the client's reading is not unreasonable. They were paying monthly towards a piece of work. The work has not been done. Therefore the money should come back.

Without a clause, you are not defending a position. You are having an argument about what everybody assumed.

So you either refund, or you dig in and spend a fortnight of goodwill and attention on it. Neither is a good outcome, and the second one is not obviously cheaper than the first.

What the monthly payments actually buy

The way out is to have decided, in advance and in writing, what the client is paying for each month.

For most firms the honest answer has three parts.

Ongoing access to advice. The questions through the year, the calls, the quick sense-checks. This is the largest part of what a client gets and the part least visible on any invoice.

Your continuing role as their agent. You are on record with HMRC, correspondence comes to you, you are watching their deadlines. That has value every month whether or not anything is produced.

Work scheduled and resourced. You have planned your year around their year. Their accounts had a slot. That capacity was held for them and could not be sold to somebody else.

Write those three things into the letter and the March conversation changes completely. It is no longer a matter of opinion. Once a month has been paid, it has been paid, and both parties agreed that at the start.

Say it in a way a client would accept

There is a wrong way to write this, which is to make it read as a firm protecting itself against its own clients.

The clause should describe the arrangement, not defend it. Something whose substance is: your monthly fee covers ongoing access to us, our role as your agent, and the work scheduled for you through the year. It is not an instalment plan towards a single job, and it is not refundable on that basis.

That is a description a client can read at the start and think: yes, that is what I am buying.

The wording we actually use

Rather than describe it and leave you to draft it, here is the clause itself. This is the one in our own engagement letters, and it is the default in Power Pricing.

Monthly payments and refunds

Your monthly direct debit payments cover (a) ongoing access to our advice and support, (b) our continued role as your appointed agent with HMRC, and (c) the scheduled work performed across the engagement. Because the service comprises ongoing access as well as scheduled deliverables, monthly payments are not refundable regardless of whether specific deliverables (such as accounts, tax returns, or submissions to HMRC and/or Companies House) have been completed in any given month.

If you move to another accountant during your financial year, your new accountant may charge you for work covering periods already paid for under this engagement. We will not offer refunds for those periods. Any additional fees charged by your new accountant for overlapping work are your responsibility.

Take it and use it. It is more useful to the profession sitting in your letter than sitting in mine.

Two things to notice about how it is built, because they are the reason it works rather than incidental.

The first paragraph does all the load bearing. It never argues that you should not have to refund. It simply states what the money was for, and once (a), (b) and (c) are on the page, the no-refund position follows on its own rather than needing to be asserted.

The second paragraph deals with the actual conversation. The pressure almost never comes from the client. It comes from the incoming accountant, who quite reasonably wants paying for work on a period you were paid for. Naming that situation explicitly, before it happens, is what turns a negotiation into a paragraph you both already agreed to.

The usual caveat applies: this is what we use, not advice for your firm. Read it against your own professional body's requirements and your own terms before adopting it, and change anything that does not fit how you actually work.

Which is the real point. The clause is not primarily for the day somebody leaves. It is for month three, when they are working out whether ringing you counts as an imposition. A client who has read that sentence knows their fee includes access, so they use it. A client who has not read it rations their own questions and then wonders what they are paying for.

Be reasonable at the edges

Having the clause does not mean using it in every situation, and it is worth deciding in advance where you would not.

A client who leaves in month one after nothing has happened. A client leaving because something went wrong at your end. A client who is closing their business rather than moving firms. In those cases you may well choose to be generous, and you should.

But there is a large difference between choosing to be generous and having no ground to stand on. The clause gives you the choice. Without it, the decision is made for you by whoever is most willing to keep arguing.

The pattern behind this

This is the same idea as several of the other things worth fixing in a practice, wearing different clothes.

Firms lose money not on the fees they negotiate but on the things nobody wrote down. What monthly payments buy. Whether the client can be late. Who covers the part of the year before you took over. Each one is invisible, each one is only tested occasionally, and each one costs a firm somewhere between a few hundred and a few thousand pounds every time it comes up.

In Power Pricing this clause is in the engagement letter template as standard, in plain English, and it can be switched off if it does not fit how you work. It is the one I am proudest of, because it is the one that most obviously pays for itself the first time a client leaves in March. You will not find it in other tools, which is mostly because it came out of having the wrong version of that conversation myself.

Worth doing today

Open your engagement letter and search it for the word "refund".

If it is not there, you already know how the next March conversation goes.