Why are accountants facing rising payment challenges?

Why are accountants facing rising payment challenges?

A recent survey reveals that accountants and financial advisers are grappling with worsening cashflow issues, primarily due to clients struggling to pay their fees. The study, conducted by Premium Credit, shows that 36% of these professionals have experienced deteriorating cashflow over the past year, while only 29% report improvements.

The survey, which polled 105 accountants and financial advisers in March 2024, paints a concerning picture of the financial health of these professional services. A staggering 75% of respondents report an increase in clients struggling to pay their fees, with 65% expecting this trend to continue over the next year.

The cashflow challenges appear to stem primarily from client payment issues. Nine out of ten (91%) surveyed professionals attribute their worsening cashflow to clients’ payment struggles, with one-third (34%) citing it as the main contributing factor.

The cashflow challenges are also set against a backdrop of broader economic pressures. The UK and Ireland, like many economies, have been grappling with high inflation rates and rising interest rates over the past few years – albeit a change in course now looks to be taking place.

These factors have put significant strain on businesses across sectors, potentially contributing to clients’ difficulties in paying professional fees. As businesses tighten their belts, professional services like accountancy and financial advice may be areas where they look to reduce costs or delay payments.

Reactionary rather than ahead of the curve

In response to these challenges, many accountants and financial advisers are adapting their payment policies. The survey found that 81% now allow some clients to pay their fees monthly over an extended period. This flexibility seems to be a necessary adaptation to the current economic climate.

 “Like many businesses, accountants and financial advisers are prone to cashflow issues if their clients are struggling to pay their fees, which our research suggests many are,” says Jennie Hill, Chief Commercial Officer at Premium Credit (Specialist Lending).

Beyond offering payment plans, accountants and financial advisers are likely exploring other strategies to manage cashflow. Some may be diversifying their service offerings, branching out into areas like business consulting or technology advisory services.

Others might be adjusting their pricing strategies, perhaps moving towards value-based pricing models rather than traditional hourly rates. Some firms may also be investing in more robust credit control processes or considering factoring services to improve their cashflow management.

While the survey doesn’t differentiate between firm sizes, it’s likely that smaller accountancy and financial advisory firms may be feeling the pinch more acutely. Smaller firms often have less financial cushion to weather payment delays and may struggle more with cashflow issues.

On the other hand, larger firms might have more diverse client bases and revenue streams, potentially helping them to better absorb the impact of delayed payments.

To address these issues, some firms are turning to third-party solutions. Premium Credit offers a “Fee Plan” that allows clients to spread the cost of fees over several months while ensuring advisers receive full payment shortly after job completion. The company reports a 139% increase in the number of accountants and financial advisers using this service over the past three years.

Looking ahead, the outlook remains challenging. One-third (33%) of surveyed professionals expect their cashflow to deteriorate further over the next year, slightly outweighing the 31% who anticipate improvements.

Technology is likely to play an increasingly important role in addressing these cashflow challenges. Beyond payment smoothing solutions like Premium Credit’s Fee Plan, we may see more widespread adoption of automated billing and collection systems.

Predictive analytics could help firms anticipate and prepare for periods of tighter cashflow. Moreover, blockchain and smart contract technologies might eventually streamline payment processes, reducing delays and improving overall financial efficiency in the industry.

As economic pressures continue to affect businesses across sectors, the financial services industry is clearly not immune. The adoption of flexible payment solutions may become increasingly necessary for accountants and financial advisers to maintain healthy cashflows while supporting clients through difficult times.

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