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How to be cost effective

Brian Pinder-Ayres

You can pay a high price for losing your grip on getting paid

Having gone to all the trouble of winning the project, seeing the work through to the client’s satisfaction and sending in the final fee invoice, it is hard to understand why any architect would then neglect to collect all the money that is due. The work to which the invoice relates no doubt took place months before, so why accept any further delay at this  stage?

Good organisation is the key to effective credit control. The collection process should be neither aggressive nor apologetic; it just needs to be performed in a systematic way until the desired result is achieved. There still seems to be some reluctance among architects to talk to their clients about outstanding fees. There can be a feeling that this sort of conversation will damage the relationship with the client. In fact, I believe that the opposite is true. Clients do not respect architects who do not run their own financial affairs in a professional way.

Most clients will only deliberately withhold payment of an invoice as a last resort. This is a dramatic gesture, and clearly signals that earlier warning signs have been ignored. The relationship with the client has probably deteriorated badly by this stage and emotions will be running high. Yet at the heart of the problem will be an earlier unresolved difference in expectations.

It is best practice to keep all the documentation and e-mails that relate to fees in a separate file. This makes it much easier to monitor the project’s financial progress and raise invoices.  It will also help a lot in dealing with any fee related disputes.

Late payment

It is a good idea to include your payment terms on the face of each of your invoices. For example:

Invoices are due upon receipt and are payable within 30 days of the invoice date. We reserve the right to charge interest as provided for in our agreement or interest and compensation at the statutory rate on amounts that are not received on time.

This wording makes reference to the legal right to charge punitive interest and claim compensation for the extra administration involved.  

I see no good reason for an architect to finance its client’s business by accepting late payment without some form of compensation.

Many businesses have a system of paying their suppliers on a monthly payment ‘run’. By knowing when this takes place – as it is not always at the end of the month – and by sending invoices at the correct time, you can ensure that you get on the first available run and receive your money a month earlier than you might otherwise.

Good organisation is the key to effective credit control. The collection process should be neither aggressive nor apologetic; it just needs to be performed in a systematic way until the desired result is achieved

It is increasingly common to send out invoices only as attachments to emails these days. Although this is quick and easy, I still think it is a good idea for this to be followed up with a paper invoice as well. It is easier to ignore or delete an e-mail and its attachment than it is a piece of paper. This will arrive on someone's desk and will be a problem to them until they can pass it on or deal with it.

There is often a sort of blitz-spirit camaraderie between those who work in accounts departments. Many of them perform the dual role of chasing customer payments, while at the same time being chased themselves for payment by their own suppliers. This shared experience means that there is some sympathy for their opposite number who is chasing for payment and an understanding that it is an important task that has to be done. This ‘we’re all in it together’ feeling should be nurtured and put to good use in the credit control process.

The ‘drop-through effect’ of bad debt

I have seen situations where an architect will ‘give up’ on collecting the final outstanding balance of their fees.  If the total project invoices added up to £100,000 then it can seem ok to not bother with the ‘hassle’ of chasing in the final unpaid £2,000.

The problem is that the full amount that is written off is deducted as if it were an expense in the accounts, and in that sense it ‘drops through’ the profit and loss account straight to the bottom line and reduces the net profit accordingly.

So while the unpaid £2,000 balance may amount to only 1% of annual turnover, it may represent 10% of the annual profits.  Architects tend to operate on precarious, wafer-thin profit margins, so these small amounts can make a significant difference to the level of profit that is available to reinvest in the practice.

Resolving problems with fees

When it eventually becomes clear that the issue of an unpaid fee is not going to be resolved easily there are several formal ways to resolve the problem.  The RIBA offers a number of services to assist with these processes and full details can be found in the ‘Professional Support’ section of its website.  For amounts up to £100,000 the Money Claim Online service provided by HM Courts Service on the .gov website is both cost-effective and easy to use.


Brian Pinder-Ayres is author of Financial Management published by RIBA Publishing


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