is it time to manage your receivables like a real business?

consequences: are there any?

by domenick j. esposito
8 steps to great

it never ceases to amaze me how lax many small and midsized cpa firms are when it comes to managing their work-in-process and accounts receivable and optimizing their cash flows.

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sloppy billing and collecting policies often result in lost billing opportunities (i.e., if you don’t bill it timely, clients forget the value you provided and resist receiving a bill 90 days after the work was performed) and for a need to have a relatively large line of credit. sloppy policies also result in year-end fire drills with clients when partners “beg” clients for cash before the end of the firm’s fiscal year end.

i often wonder what clients must think of their cpa firm if the partner, year in and year out, is lax about billing and collecting until the calendar hits dec. 31. bet they don’t think that you are a very good businessperson.

not quite sure i know why sloppy billing and collecting policies are tolerated at so many firms but my sense is that many firms lack the leadership, discipline and accountability to drive improved performance. particularly at the larger firms, my sense is that many partners view themselves as employees (not partners) and don’t take a real interest in improving firm performance. after all, what’s in it for them?

having said that, this malaise can be effectively dealt with and work-in-process and accounts receivable performance can be dramatically improved. it requires persistence and consistency by the firm’s leadership and the ability to pull the trigger when dealing with noncompliant partners.

presented below is an example of how one firm has addressed its quest for better receivables management:

this firm instituted a policy that requires as close to $0 investment in unbilled time as possible. this requires that every month, time on each client be either billed or written off (or some combination thereof). exceptions to firm policy will be granted when circumstances make sense to do so.
this firm instituted a policy that requires that all accounts receivable be collected within 60 days of billing. again, exceptions to firm policy will be granted when circumstances make sense to do so.
if a partner is unable to substantially comply with the billing and collecting policies as outlined above, that partner will meet with the firm’s managing partner (or his/her designee) to explain why compliance isn’t being achieved. sometimes the explanation can make sense but in many cases the explanation is an excuse for not trying. if the partner is a repeat offender of these policies (and the reasons for noncompliance are unacceptable), the firm withholds that partner’s monthly draw until the noncompliance is corrected. by the way, we have observed that a noncompliant partner usually modifies behavior for a few months but can easily fall back into unacceptable behavior if not carefully monitored.

the proof is in the pudding. at this particular firm, performance improved dramatically. work in process amounts over 60 days old have dropped by 25 percent and accounts receivable amounts over 60 days old have dropped by about 20 percent. on top of that, the firm’s dependence on a sizeable line of credit has diminished considerably. all good. and by the way, once the word gets out that firm leadership is serious about compliance with billing and collecting policies, the partner group generally pays attention and behavior changes take place throughout the partnership.

i am referring to one particular firm because it is a stellar performer when it comes to billing and collecting. there are many other firms that have adopted similar policies and they also have seen the fruit of their labors. so, it can be done if one has the conviction to improve.

now you may say that you can never implement policies that are similar to those outlined above. as an example, your tax-only clients are used to paying you what is owed after the tax returns have been delivered and some of your more substantial attest clients are traditionally slow payers. “things can never change with those clients and we are afraid that if we pushed too hard, these clients will shop their work to a different cpa firm.” these are merely excuses.

the world of business has changed. there is little doubt that your best clients themselves have tightened up their own billing and collecting policies. you lose nothing by going to existing clients and telling them that your firm needs to tighten up billing and collecting. see what comes back to you.

some existing clients will balk and perhaps those clients are understandable exceptions to your new policies. some others may balk and their inability to improve may be a good reason for you to exit from those client relationships. i have observed, however, that many existing clients will understand your logic and not balk. many will do their best to comply with your new policies.

moving forward, all your new clients will be told about your tighter billing and collecting policies up front as your relationship with them begins. compliance by new clients is considerably easier than compliance by existing clients. they have not been spoiled by your previous lax practices.

often cpa firm partners forget that their firm is a business. it has to run as a business. profits and cash flow are the lifeblood to any firm. yet, performance is nowhere where it needs to be.

i encourage you to take a hard look at your receivables management. i am guessing that there is considerable room for improvement. if i am correct, tighten up your policies. if your partners see that this is important to you, it will become more important to them.

compliance with policies is contagious. partners want to win but need to know that the firm’s leadership is applying tighter policies in a consistent manner. most important, they need to see that the firm’s leadership is prepared to pull the trigger when noncompliance is inexcusable.

posted on april 4, 2018

dom esposito

about the author

domenick j. esposito was the ceo of grant thornton, vice-chair of bdo, and national growth director at cohnreznick.

he is the author of "8 steps to great: the eight essential strategies driving success at the world's largest cpa firms. and how to apply the lessons at firms of all sizes," published by 卡塔尔世界杯常规比赛时间.

a life in public accounting

in 2016, esposito, then a former ceo of bdo, moved from a 46-year career in public accounting into the next phase of his professional life – consulting to cpa firms, launching a boutique advisory firm, esposito ceo2ceo, that provides advice to ceos, managing partners and other senior partners of cpa firms focused on the mid-market throughout the u.s.

with the launch, esposito authored “8 steps to great," a guide for ceos, managing partners, and other senior partners on how to move their firm to the next level.

cohnreznick national growth director

esposito was one of the most qualified individuals in the country to advise cpa firms on growth and profitability. through 2015, he was national practice & growth director and an executive board member of cohnreznick, llp, a mid-market sustainable brand and the tenth-largest cpa firm in the united states. he oversaw cohnreznick’s go-to-market industry specialization and consulting and advisory service lines. he was also intimately involved in the firm’s mergers and acquisitions and strategic and tactical activities for its public company and capital markets initiatives. dom joined the predecessor firm of j.h. cohn in 2002 as the chief operating officer and executive board member.

dom was also an independent director of ethan allen interiors inc. for several years (through 2014), dom was a member of the nasdaq listing and qualifications committee to the organization’s board of directors. he formerly served as the leader of the new york state society of cpas committee for large and medium-sized firms practice management. he also was an adjunct accounting professor at c.w. post/long island university.

bdo and grant thornton

through october 2002, dom was vice chairman at bdo, a mid-market sustainable brand and the seventh-largest international accounting and consulting firm in the u.s., with almost 50 offices and 3,400 employees. during his brief time with bdo, he was responsible for the alliance distribution network (at the time consisting of over 80 cpa firms, 10 law firms, and 25 consulting firms). he was also responsible for attracting and servicing a number of clients.

from 1979 through 2001, dom was with grant thornton, another mid-market sustainable brand and the sixth-largest international accounting and consulting firm in the u.s., with over 50 offices and 4,500 employees. he joined grant as an audit manager, became a partner in 1981, led the long island office from 1984 to 1986, became assistant managing partner of the new york office in 1986, and from 1988 to 1999, led the new york office. in 1999, esposito became a regional managing partner and for two years, through 2001, was the firm’s chief executive officer.

cpa, partner, mba, leader, influencer, media celebrity

between 1996 and 1998, and while he was ceo, esposito was on the partner board and was also on the board of grant thornton international – the worldwide umbrella organization. in these capacities, he developed strong experience in strategic thinking and execution, international relationships, corporate governance, partnership matters, branding, expense control, client relationships, and new business development.

as ceo, he took grant thornton to record earnings, consummated the largest line-of-business sale in the firm’s history, developed a major joint venture with axa financial, and made the largest practice acquisition in the firm’s history. from 1969 to 1979, esposito was with price waterhouse (now pwc), servicing ibm when he was promoted to manager in 1976.

dom was a cpa, has been quoted in national and local media, and has appeared on radio and cable tv.

esposito also testified before the securities and exchange commission.

he received his m.b.a. from st. john’s university and his b.s. from ferris state university. accountingtoday, one of the leading trade journals for the accounting profession, named esposito one of the most influential people in the profession for two consecutive years.

he passed away in 2021 at the age of 74.

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