Friday Q&A: Client payment plans for tax resolution fees

It’s one of the most critical questions in the tax resolution industry: To accept or not to accept client payment plans for fees.

I’ve written quite a bit about fee structures and payment arrangements, and this morning Danny sent me an email with several questions pertaining this topic:

How many months do you allow someone to pay? What sort of upfront fee do you collect? Do you use an online auto bill to their credit card? Do you have a written agreement and do you file the agreement?

Let me first start with this: I no longer offer payment plans to clients, and I advise other solo practitioners not to, either. My stance is that if a client wants my help, and cannot pay my full fee up front, then that client does not meet my established criteria for my ideal clients. When you are a solo practitioner in particular, you should set fairly strict criteria regarding the clients you will work with. When it’s only you, you should be far less willing to deal with problem clients, and you don’t have to.

Please note that this entire article really applies to those doing flat-fee client work (aka, value billing). If you are billing hourly against a retainer, then most of this will not apply to you, because these tips are sort of built in to the retainer model.

With that said, if you either choose to accept payment plans from clients, or own a larger firm and are going after the volume angle in order to compete on the playing field with the large national firms (which is perfectly OK, of course), then you should set strict guidelines regarding your fee payment arrangements.

First of all, collect as much of the fee up front as possible. Never go for a series of equal payments over time — always insist on the first payment being significantly larger. The reason for this should be obvious: Tax resolution work is heavily front-loaded in terms of your time commitment to the client. It’s not uncommon for half your billable hours on a tax resolution case to occur within the first week of a client hiring you. Collect enough in the initial payment to cover this work.

Second, whatever payment arrangements you do make, automate it. In other words, set up the payments on automatically recurring ACH drafts or credit card drafts, so that you don’t even have to think about it. Most merchant account and ACH payment systems allows this functionality. If a payment doesn’t clear, then make it your policy to stop work immediately on a client’s case, and make sure that your engagement letter includes this. Your engagement letter/service agreement should also state that any adverse consequences suffered by the taxpayer, including levies and seizures, that occur as a result of your work stoppage due to their missed payment is their responsibility, not yours. We’re here to help people resolve their tax problems, but we also don’t work for free. Well, maybe you do, but I sure don’t!

Third, limit the duration of the payment program. Most cases are resolved within 120 days, except for Offers in Compromise, extenuating circumstances, or the client’s refusal to play ball. For all of these reasons, you want to be fully paid well before that 120 days is up.

Here’s a perfect example. Let’s say your quoted fee is $2,500 to assist a taxpayer in obtaining an Installment Agreement on a $45,000 IRS liability. If the client can’t pay the full amount, maybe you offer them a payment plan of $1,500 up front, then $500 automatically charged to their credit card every two weeks for a month. If that doesn’t work for them, insist on $1,000 up front, $750 in two weeks, $750 in a month.

Still doesn’t work for them? $1,000 up front, $500 every two weeks. Still no go? $1,000 up front, $250 per week. Still no? $1,000 up front, $300 every two weeks for five payments. And that’s the last offer.

Note that the $1,000 up front stays — it’s non-negotiable in this example. Accepting $500 up front is a recipe for disaster, and you will come to regret it.

Most importantly, if you do accept payment plans, make sure that it is spelled out in writing, along with the consequences to the client for failure to meet the payment schedule.

Lastly, if you are running a large volume tax resolution practice, you will quickly discover that certain industries have more cash flow problems than others. Restaurants, bars, and childcare centers in particular have issues with this, and you may want to have alternate payment policies for these clients. For example, you may insist on no less than 50% up front from these clients.

Never put yourself in a position where you have completed client work and then the client can skip out on the bill. In the case of bookkeeping, writeup work, and return preparation, we can withhold the work product until the client pays us. With collections representation, however, there is nothing to physically withhold, since the negotiation with the Service is done when it’s done.

Comments on Friday Q&A: Client payment plans for tax resolution fees

  1. WilliamFox says:

    Have you ever had issues re: merchant chargebacks? If so, what systems have you employed to prevent this from happening in the future. I know an EA that allowed his cient to pay his $2,000 tax resolution fee in monthly installments ($500/month x 4 months). Although the case was resolved in three months, a month later (month four), the client disputed the charges with his credit card company, and the funds were reversed…IMMEDIATELY. The EA filed a dispute and won, but not until 6 months later.

  2. Jassen says:

    Great question, William. And yes, it happened once, a long time ago, to the tune of $3,750, and I lost the chargeback dispute. To avoid this, you could choose not to accept credit cards for certain types of cases. There are plenty of tax resolution firms that will only accept certified funds of some sort, or ACH only, for the majority of their clients. This avoids the credit card issue entirely. This IS how I used to operate — it was incredibly rare for me to ever accept credit cards from tax resolution clients. Now, I’m the complete opposite: I’m 100% credit/debit card. I don’t even have my ACH processing account anymore. This came about because of two things. First, I’m not physically present in a place where I can be sent a cashier’s check or money order and walk in to the bank and deposit it. So it’s a lifestyle/operational thing for me. Second, it’s not an issue now that I operate a “boutique” practice, and am HIGHLY selective of the tax resolution clients I work with. In other words, choose to work with higher quality clients.

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