This post is the experience and lessons learned from an Enrolled Agent (EA). As small business owners, we can learn from ‘Tax Blonde’ and her experience (this isn’t my story — I do not provide tax services anymore) in the story below.
(Do you want to share your story with lessons learned? To be considered for future posts, please click here to submit it.)
Goodness, what a day. I had the great displeasure of suing a (former) client of mine in small claims court. This was not an easy decision for me, I struggled with it for quite a while. It goes directly against my business philosophy of helping my clients. I have had clients that haven’t paid me in the past, and I have let it go, but this one was different. This one I just couldn’t stop thinking about it, it got to me.
This was not an easy client to work with when they were supposed to be co-operating, one of the worst in fact. A real “stick my head in the sand and it will all go away” type. So it was not a surprise to me that once we identified the true amount to pay IRS and ME, this client vanished.
I tried to let it go. I tried to tell myself it was a difficult lesson to learn, but a lesson none the less. See, due to the nature of IRS hardball, I was under the assumption that the client could not pay me a retainer. My bad, I believed the client, I should know better. This wasn’t my first rodeo, but I had taken good faith accounts before and in the end they had all eventually paid.
So I spent a good portion of a day preparing my files and preparing myself to battle against someone that I had previously battled for… not a good feeling, didn’t sit well with me. I felt confident in my workpapers. I had been warned that the fastest way to ha
So there I sit in court, waiting. When it was our turn, the client admitted that yes they did owe me but they did not agree with the bill (first I had heard of this..). And here are the words that I need to remember. “You never told me how much you were going to charge me.” Now this is not true. I had discussed from the beginning how much the work would cost. It was a constant theme, “we can do this and it will pay IRS and ME, or how about this.. that will pay us both off, you know my fee is going to be $$$”. The client would always find a way of getting out of the meeting upon the utterance of these strategies. And due to the nature of how the client came to me, and the nature of the client, I never had this person sign an Engagement Letter. I have always been a hand shake business person. I have only a few clients that I began business with an engagement letter. After all, we are accountants and tax practitioners, if our clients can’t trust us what good are we to them? If I can’t have a friendly business, than why bother?
I asked for a trial in order to prove my bill, but the nagging thought in my head was “I don’t have anything in writing that proves the client knew my fee”. After a strong discussion outside the courthouse, the client and I came to an agreement and I was paid cash (amazing they could come up with the dough so quickly…). I settled for less than my invoice, but enough to let me put this behind me and get some sleep.
I never thought that someone I worked so hard for would stiff me. I never thought I’d actually sue a client. I very well could have lost if it went to trial and the judge deemed my invoice too high. And it would have been my fault because I didn’t have an engagement letter spelling it all out.
So, what did I learn today…. hmmmm. 
- I don’t care about the sob story, if it is a collections/non-filer case, get some payment up front as a retainer or deposit.
- Use an engagement letter that spells it all out to the client.
- Stand up for myself, I’ve worked hard to know what I know, it’s worth something.
- (the most important less) Respect my business, treat it well, take care of it. It keeps a roof over my head and food in my belly,… and provides good services for some of the best clients on the planet. I realized that I had documented everything for my client work, had notes of all phone calls, results, scanned every single document, etc. Like I said, my workpapers were good. It was my business that I had let down. I was so busy saving my clients that I forgot to protect my business.
Lessons learned.
Thank you “Tax Blonde” for sharing your story and lessons with everyone. A few more comments and resources:
- There are sample engagement letters for QuickBooks consulting services in the practice resources section here. For sample engagement letters for CPAs and taxes check here or ask your insurance provider.
- Before filing a claim or suing a client (or customer), contact your insurance provider for assistance and guidance.
- Communication (and documentation) with clients and customers is critical but sometimes things still go wrong. Learn from it like Tax Blonde.
Do you have a story to share with lessons you learned? If you would like to share it with others, send it in for consideration by clicking here.
Obviously, this is going to depend on the state, but I’ve successfully taken clients to small claims, and won, without an engagement letter. I agree, it’s best practice, but, if you were invoicing the client as you went, their claim that they did not know what they were being charged is false. Additionally, if you had a “verbal” agreement “to do the work”, and they admit it, it will hold up in court, regardless of “how much”. And, yes, it’s not fun (especially when you still don’t get paid).
I’m sorry about the bad link — Intuit updated and changed their website. Check with your insurance provider — they usually have sample engagement letters they want you to use. Or Google it and I’m sure you’ll find some samples.
Hi Michelle,
I am doing a simple QB setup engagement and decided it was a good idea to use an engagement letter. I followed your link to the Intuit Samples but was redirected to another page. Do you have an updated link I can use?
All we are doing is setting up the chart of accounts, entering opening balances, and setting up online banking at this point.
I am looking for a sample engagement letter to use.
We went through a peer review in my last CPA office (I recently moved cross country). One of the issues was our lack of engagement letters. The peer review hit us hard on that point. So my boss asked me to take care of the problem. I set up a database with client info and rates for all our services, wrote standard engagement letters appropriate for each type of client, and did a mail merge. We have all clients sign the letter and revise it every year. If you’re a tax professional you have to act in a professional manner, and this is just one of those things you have to do. It sends a message to clients, and if they don’t want to sign it that should be an indication they are a client you don’t want.
I agree the Engagement Letter serves to protect the client and the accountant (not intended to attack anyone). I agree that it is a great way to facilitate communication and clarify the details of the engagement. In this post, she (not me) failed to get an engagement letter.
Hello, Michelle:
I’m a new CPA candidate, so perhaps interpersonal relationships to this level of complexity in the world of accounting is still a bit far from me.
But while I understand your intention to help clients, yet I don’t think CPA-client relationships should ever become personal. While it is true that clients are at a relatively weaker stance when they approach a CPA, yet they are adults as well and are expected to show mutual respect as they would be expected in any instance of social conduct.
And so for the engagement letter, I don’t think it should be seen at all as a tool to attack each other by either the CPA or the client in case problems down the road end up putting them in court, like a marriage contract. Rather it should be seen as a representation of due care on both sides to do what they can to prevent misunderstandings before they materialize into problems that involve each other’s financial interests. I would consider it to be a symbol of professionalism, which should be the main reason it was written into the standards of professional conduct.
So I guess don’t try to avoid the engagement letter with clients, but rather be open about it. ; )
Just another reason to quote and be paid up front BEFORE starting the work – and, yes, having a clear engagement letter!
This is one reason I post my rates on all of my websites and when I e-mail a client confirming an appointment, I remind them what I charge and that payment is required at the time of service. It seems to prevent these kinds of problems.
Great post, Michelle. I too have been lax about using the engagement letters. Used them faithfully in the beginning. I was stiffed by two clients in Rhode Island that were father and son. They always had paid me in the past, albeit very slowly (like 8 mos. out). I had a “gut feeling” that I would not get paid and I did not. The funny thing was two years later I got a “friend” request from them on Facebook! Oh the temptation to post something there since they refused to respond to telephone calls or emails. But better judgement won over and I let it go. But it does hurt when you do all this work (and these clients always seem to be “an emergency”) and you do not get paid. Lesson learned. Use engagement letters and respect your business.