Fee disputes and speculative claims

When a country goes through difficult times or a recession, we always notice an accompanying increase in potential claims. This is especially true for the accountancy sector, which is currently experiencing increasing numbers of fee disputes and a rise in speculative claims.

Many companies and individuals are now prepared to raise an issue with their accountant in an attempt to get a discount. Clients will claim that work was not done to the standard specified in the letter of engagement and ask for their money back as a result. Some practices may choose to pay their clients to resolve the situation when the amount in question is below the threshold to warrant challenging.

We recommend taking the following steps to avoid situations like this arising:

• Agree hourly rates and give estimates (or agree set fees) very clearly from the beginning and make sure all remuneration is documented and agreed on.
• Stick to the agreed rates/estimates/fees and, in the event things change, agree revised fee arrangements with the client immediately, ensuring it is not left as an afterthought.
• Update estimates and give details of fees regularly (in writing) so that there are no surprises.
• Never be ashamed to have an open, candid conversation about costs. Clients want to discuss this, so make sure there is transparency and clarity from the outset.
• Resist any challenge on your full-priced fee if you’ve earned it.
• Prepare to be pragmatic if things haven’t gone to plan. Be empathetic and aware that if a client is profoundly disappointed by the outcome of your engagement, they could raise the issue of fee.
• Do not admit to wrongdoing (especially if your error could have financial consequences) without consulting with your professional indemnity insurer.
• If a client does allege an error or omission on your part and argues that they shouldn’t have to pay all or any of your fees, report that to your professional indemnity insurer as soon as possible and do not comment on the allegation without their consent.
• Any fee discount to settle an allegation of error or omission will need to be formally documented so as to achieve a proper release of liability, otherwise you can still be sued and any discount you give may have been wasted – legal advice is required to achieve this.

Why is this important?

Putting these steps into everyday practice will not only provide better protection from potential claims, but will also help to improve the relationship between you and your client by building trust and, in turn, a better reputation for your firm. It also enables more time, money and resource to be spent elsewhere within the practice.

Graham Wynes, head of claims, Lockton Companies LLP

If you have any questions please contact your Lockton Account Manager for further advice or email ACCAaccountants@uk.lockton.com 

Lockton is ACCA’s recommended broker for professional indemnity insurance

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Rest assured that ACCA will always have free engagement letters for members to use. You can download our free factsheets from the SMP section of our website, where you will find a wealth of other practice resources.

Each factsheet contains a main client covering letter with a privacy notice, a terms and conditions document and the most commonly used schedules of services.