RULES OF ENGAGEMENT

“A contract is only as good as the paper it is written on”. Does that sound familiar? Why has the value of some contracts or letters of engagement been minimised so much that this expression has real meaning?

Have you been in the situation where you have provided services and now the client is refusing to pay your fees? How can you avoid being in this situation?

When you hear of so many stories of small businesses struggling because of slow cash flow and non-payment of invoices it makes you wonder why do some contracts seem worthless when they are being entered into between parties setting out their ‘rules of engagement’. How can you protect yourself against claims and disputes?

SCENARIO

Recently a colleague was trying to determine how to handle a situation that has arisen where her client is refusing to pay her fees because of the late lodgement of a BAS. The client is blaming her for the penalties incurred because of the late lodgement. Sounds like the client has a valid case for non-payment? Let’s consider a few points:

  1. Is there a contract or letter of engagement in place between the bookkeeper and client?
  2. Does that contract specify certain dates whereby the client has to have all their information to the bookkeeper in time for the bookkeeper to collate, assess, review and prepare a BAS by the ATO’s deadline?
  3. Is the relationship between the bookkeeper and client one that the bookkeeper will communicate with the ATO on their behalf when required, i.e. asking for an extension on the lodgment of a BAS? Was this outlined in the contract/letter of engagement?
  4. If the answer is yes, was an extension applied for?

Yes, there was a contract in place. But how specific were the details of what was required from both parties? Could there have been a breakdown in communication that led to this situation?

LETTERS OF ENGAGEMENT

In this situation, it highlighted and reinforced to me, how important our letters of engagement are and how specific they need to be in setting out the obligations of both client and service provider, so that they don’t become as valuable ‘as the piece of paper they are written on’.

  • Terms need to be clear, concise and specific and understood by both parties
  • Specific services for specific entities to be defined
  • Payment terms need to be clearly outlined
  • Expectations / requirements of both client and service provider need to be clearly specified 

Note: You cannot contract out of negligence, irrespective of any disclaimer clauses in your Engagement Letter. 

MINIMISING RISK

If we fail to take reasonable care in carrying out the work we have been engaged to provide, we could be found negligent, where that lack of care has resulted in loss or damage to the client.

Keeping good records are paramount and should include the following:

  • Oral advice provided to clients
  • Steps taken to resolve issues

I operate under an umbrella of honesty and integrity, which will minimise the chances of a dispute arising.

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