Peer Review of Your Credit and Collection Processes: A Great Loss Prevention Idea for Professional Service Provider Firms

TASA ID: 2048

The professional service provider be it, law, accounting, architecture, or engineering is constantly challenged to balance contractual terms and conditions, while providing a professional and effective deliverable within budgetary guidelines. Unfortunately, the professional service provider has to occasionally deal with a difficult or unhappy client. 

Two examples: 

1.    An architect’s client may feel that the architect did not design exactly what they envisioned, that some part of the work product was delivered sub-standard, that their budget was exceeded or disregarded, or simply that the project took too long to complete.

2.    An attorney’s client is unhappy that he lost his case despite thorough, professional representation provided to him throughout the litigation.

Once a professional service provider starts down the path with an unhappy client, it becomes a slippery slope, leading to lost revenues and possible litigation.

Fortunately, many of these situations can be avoided with a small ounce of prevention in the form of a peer review of your credit and collection practices and procedures.  Our firm has recently performed this type of peer review for several of our Architecture and engineering client firms.  As an independent third party, A.I. Consulting, LLC is able to evaluate the subject firm’s credit and collection practices and procedures with a “fresh set of eyes.”  It has been said that “a peer review is as important to (a) firm’s health as a physical is to yours.”

We have developed the following peer review evaluation to better assess a firm’s present credit and collection operations.  The areas to be examined all pertain to boosting the firm’s cash flows and preventing disputes.  The evaluation consists of meeting with key operations and office staff to examine the firm’s credit policy towards prospective clients, contracting process, routine collection efforts, and key personnel involvement in the resolution of client issues and collection process. We interview each staff member involved with the following areas for about 30 to 45 minutes getting their feedback on what is working well and what needs improvement.

• Is there a policy in place to ensure all prospective clients are credit worthy?
• Are all projects supported by contracts with clients?

• Are contracts thoroughly scrutinized and deemed fiscally sound prior to services starting?
• Are there any side deals with clients, such as pay when, or if paid?

• We review a firm’s accounts receivable run and analyze for percentage over 90 days
• We also look at past experience with delinquent clients and their payment history.

• Are project managers aware of client balances?
• Do key personnel get involved with client issues?
• At what stage do they get involved?
• How do they deal with clients?

Typically we take an objective and positive approach while interviewing the firm’s employees with their responses kept in strict confidence.  We record the firm’s strengths, reaffirming good practices within the firm, and note issues that need modification, providing suggestions for change.   Every effort is made to draw out as much information from employees in an optimistic participatory spirit while avoiding their fear and embarrassment.  Our goal is not to pass judgment on a firm, just to help them improve.  Sometimes we will tell a principal that they have good people but need a better process.

A good peer review helps to save the design professional from costly write-offs as well as the expense and embarrassment associated with errors and omissions that could occur as a result of a faulty credit and collection program.  Gary Pranther of XL Design Professional said, “We feel that any firm that goes through the process and applies the lessons learned will improve its management and organizational practices.”

This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

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