This reader's question appeared in BD in June 2009 - and seems increasingly relevant:
My practice is dealing with our first claim on our professional indemnity insurance from a client, who refuses to pay our overdue fees
This non-payment of fees is severely affecting our cash flow. To add insult to injury, our PII insurer is not being very supportive in managing this claim. What can we do?
Add comment viewed 1,029 times Latest activity 10 months ago
Richard Brindley
It is a cruel fact of any economic downturn that there is a corresponding upturn in fee avoidance, dispute resolutions, claims and litigations, which in turn cause PII premiums to rise. But do not despair, you can and must take control of this issue.
Your client will have to substantiate any negligence claims against you so ask for evidence. You will need to assess if there are any real grounds of complaint and prepare a written response refuting what you disagree with.
Carefully check your appointment agreement. If this is based on an RIBA standard agreement you will have very useful ammunition to use to defend this attack. Hopefully your appointment agreement includes:
It is always best to start by trying to negotiate a solution directly with your client. Keep communication channels open.
If you need to refer to third party dispute resolution, go step by step up the scale of mediation to adjudication to arbitration and last of all litigation.
If your negotiations are not successful you can make a counter-claim for your unpaid fees, if possible in the small claims court. Never threaten any action that you aren’t prepared to carry out lest your bluff is called.
Also talk to your PII brokers and demonstrate the steps you are taking to solve the problem, to deny the spurious claims and to mitigate your liabilities. This may increase the support of your brokers and the underwriters, as it is also in their interests to defend your claim and avoid or reduce any payout on your insurance.
jaimie
Sue them in the County Court, by way of a counterclaim, and do it yourself. It will be good experience for the future. It is not difficult so long as you have a good case.
john toppin
[ Editor ]
Stay out of financial trouble.
Danger signals
As an architectural practice, your clients or key suppliers or even your own business may exhibit tell-tale signs of financial distress well before the situation deteriorates beyond salvation.
How do you spot impending money problems early on?
Clients and suppliers
Perfectly healthy businesses can end up in financial difficulties because of unpaid client debts or even because key suppliers stop trading. In addition to watching out for bad credit references, increased debtor ageing, bouncing cheques and suppliers seeking quicker payments there are some tell tale signals you should be alert to:
• Clients asking for extended payments or paying with post dated cheques.
• Clients paying round sums on account or settling an old invoice only when placing their next order.
• Clients suddenly beginning to dispute your invoices.
• Suppliers who constantly have stock on order.
• Other companies reporting difficulties to you regarding financial dealings with your clients or suppliers.
• High levels of turnover amongst senior management and staff within your clients or suppliers.
• Clients or suppliers who have difficulty in reconciling your account balance with them.
• New clients or suppliers who don’t seem to have long standing suppliers or clients of their own.
• Clients or suppliers filing accounts at Companies House later than they did previously.
Your practice
You should look out for any of the tell tale signals listed for clients and suppliers. In addition to these you should beware of the following:
• Where you seem to be fire fighting and not able to get your other work done, including some of the below.
• Your business is taking longer to prepare management accounts, preparing more abbreviated versions or not preparing them at all – especially balance sheets.
• Your colleagues don’t seem able to provide you with normal forecasts such as sales or cash receipts from their clients, or they provide them late or sales and receipts come in much later than forecast.
• Your colleagues are relying on a big contract being secured.
• Your overdraft is often (or always) at the limit and you are frequently in breach of your covenants or you can see there is a danger of this happening.
• Your bank wants to reduce your facilities or is asking for more security.
Watch out for tell tale signals from clients and key suppliers to ensure your company avoids catching their financial distress and stay alert to negative signals in your own business and alert the board with your concerns.
John Toppin MA FCA has been involved with professional services and creative businesses for over 25 years and was formerly Finance Director at Saatchi & Saatchi and Kroll Associates. Since 2005 he has been providing specialist financial advice to architects through his firm, Nomizon Associates. www.nomizon.co.uk