Get paid before you send the draft: the four rungs of collection

A story that does the rounds in Australian practitioner groups every tax season, and that most practice owners have either lived or nearly lived. An Australian firm takes on a new client. Tax return prepared, draft sent for review and signature with the invoice attached. Firm policy: nothing gets lodged until the fee is paid. A month later the firm's mail includes the client's notice of assessment. The client has taken the figures off the draft, lodged the return themselves, and skipped the bill.

Whenever this comes up, nearly everyone has a version of it. It is usually a small return, so the money is not the point. The point is that the firm did everything right by the standard most practices still run on, and still worked for free.

Why holding the lodgement never protected you

"We don't lodge until we're paid" feels like leverage. It is not. The draft you send for review is the product: every figure, every deduction you found, every treatment you decided on. Once the client has it, the lodgement is a formality they can complete in myTax in fifteen minutes, or in HMRC's self assessment portal, or in whichever consumer tax product is advertising during the football this season. You are holding a door with no wall around it.

A hold only works when the thing you are holding cannot be obtained another way, and a completed draft always can be, because you just sent it. The honest version of the policy is "we don't send the draft until we're paid". That is a bigger change than it sounds, and it is the whole article.

The four rungs

Firms sit on one of four rungs, and almost every bad-debt story comes from the bottom two.

1. Invoice after lodgement. The work is filed and out of your hands before the client sees a number. Every dollar is collected on trust and chased on hope.
2. Invoice with the draft, hold the lodgement. Where the firm in the story sits. It is only safe against clients who would have paid anyway.
3. Deposit before starting, balance before the draft goes out. A signed engagement, part payment on acceptance, and the review copy released when the balance clears.
4. Paid in full, or payment details captured, before any work starts. The quote is accepted, a card or direct debit authority is on file, and the fee is collected automatically on the day the draft is ready.

The firms that can say "this has never happened to us" are, almost without exception, on rung four, and most climbed there one bad debt at a time. You do not need to jump from one to four in a week. You do need to move up at least one rung.

Fix the engagement letter first

The single most useful fix is one sentence long. Write the engagement letter so the fee is for preparation of the return, and say nothing about lodgement. The fee falls due when the draft is delivered, whether or not the firm ever lodges it, so a client who self-files with the firm's figures has not found a loophole. They have simply not paid a bill.

Most templates describe the service as "preparation and lodgement" in one line, which quietly implies the fee is earned at lodgement. Split them. Then add three things if they are not already there:

• When the fee is payable. On acceptance, on delivery of the draft, or on a schedule. Not "on invoice", which means whenever the client feels like it.
• What happens when it is not paid. Work stops, the file goes on hold, and overdue accounts are referred for recovery with costs recoverable from the client. A recovery-costs clause is what turns a collections referral from a loss into a threat with teeth.
• What the client is buying. The draft is provided for review and approval. The deliverable is the completed engagement, not the working paper.

Australian firms are already reworking letters for the TASA changes, so this is a cheap addition to a job you are doing anyway; there is a walkthrough in TASA rules are here and your engagement letter probably isn't compliant. Check the wording of any recovery-costs or lien clause with your professional body or a lawyer. This is journalism, not legal advice, and the Tax Practitioners Board has views on what an agent may and may not withhold from a client.

Quote it, then take the payment details before you open the file

The engagement letter tells you what you are owed. The onboarding sequence decides whether you ever see it.

For individual returns and any job you can price from a checklist, quote it before anything is prepared. A fixed quote accepted in writing gives you a moment, right at acceptance, to ask for payment details, and that moment is the one that matters. A client who signs and hands over a card intends to pay. A client who signs and stalls on the card has told you something before you have spent an hour.

The tooling is mature. Proposal platforms such as Ignition, Anchor and OnboardMe collect a card or bank authority when the client accepts, then let you collect against it with a click when the work is ready, and direct debit tools such as Pinch Payments handle the collection side on its own. The proposals and engagement and payments and billing shelves of the directory list the options by region. Which one you pick matters far less than the sequence: quote, accept, authority on file, then open the file.

For larger jobs, use the deposit rung: part payment on acceptance, balance before the draft goes out, with the split written into the quote. Existing clients move across at the next engagement renewal, not by surprise. A short note is enough: "From this year we collect fees when the return is ready for your review. You'll be asked for payment details when you accept the engagement." Most clients will not blink. The ones who argue hardest are, more often than you would like, the ones the policy exists for.

Screen for the client who was always going to do this

Upfront payment is the cure. Intake is the prevention, and it costs nothing. The client in the story was new that year, and new clients who arrive mid-season with no referral and a story about their last accountant deserve a slower first conversation, not a faster one. The flags that recur in bad-debt stories:

• They left the previous accountant over fees, and say so unprompted.
• They want to know the refund before they want to know the process.
• They negotiate a fixed quote for a standard return.
• They stall on signing the engagement letter, or return it unsigned "for now".
• They will provide everything except payment details.

None of these is disqualifying alone. Two together are a reason to insist on rung four for that client, or to decline the work. Declining a client you have not started is free. Chasing one you have finished is not. The marketing side of the same idea is in Marketing that attracts high-value clients (and repels the wrong ones), and the conversation those clients open with is handled in When clients compare your fees to their last accountant.

What to do when it has already happened

Back to the firm with the notice of assessment in its mail. The temptation is to write a satisfying email. Write the professional one instead, because it is the one that gets paid.

Forward the notice; it is the client's ATO correspondence and holding it hostage is a bad look at best. Then, in the same email, state the facts in order: the notice shows the return has been lodged; the fee was for preparation of that return and was issued on a stated date; it is now a stated number of days overdue; payment is required by a stated date; after that, the account is referred for recovery with costs to the client, as the signed engagement provides. No adjectives. No "disappointed". A date, an amount, a consequence.

Then follow through. Plenty of firms send even small debts to collections, because the principle is the point and the referral costs little; that is a decision each firm makes at its own floor. What is not optional is disengaging: remove the client from your agent list, close the file, and note the reason so nobody re-onboards them next July. And do not send a "there was an error in the figures" email to frighten a client who has already lodged. It gets floated as a joke, and it would be a real problem if sent.

The thirty-day version

1. Week one. Rewrite the engagement letter: preparation fee separate from lodgement, payment timing, stop-work, recovery costs. Get it checked.
2. Week two. Build the fixed-quote list and switch on payment capture at acceptance in your proposal tool.
3. Week three. Write the three emails once (renewal note, "payment details before we start" note, overdue notice) and save them as templates in Xero Practice Manager, FYI, AccountKit, Kloud Connect or Karbon.
4. Week four. Add the intake questions to the new-client form and agree which flags mean "rung four only" and which mean "decline".

What this costs is a few awkward conversations in the first month. What it removes is work you were never going to be paid for. The pricing pressure now arriving on standard returns makes the timing easy: if you are re-examining what you charge for a return anyway, re-examine when you collect it in the same pass.

Frequently asked questions

Won't asking for payment upfront lose me clients?

Some, and it is worth knowing which. Firms that have made the change report that the clients who leave over it are disproportionately the slow payers and fee negotiators. Introduce it at renewal with a short explanation, not mid-engagement.

Can I refuse to lodge a return until I'm paid?

You can decline to do further work, and your engagement letter should say so. Whether you can withhold a client's own documents is governed by your professional body and, in Australia, the Tax Practitioners Board's Code of Professional Conduct. Either way it is weak leverage, because a client with the draft can lodge without you.

What if the client can't pay before the refund arrives?

Offer a structure rather than an exception: a deposit on acceptance, balance by direct debit on a set date after lodgement, authority on file. A client who will not agree to a schedule has answered the question before you begin.

Is it worth sending a small unpaid invoice to collections?

Financially it is marginal. Many practitioners do it anyway, on the grounds that a firm known to follow through gets paid faster by everyone else. Set a floor, write it down, and apply it without deciding case by case.

Does this apply outside tax returns?

Yes, and more so. Any deliverable that leaves the firm as a document, from financial statements to a valuation, can be used without the firm being paid for it. Same sequence: quote, accept, authority on file, work starts, finished piece goes out once the balance is clear.