Turn your engagement letters from a burden to a benefit

Most of us will know that producing engagement letters is a hassle that we have to deal with in order to stay in line with our regulatory body requirements. In fact, most firms that I know of send an engagement letter once they first take on the client, and then only get round to reviewing the letters when there is either a major change internally or externally.

Deep down, we know it is best practice to have an up to date engagement letter, but often the day to day gets in the way of this admin. I’d like to put forward a case not only for removing the hassle of engagement letters, but also for the business benefits of ensuring these are robust and up to date.

Please note: for the purposes of this guide, I will be referring to non-audit engagement letters.

Quite simply, an engagement letter sets out the way that you work with your clients, which includes your Terms of Business and your Service Schedules.

Your engagement should clearly set out the services that you’re expected to provide, how often they will be provided, and who is ultimately responsible for what (and when). Ideally, your engagement will also clearly document your terms of business, such as the way you calculate your fees. There will also be clauses that are in line with legislation, such as Data Protection provisions and anti Money Laundering.

For all intents and purposes, an engagement letter is a commercial contract that sets out exactly how you will work with your clients, and should be treated with the same level of importance as any other contract.

This will vary depending on how your firm is set up. If your firm is registered with a professional body, their Code of Ethics will set out recommendations for your engagement letters; however it is important to note that whilst engagement letters may be mandatory, the contents of the letters should be based on how your firm works. In fact, the professional bodies themselves go to some length to explain that their templates are examples only, and that there is no such thing as a ‘one size fits all’.

If your firm is not registered, there is no legal obligation to have an engagement letter; however in practice it would be highly recommended - for both commercial reasons, but also to avoid any difficulties with obtaining insurances.

Each regulatory body may differ insofar as their requirements around engagement letters, so it is vital that you consult the Code of Ethics of your own professional body to ensure that your engagement letters meet their criteria. It is also prudent to consider whether you need to take independent legal advice on your engagement letters. In particular, firms in Scotland and Northern Ireland may have different requirements to those in England and Wales.

At the very least, your professional body is likely to mandate that you send an engagement letter at the outset of your relationship. It is generally recommended as best practice that engagement letters are reviewed annually; however this is not a mandatory requirement.

Take a moment to consider what an engagement letter contains and the many reasons why they’re useful. If you do, you’ll come to the same conclusion as me: they’re absolutely necessary. Together with an agreed proposal, they act as a single point of truth for your client relationship, setting out:

• What you will do for your client,

• What your client will do,

• How much you will charge and how the client will pay,

• The levels of service that the client can expect to receive

Think about any time you encountered a fee dispute, a client was upset about your service, or your work was impacted due to a client not providing you the required information. The vast majority of accountants have unfortunately had to go through these experiences before. Now consider how these issues could’ve been remedied upfront if only there had been a clear proposal and engagement letter detailing what was expected from each party.

By producing a fee proposal and engagement letters, we can set out exactly what we do and what we will charge. This avoids any future disputes as both sides can agree in advance how the relationship would work. We often suggest that clients have contracts with their customers, employees, shareholders, and partners – so why would we treat our relationships with our clients any differently?

I get it. Engagement letters are time consuming to produce at the best of times! But, I strongly believe that agreeing both a fee proposal and the terms of business annually with your clients is the only way to ensure that you have a sustainable business for the longer term:

It provides you with the opportunity to evaluate the relationship. How many times do you keep a loss making client for a bit longer than you should? If your fees charged and the client requirements are out of kilter, it’s important to have the conversation sooner rather than later. A defined point of re-evaluation allows you to bring up any issues and discuss what can be done so that it is a win-win relationship for both you and your client.

It brings an another opportunity to catch up with your client. You might be one of the few firms that has a robust customer relationship management process which is more than just an unused CRM system - but if not, this provides you with the perfect opportunity to have another conversation with your client that isn’t consumed by topics such as tax rates!

It allows you to find more opportunities. Following the above, you might find that the conversation naturally steers towards where your client is going with their business. If they are looking for funding, you may be able to help them with the production of projections and a business plan. You might also find opportunities to serve growing businesses with services such as being a Virtual Finance Director, Corporate Finance; or indeed helping the business owner with their tax planning or wealth management. A convenient time to agree what is needed, and take it from conversations to an agreed service!

It helps you get paid what you’re worth. I’ve experienced this myself. The pain of renegotiating a standing order mandate to increase it by £5 per month simply isn’t worth it, and clients end up staying on an old fee level whilst your staff continue to have pay rises. This hits your firms bottom line! By tying up direct debit payments with an annual engagement process, you can ensure that you include inflationary increases, together with any extra work orders, so that you get paid what you’re worth.

It helps you sleep at night. It’s best practice. You don’t need to worry about your regulatory body knocking on the door. You don’t need to worry about any client disputes and not having everything in order. And you don’t need to worry about missing a trick… when it comes to exit, your firm will be worth more if you have robust contracts in place for each and every client.

If we were advising ourselves as clients, we’d be giving ourselves this advice! Let’s practice what we preach.

If you decide that fee proposals and signed engagement letters are the best way to work with your clients, then it makes sense that you would:

1. Engage all clients separately
2. Review every client on an annual basis

When you think about the work that these steps involve, the whole process begins to sound a bit onerous – that’s where Ignition comes in. Our entire platform is designed to help you meet these obligations as easily and efficiently as possible. The contracts are automated, services and terms are templated, engagements are electronic, and e-signing is quick and hassle-free.

What’s more, your clients payment details are taken at the point of engagement. No more debtors, and no more credit control. A no-brainer for any practice.

The whole process is simple but effective, and once properly introduced into your workflow, clients absolutely love it. Everyone appreciates clarity – and Ignition provides this in abundance. Transform your customer engagement by integrating Ignition into your workflow going forward.