Costs and fees

in the consulting business, it is not usual to encourage early and prompt payment by offering cash discounts to clients.

Negotiating the fee

Under what circumstances can a consultant agree to negotiate the fee with a client who wants to have a job done for a lower price? It is virtually impossible to think of universal rules. In the social and business cultures of some countries, professional fees are never challenged. In other countries everything is regarded as negotiable, and the local culture may require the consultant and the client to pass through a negotiation ritual before concluding a contract. It may even be customary to agree on a slightly lower price than originally demanded. The consultant should be aware of this and, if necessary, build in a “negotiation provision” in the first price quotation. Thus, the price agreed on after the negotiation will be the correct one, and regarded as such by both parties.

Irrespective of local habits, there may be technical reasons for negotiating consulting fees. The client may need more detailed information to become convinced that the fee is correctly set. A true professional is always prepared to give this information. Furthermore, in challenging the fee the client may actually be raising questions about the design of the assignment. As mentioned in section 7.5, the client may want to negotiate the consultant’s proposal for various reasons. There may be a less costly approach. Often the client may be able to have some tasks performed by his or her own personnel instead of using consultants or their technical and administrative support services. The timetable may also have to be reconsidered for financial reasons if the client wishes to use a different schedule of payments from that proposed by the consultant.

When agreeing to negotiate the fee, the consultant should try to be well informed on the conditions under which the negotiation will take place. Will it be a formality, a ritual required by local culture? Does the client have alternative proposals (at different prices) from other consultants? Is the client happy with the design of the assignment and the competence of the staff proposed, but not with the price? Is the price proposed prohibitive to the client, or does he or she merely want to save money by pressing the consultant? Thus, the consultant should prepare for the negotiation, trying to anticipate questions and suggestions likely to be made by the client.

30.8 Billing clients and collecting fees

Professional firms bill clients and collect fees like other businesses. They may, however, face problems with clients who are not sure that they are paying the right price or that the consultant has delivered what was promised. This confirms how important it is to be clear and consistent when negotiating the assignment and informing the client about the fee rate and the billing practice.

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Management consulting

Bills should be issued as soon as records of work performed and expenses incurred are available. This underlines the importance of a reliable and smoothly operating administration.

Information to be provided in a bill

Bills should be as detailed as necessary to avoid any misunderstanding or unnecessary query from clients. Clients must be told exactly what is being charged for and why. They should be able to refer to the contract (or the attached terms of business) in case of any doubt. They should find no unexpected charge in a bill, e.g. no separate charge for a service or supplies that they thought would be provided within the agreed fee. The information normally provided in a bill is indicated in box 30.1.

Box 30.1 Information to be provided in a bill

●Bill number

●Period covered

●Services provided (listing, dates, volume of work by each consultant)

●Fee rates and total charges

●Expenses billed separately from fees

●When payment is due

●How to make payment (currency, method of payment, account number)

●Whom to contact for queries

●Date of expedition of the bill

●Name, address, telephone and fax numbers of the consultant

●Signature and courtesy formula

Addressing and delivering the bill

Problems can arise if the consultant does not know to which department and person to address the bill. This can easily happen in large businesses and government services. The consultant should therefore find out what actually happens to the bill when it is delivered, and make sure that the right people receive copies. It may sometimes be advisable to deliver the bill personally. However, there is no reason why the consultant should harass financial or other services in organizations that are known to pay their bills correctly.

Collection period

In most countries consultants would ask for payment to be made within 30 days, and hope to receive the money within 45 days. There may be local differences, and in international consulting payments may take several months.

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Costs and fees

Payments received late result in additional charges to the consultant, and very few consultants can afford to extend interest-free credit to their clients! A late-paying client should first be reminded with courtesy – it may be enough to send another copy of the bill with a remark that perhaps the original was lost. If the consultant believes there is a problem, it may be wise to contact the client personally and find out the cause of non-payment. This can be done during a supervisor’s visit if the assignment is still operational. A tactful reminder may be all that is necessary.

If a client still does not pay, the consulting team may be withdrawn. The client should then be told clearly what measures the consultant intends to take to collect the fees.

Uncollectable accounts

Whether to take a non-paying client to court or not is a delicate decision. The procedure risks being both lengthy and costly, and the result is uncertain. In many cases it is wiser to stay out of court and try to find a compromise settlement. In the consulting contract there may be a provision for a settlement through arbitration of disputes that cannot be settled amicably.

Some fees are uncollectable in any country. Consulting firms in sophisticated business environments report that they normally write off no more than 0.1–1.0 per cent of uncollectable fees. In some countries this figure can be much higher. If bad debts cannot be collected, in many countries they can be deducted from taxable income.

There are also countries where business clients consider it normal and ethical practice not to pay the last 5–10 per cent of the total fee for a project. If you intend to operate in such a country you should know about this.

1K.-E. Sveiby: Fourteen ways to charge for knowledge (www.sveiby.com.au, 1998).

2See W. M. McKoy and J. D. Roethle: “Consultants’ fees for mergers and acquisitions”, in Journal of Management Consulting (Milwaukee, WI), Vol. 5, No. 4, 1989, pp. 16–21.

3G. M. Weinberg: The secrets of consulting (New York, Dorset House, 1985), p. 188.

4C. Hart: Extraordinary guarantees: Achieving breakthrough gains in quality and customer satisfaction (New York, AMACOM, 1993).

5D. Maister: “The new value billing”, in American Lawyer (New York), May 1994.

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