Fee funders are a type of alternative lender that provide a facility to pay professional services firms, including accounting firms, clients’ fees for them, according to FeeSynergy founder and managing director Malcolm Ebb.
“We know that between 10 and 25 per cent of clients of accounting practices can't afford or are unable to pay the accounting firm's invoices within 30-90 days or longer,” Mr Ebb says.
“Given that most of the accounting firms have 14-day trading terms, a significant percentage of their clients aren’t able to pay in trading terms.”
Mr Ebb says that fee funders provide a cash flow solution for SME clients by paying the accounting firm in full up front, which the SME then enters into a simple finance agreement to pay back the principle plus some interest over a period generally not exceeding 12 months.
QuickFee general manager Michael Kelly says that fee funding can be initiated by the client or the accountant, and that is bringing benefits to both.
“Fee funding helps accelerate cash flow into the firm while allowing the client smooth out their cash flow. It alleviates bill shock for the client where there are large one off fees, helps with conversations on bad paying debtors and enables firms win new business by enabling prospective clients pay their fees over time,” Mr Kelly says.
“For accountants, they stop acting like a bank to their clients and get paid up front and in full. It provides another tool in the tool belt to help in negotiating their fees to be paid.”
Mr Ebb also highlights the benefits for the accountant, saying that it can help reduce accounting firms' average debtor days significantly.
“In the industry, upwards of 90 days is sort of an industry paradigm, but fee funding can help get the firms' debtor days down and in our view there should be no debts over 42 days unless they're in dispute, so basically halving their debtor time,” Mr Ebb says.
“Then they can put in place solutions and mechanisms which enable the firm to keep their debtors at that level and it’s of significant benefit to the firm in terms of free cash and improves the ability for the firms to use their bank overdrafts for other purposes such as acquisitions rather than using working capital or cash flow mechanisms.”
Mr Ebb says that fee funders will look at both the accounting firm and the client when assessing their application for finance.
“We look at the firm, how long has it been around, the partners, the types of clients, their financials and effectively determine the risk profile of the firm,” he says.
“We go through a risk assessment of each client also. Generally speaking the accountants know if the clients will be acceptable, so majority of clients are acceptable but we may do a credit bureau assessment and different providers would do different levels of vetting I would imagine.”
Mr Kelly agrees that it’s only a small percentage of applications that get knocked back.
“A small percentage do, we run credit checks on the clients who are looking for loans and look for a history [of] issues within their credit file,” he says.
Mr Kelly says as awareness grows, fee funding will become more popular for accounting firms.
“Fee funding is now very popular with accounting firms as it bears little to no cost to the firm to actually implement. We have found debtor days have decreased within the industry according to a recent GBU study, in part because of fee funding becoming more popular,” he says.
“The practice is most common for boutiques and mid tiers, however there are big four clients now enjoying the benefits of our service.”
Mr Ebb agrees that the industry is growing rapidly.
“The leading firms have had these facilities for many, many years. Pretty much any leading accounting firm across Australia will now have a fee funding facility,” he says.
“That wasn't the case 10 years ago but now if you don't have this type of facility in your practice, you're well behind the ball.”