NSPE's Gateway to Private Practice November 2009 

Professional Liability: Risk Management Through Fee Collection

One of the most valuable proactive risk management tools a design firm possesses is the ability to collect fees. Receiving payment for services in a timely manner is essential to the financial health of a business. Establishing and enforcing contractual payment provisions can help a firm avoid professional liability claims. Professional service firms are cash-flow operations. They are not in a position to finance their services to their clients. Firms are also incapable of staying in business for long if they allow clients to dictate all payment terms or write off a significant amount of professional time on projects.

Firms can preserve their right to payment, reduce the need to surrender part of their fee, and avoid the time, deductible costs, and the insurance impact of retaliatory claims. Retaliatory professional liability claims from clients sometimes result from attempts to collect fees. Firms should execute written agreements with their clients that contain payment terms, a schedule when payments are to be made, and clear invoicing and collection procedures. Enforcing the contractual right to payment should be considered a key practice management procedure.

Evaluate Whether Fee Collection May Be a Problem
During the risk analysis stage of a prospective business arrangement, successful firms routinely check the financial capability of the client. The client selection process works best if the firm understands the availability of funds for the services to be performed. Looking at the client’s history with other firms, internal systems, and payment authorization procedures can give an indication of how long a client takes to pay its bills and the likelihood that fees might not be collected when due.

Establish Payment Terms in a Written Agreement
Oral agreements create problems. Collecting the appropriate payment for services can be nearly impossible unless a written agreement exists. The agreement should carefully tie the fee to measurements that can be understood by the client and documented by the firm. Unclear or unspecified payment terms and untimely billing and collection often generate disputes.

A contract should also clearly state who is authorized to approve payments on behalf of the client and to increase the scope of services. While the basis for payment can vary from hourly to value-added, the application of the fee system should be documented.

Retain Control Over Services and Deliverables
Firms should retain the right to the project documents at least until all fees are paid. The right to suspend the firm’s services if payment is not received according to the contractual obligations of the client is essential.

Avoid financing the client by demanding a significant retainer. This is a basic element of good business practice. Firms that accept a termination for the client’s convenience provision should be careful to negotiate the specifics of such an option, including who has control over the documents in progress and whether lost profits are recoverable.

Avoid Giving the Client the Right to Withhold Payment
Increasingly, firms are faced with clients who want to be able to withhold fees on an arbitrary basis with no independent finding of fault. Fee negotiations can be rendered meaningless if a client can withhold professional fees to a firm at the client’s own discretion.

Remember that any client-written provision that empowers the client to make a unilateral determination of fault or responsibility for damages creates a business risk. Professional liability insurance is intended to respond to allegations of professional negligence. The withholding of fees is not the same as a demand for money or services that would trigger professional liability insurance coverage.

Develop a Collection Strategy
The professional services agreement should contain appropriate payment terms and a payment schedule and invoices that follow that schedule. If a firm does not have a system of pursuing unpaid balances or of resolving payment problems, it is increasing its business and professional exposures. A collection strategy should incorporate contractually provided steps, such as the charging of interest on late payments and the suspension or termination of services for payment defaults. Such a collection strategy must be followed consistently.

A collection strategy can be used at all stages of the billing process. The strategy should include:

  • frequent communication with the client so that there are no surprises to either party;
  • timely and accurate billing; and
  • invoicing procedures that meet the client’s information needs and accounting requirements.

Positioning a firm through researching a client’s history, contractual language that details fees and procedures, and practice management systems that carry out the fee collection process is basic to firm viability and professional liability risk management.

© 2009, Victor O. Schinnerer & Company, Inc. Statements concerning legal matters should be understood to be general observations based solely on our experience as risk consultants and may not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with a qualified advisor. Victor O. Schinnerer & Company Inc. is managing underwriter for the CNA/Schinnerer Professional Liability Insurance Program, commended by NSPE/PEPP since 1957.

Nominate Fellow Engineers for NSPE Awards

NSPE offers several awards that have upcoming deadlines in 2010. Below are just a few of the award programs NSPE will be conducting this year.

For details, visit the NSPE Awards Web page

PEPP Award:
The PEPP Award is given annually to an individual who has made an outstanding contribution to the advancement and recognition of the role of private practice in serving the public interest. Any individual, except a current PEPP officer or PEPP Awards Committee member, is eligible. Deadline is April 30, 2010.

PEPP Merit Award:
The PEPP Merit Award is presented to committee chairs or members, PEPP members serving in liaison functions or on joint activities, or to any other member who has made significant contributions. In addition, the employer of a PEPP Merit Award recipient is recognized for the support the consulting engineering firm has given to the profession through the activities of the PEPP Merit Award recipient. The Awards Committee, with the concurrence of the PEPP chair, may name as many PEPP Merit Award recipients as it feels are deserving of the honor. Deadline is April 30, 2010.

Mentor of the Year Award:
The Mentor of the Year Award is given each year to the one member of NSPE who best exemplifies the ideal image of a mentor. The award may be given to an individual who has established a record of consistent outreach toward individuals in the engineering field, including engineering professionals and students, over a number of years. This award can also be received by an individual who has contributed to support or development of mentoring programs within their company or in the engineering community. The ideal candidate should have a record of achievement in offering guidance to and fostering development among engineering professionals. Deadline is March 31, 2010.[ return to top ]

Five Ways to Improve Cash Flow
Herbert M. Cannon, President of AEC Management Solutions Inc.
In economic times like these, who isn't concerned about cash flow? Here are steps you can take to make sure that your cash stream continues to flow.

1. Always Ask for a Retainer
If you don’t ask for a retainer, you are leaving cash on the table. Even if most of your clients won’t agree to a retainer, it is still possible to generate a decent amount of positive cash flow. Let us assume that we book $10,000,000 of new business during the calendar year and we have a policy of always asking for a 10% retainer. Let us further assume that 70% of the time the client will not agree to pay a retainer. That would leave us with a 30% success rate and an improved cash flow of $300,000. Make it a policy to always ask for a retainer -- the worst that could happen is that they say no.

2. Streamline Your Invoicing Process
Analyze every step of your invoicing process to eliminate redundancy and maximize efficiency. Make prompt, accurate invoicing your top priority. All invoices should be out the door not later than five business days after month end. Prompt invoicing sends the message that the money is important. Invoices sent 30 days after the fact sends the message that the money is not important.

3. Send Electronic Invoices
Make a company resolution to send all of your invoices via e-mail as a PDF attachment starting January 1, 2010. Electronic invoices get there faster and you can request a return receipt that acknowledges the client has received the invoice. This minimizes the likelihood of them “losing” the invoice or “having no record of receiving that invoice.”

 4. Develop a Systematic Way to Follow-up for Payment
Sending out an invoice and hoping for the best is not a plan -- it is wishful thinking. Develop a procedure that will confirm the client has received the invoice, approved the invoice, and passed it on to accounting for payment. Once the invoice is over 30 days, a friendly call needs to made for collection.

 5. Integrate a Collections Component in to Your Incentive Compensation Plan
Collections absolutely must be a component of your incentive compensation plan. Make it a policy that incentive payments will be calculated on the basis of collected revenues only. This will certainly get the partners and project managers’ attention and dramatically increase your cash flow.[ return to top ]

Stevens Institute of Technology Spring 2010 Course Offerings

Stevens Institute of Technology’s Spring 2010 semester is right around the corner! If you haven’t yet, there is still time to apply for a program or just enroll for classes as a non-matriculating student.

You can view the list of all courses available for Spring 2010 here.

Register now for the Spring 2010 WebCampus semester!

Classes start the week of January 25, 2010.

With over 170 instructor-led courses, the WebCampus program offers you a convenient and flexible way to earn an MBA in Technology Management, or any of 17 Master's Degrees or over 55 Graduate Certificates completely online.

To learn more attend one of our online open houses:

Wednesday, December 9 – 12pm
Thursday, December 10 – 7pm

Wednesday, January 6 – 12pm
Thursday, January 7 – 7pm

Wednesday, January 20 – 12pm
Thursday, January 21 – 7pm

Offering maximum flexibility for professionals, your WebCampus courses can be accessed from home or while traveling, any time, day or night. Online courses offer you the perfect balance of convenience and academic rigor, as they cover the same material and are conducted by the same faculty as Stevens' conventional courses.

Detailed course and program descriptions, as well as admission information, can be obtained at the WebCampus homepage.

Students who are members of NSPE receive a 10% rebate when they enroll in WebCampus courses. Students do not have to be accepted into a program in order to take graduate classes at Stevens. It is possible to take up to three (3) classes as a non-matriculating student while your application is under review. For more on this or if you have any further questions, please do not hesitate to contact the WebCampus Division at webcampus@stevens.edu, or (201) 216-5092.


Spring Web Seminar Series

The spring web seminar series kicks off on January 20, 12:30 - 1:30 PM Eastern with a web seminar on the status of faculty licensure. This members-only Web seminar is free. Other topics for the spring include:

Digital Signatures

Positioning Yourself for the Next Job: Your Professional Toolkit

How to Start Your Own Firm

Presentation Skills for Engineers

In addition, the popular Ethics Forum will be back with three new offerings. Check the NSPE Web site to see a more detailed listing and to register. Registration begins the first week in January.[ return to top ]


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PEPP 2009-10
Executive Board

Bill Clarke, P.E., F.NSPE
St. Louis, MO

Mark Davy, P.E.
La Crosse, WI

Andrea Martinez-Graves,
Tampa, FL

Immediate Past Chair 
Randy Rakoczynski,
Buffalo, NY 

Vice Chair, Northeast Region
Randy Petersen,
Washington, DC

Vice Chair, Southeast Region
Dan Dawson, P.E.,
Wilmington, NC

Vice Chair, Central Region
Kent Buehrer, P.E., F.NSPE
Maumee, OH 

Vice Chair, North Central Region 
Karen Stelling, P.E.
Kansas City, MO

Vice Chair, Southwest Region
Eric West, P.E.
Midland, TX

Vice Chair, Western and Pacific Region 
Wes Segawa, P.E.
Hilo, HI 

Young Engineer Representative 
David Conner, P.E.
Denver, CO
SSEC Representative
Pat Christians
Birmingham, AL

PEPP Staff
Kim Granados, CAE
1420 King Street
Alexandria, VA 22314
tel: 703-684-2857
fax: 703-836-4875



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