Engagement letters are often overlooked by many businesses, but they play a crucial role in setting expectations for both clients and service providers. While it may seem like a tedious and time-consuming task to draft an engagement letter, it is ultimately what will help protect your business from any misunderstandings or disputes that may arise down the line and reduce the scope creep from particular clients.

Engagement letters outline the scope of work to be done by a business, as well as any specific deadlines or milestones that need to be achieved. It also includes details on payment terms. When a client signs an engagement letter, they are agreeing to these terms and giving consent for the business to proceed with the work outlined in the document.

The purpose of an engagement letter whether it is an accounting engagement letter, audit engagement letter, bookkeeping engagement letter, tax engagement letter, or payroll engagement letter is to set clear expectations between the accountant and client. Despite its importance, many accountants neglect to create an engagement letter for their clients.

This article will cover four common mistakes that are made in bookkeeping engagement letters and can cause confusion, delays or even legal battles between clients and service providers.

Common mistakes to avoid when writing a bookkeeping engagement letter 

Mistake #1: The letter does not fully describe the services

Bookkeepers are an essential part of any business. They ensure that financial records are kept up-to-date and accurate, making it possible for businesses to make informed decisions about their finances. When engaging a bookkeeper, it is important to have a clear understanding of the services they will provide. Unfortunately, many bookkeeping engagement letters do not fully describe the services being offered.

This common mistake can lead to misunderstandings between the bookkeeper and their client. Clients may assume that certain tasks are included in the engagement when they are not or may be surprised by additional charges for services they thought were covered. This lack of clarity can also make it difficult for clients to compare quotes from different bookkeepers.

For example, if a bookkeeper fails to mention that they only handle basic accounting functions like data entry and bank reconciliation, a client may assume they also provide higher-level financial analysis or tax preparation services. When these assumptions prove false, it can result in frustration and disappointment for the client.

To avoid these issues, it is important for bookkeepers to take the time to fully describe their services in their engagement letter.

And while it’s important to describe the services you will perform, it’s equally important to describe the services you will NOT perform. In fact, describing the services you won’t perform can be a valuable marketing tool. By highlighting your focus areas and niches, you’ll attract customers who are specifically looking for those types of services. This can lead to more targeted leads and higher conversion rates overall.

Mistake #2: The letter does not properly explain the client’s responsibilities

Many engagement letters fall short of explaining client responsibilities. The letter should clearly state what is expected from the client, including providing accurate financial information on time, maintaining proper records, and responding promptly to requests for information or clarification. Failure to do so could result in delays in completing work or inaccurate reports, which could have serious consequences for both parties.

To avoid this mistake, it’s important to include a detailed section in the engagement letter outlining specific client responsibilities. It’s also helpful to schedule regular check-ins with clients to ensure they understand their duties and are meeting their obligations as outlined in the letter.

Mistake #3: The letter fails to adequately explain fees and terms

As a bookkeeper, you know how important it is to have a solid engagement letter before starting any work with a client. However, another common mistake that many bookkeepers make is not explaining their fees and terms properly in this document. 

One of the key areas where clarity is essential when it comes to fees and terms is around payment schedules. It’s important to clearly outline what your expectations are for payment, including deadlines and how much clients will owe for different services or milestones completed. This helps avoid any misunderstandings or surprises later on when invoices start coming due.

Another area where lack of clarity can cause problems is in scope creep – that is, situations where clients ask for additional services beyond what was originally agreed upon in the engagement letter.

Along with the payment terms, it is also important to consider including other terms such as estimated start and finish dates, cancellation policy, timelines, deliverables, confidentiality agreements, privacy policy, access to information, dispute resolution, and key contacts at your firm. 

Mistake #4: The process for creating the engagement letter is not automated

Many accountants often find themselves bogged down with manual processes when it comes to creating and sharing engagement letters with their clients. This can lead to inefficiencies, errors, and frustration. In fact, manual processes can not only be time-consuming but also prone to human error which could result in legal or compliance issues.

The problem stems from the fact that many accounting firms still use outdated methods for generating engagement letters. The process typically involves creating a template in Microsoft Word, filling out the fields manually, printing out the letter, physically signing it, scanning it, and then sending it over to the client via email or snail mail.

A more effective approach is choosing an appropriate engagement letter from a library of templates where most of the letter is already written. All you have to do is, customize it as per your requirements and send it to your clients. After sending it, clients can electronically sign the letter. 

One major benefit of having this kind of workflow is that it greatly reduces the number of emails back and forth between team members. This is because, with an organized system in place, each team member knows exactly what their responsibilities are and what they need from their colleagues to complete their tasks.

Your checklist of must-dos for engagement letter writing

Consider the following details as to-do’s while drafting your letters for each client:

• Always explain your firm’s purpose for engagement, its limits, and your client’s obligations
• Mention known adverse circumstances that might affect your engagement.
• Outline any critical dates, fees, or deliverables.
• Outline the scope of services
• Include what you need from the clients
• Highlight record retention policy, late payment penalties, and a work termination clause.
• Discuss alternative dispute resolution methods like arbitration or mediation
• Request the client’s signature on an acknowledgment of the engagement

Conclusion

In conclusion, creating an effective bookkeeping engagement letter is a critical task that should not be overlooked. Avoiding common mistakes, such as failing to include important deadlines, using non-specific language, and failing to explain the services offered will help ensure that both the bookkeeper and the client are on the same page when it comes to meeting expectations. Furthermore, clearly stating payment terms and how the work will be performed can prevent costly disputes down the road.