Other reports

In addition to the financial controls/reports needed by the partners/ directors for the smooth running of the practice there are other reports needed from time to time, including:

• Annual audited accounts – prepared by the practice’s accountants and audited by an accredited external agency for accuracy and compliance

with statutory requirements. These have to be submitted to Companies House within a set period following the end of the practice’s financial year, and there are fines for failure to comply.

• VAT returns – HMRC requires all businesses turning over in excess of a certain threshold to be registered for VAT. This threshold, which is varied from time to time, is currently £79,000 per annum. Registered businesses must submit a quarterly return setting out VAT charged and paid and a balance owing to HMRC. There are strict time requirements for submitting this information and paying sums due.

• Bank reports – assuming the practice has taken out a bank loan to establish itself, or to raise funds for a certain purpose, there will be one-off requirements for reporting performance to the bank/funding institution.

7.4

Day-to-day financial management

7.4.1 Appointments

Before accepting a commission the practice should decide whether it is happy to work for the client. One of the key considerations in reaching this decision will be whether the client is likely to settle the practice’s invoices. Reference to previous payment records will confirm this in the case of repeat clients but the practice should not hesitate to ask for financial references on a new client. There may be situations where the practice wishes to request an initial payment before starting work – this is frequently the case on international projects.

The appointment documentation for a project should record the agreed fees to be paid for the services to be provided and other relevant arrangements relating to the financial management of the project. It is important that these are clearly established with the client at the outset of the project and, once agreed in the appointment contract, adhered to throughout its life, unless varied by agreement between the parties. Chapter 9 sets out more detailed recommendations to be considered when negotiating appointment terms.

Set out below is a list of the principal issues to be covered within the appointment relative to financial matters:

• The fee and the basis for calculating it – lump sum, percentage, hourly charge, etc.

• Cash flow for payment of fees. This might be by way of regular time- related or milestone payments. Monthly instalments are recommended to help the practice’s cash flow and provide an ‘early warning’ of a client who may be having financial difficulties.

• Arrangements for VAT (refer to the ‘rate prevailing at the time an account is issued’ as opposed to a set percentage – it does change occasionally). The architect needs to ensure that relevant VAT provisions are operated – there are a number of instances, for example foreign commissions, which do not attract VAT.

• Time for settling accounts (RIBA Appointment documents specify 14 days for both consumer and commercial clients).

• Arrangements for payment of interest in the event of late payment of accounts.

• Arrangements for payment of additional fees for additional services. • Arrangements for payment of expenses/disbursements. It is important

to state very clearly what has been included within, or excluded from, the agreed fee. The practice should consider whether it wishes to charge an additional management/handling charge in respect of expenses/ disbursements.

7.4.2 Invoices

It is exceptionally rare for a client to pay a fee before receiving an invoice, and so it is important for the practice to develop a well-managed system for the issue of invoices. It helps cash flow if invoices are raised as they are due, rather than waiting for a set time each month. It is useful to understand the client’s procedures for approval and payment of invoices. Many, particularly contractor, clients will have set times during a month when they raise cheques/settle invoices and the practice will receive prompter payment if they gear submission of their invoices to fit in with the client’s payment dates.

It is particularly important to ensure that the client is expecting to receive the invoice being sent, so it should be issued in accordance with a previously agreed schedule or discussed with the client before submission.

It is possible to submit a pro forma invoice to the client, in effect an advice note that is supplanted by a VAT invoice following payment. This delays the payment of VAT by the practice, but is not commonly agreed to by clients and can delay payment to the architect.

The invoice should clearly set out what it relates to, how much has been paid previously and what is being invoiced at this time, and the VAT payment. Invoices must show the practice’s VAT number, assuming it is registered for VAT. Either the invoice itself or the covering letter should confirm any preferred payment methods and the timetable for settlement.

The key issues relating to the submission of invoices are to: • issue promptly when they are due;

• ensure they are expected;

• understand the client’s approval/payment process; • ensure clarity/avoid queries.

It is critical to agree a cash flow to an agreed programme at the outset of the project and submit invoices punctiliously. You should then send reminders for accounts that have not been settled on time.