What to include in a contract with an accounting service provider

Financial matters require order. Entrepreneurs quickly learn this age-old truth. Otherwise, control over the business can easily slip away, and castles in the air can quickly turn into insolvency. This is precisely why choosing a reliable accountant or accounting service provider is of invaluable importance.

If you choose to outsource, defining the terms of cooperation becomes equally important. After all, this partner will hold all the critical information regarding the company's finances, and your relationship with the State Revenue Service and other regulatory authorities will depend on their expertise.

The contract – every detail matters

When starting a partnership with an accounting service provider, two things are indispensable: mutual trust and a comprehensive, precisely drafted, and unambiguous contract. While trust is usually built and strengthened over the course of the collaboration, a flawless contract must be in effect from the very first day of work.

What should be included in this contract? The short answer is: absolutely every detail that is important to the client. Even those that seem self-evident to you. The service provider may not even realize that you expect certain specific tasks to be performed.

For this reason, it is wisest to describe all tasks to be performed in detail within the contract. One by one. In what format and by what deadline does the client submit documents to the accounting firm? How long does it take to process them and prepare the necessary reports? In what format are they delivered to the client, and who submits them to the EDS and other state institutional systems?

Even communication must be defined

The method of communication must be precisely stipulated. The contract should specify contact persons and their substitutes, as well as define communication channels. This could be email, or various project management or collaboration platforms. It must define the timeframe for responding to inquiries and how the confirmation of data transfer and receipt will take place. Otherwise, a situation may arise where one party fails to fulfill its duties but blames the other for not submitting the necessary information on time or for it being incomplete.

It is equally important to agree at the very beginning on which accounting software will be used and where the information will be stored – in local storage or in the cloud? The choice of accounting software is more important than it might initially seem, as every existing company has a backlog of financial data from previous years, and this will only grow in the future when, perhaps, a decision is made to change the accounting service provider again. Therefore, it is important to choose one of the widely used programs so that data migration does not cause difficulties.

In certain cases, the client may need access to the accounting system used by the accountant. When the client issues invoices from this program, the flow of information within the company is facilitated because documents are collected in one place and no longer need to be sent separately to the service provider. Sometimes, a client wants to track revenue and expenses in real-time. Such a requirement should also be provided for in the contract.

It is essential to divide responsibility

A very important issue is responsibility. Who is responsible for data security, and what happens in the event of a leak? How is it monitored whether all security protocols are being followed? How will compliance with the General Data Protection Regulation (GDPR) be ensured, and who will be responsible for violations? Finally, the service provider's liability for errors made in reports and calculations must also be provided for. If such errors occur and the company is fined, the contract must specify who is to pay it. Who must make corrections to the report, and is there an additional fee for this? This will save you from mutual recriminations and litigation, as the course of action will be sufficiently clear.

The contract should essentially track the entire accounting cycle. Specifically, who will do what, what the price for each service will be, and how it will change depending on the number of documents or entries. Since service providers offer a different range of services, it should be clarified in time what is available and necessary for the client. Some may perform the digitization of waybills, receipts, invoices, and other documents, thereby reducing the volume of data entry and, consequently, costs.

It should be taken into account that the workload will not be constant throughout the entire period of cooperation. The company may grow and the workload may increase, so it is necessary to anticipate in advance how this will affect costs. Conversely, an economic crisis could occur, and business volume could shrink. It is important to provide in the contract that in such circumstances, you would not have to continue paying the same high price as in the "fat" years.

Various important nuances should also be addressed. For example, will the service provider also handle personnel matters, prepare contracts for new employees, and calculate salaries? Who will prepare payment orders at the bank, and who will control cash flow? Who will record fixed assets and write up acts? Who will develop the chart of accounts and methodology, and will it be redesigned if the client already has such a plan? If so, will the client have to pay for it?

When meeting, talk about parting ways

It should be kept in mind that the accounting service provider is subject to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing, so the contract must also include a clause regarding its compliance. Specifically, the client must not refuse to provide information. It is equally important to include a clause regarding the non-disclosure of data to third parties.

Even though you do not want to think about a future separation at the beginning of a new partnership, it must still be provided for in the contract. It is not enough to set the term of the contract. The process of how data will be transferred to the next service provider or the client's accountant must also be defined. In what format will the primary accounting documents, registers, reports, and contracts be received if they are stored by the outsourced accountant? Will the service provider issue accounting registers in paper or electronic format, or provide a copy of the database if it can be extracted from the accounting software? It must certainly be clarified whether this will be for an additional fee and how long it will take for the documents, registers, and reports belonging to the company to be handed over. And, of course, the contract must contain a scenario for the termination of the contract – in what situations it is permissible and what procedure must be followed.

Once all these and other important issues have been described, the documents signed, and they have come into effect, you can begin fulfilling your obligations with peace of mind.