How to Assess Risk When Taking on New Clients in Your Accounting Practice
As a Business Accountant in Practice (BAP), taking on a new client is a big decision. While it might seem like an easy “yes” when someone wants to use your services, accepting the wrong client can lead to serious problems—late payments, compliance issues, or even legal trouble. A proper risk assessment helps you avoid these risks and ensures you work with clients who align with your firm’s values and business goals.
In this article, we’ll walk through a step-by-step risk assessment process to help you decide whether a new client is a good fit.
Step 1: Know Your Client (KYC)
Before you even consider working with a new client, you need to verify who they are. This is a basic requirement for preventing fraud, ensuring compliance, and protecting your practice.
What to do:
✅ Verify their identity – Ask for a certified copy of their ID or passport. If it’s a business, get their company registration certificate and check their details with the Companies and Intellectual Property Commission (CIPC).
✅ Confirm tax registration – Ask for their SARS tax number, VAT registration, and PAYE details (if applicable).
✅ Check for red flags – Look up their business name, directors, and shareholders. Have they been involved in legal disputes, tax evasion cases, or financial scandals?
✅ Screen for politically exposed persons (PEPs) – If your client is a government official or linked to one, you may need extra due diligence to ensure they are not involved in corruption or bribery.
Step 2: Assess Financial Risk
Not all clients will pay on time, and some may not pay at all. You need to check whether they are financially stable before agreeing to work with them.
What to do:
✅ Request financial statements – Ask for their latest income statement and balance sheet to get an idea of their financial health.
✅ Run a credit check – See if they have outstanding debts or a history of late payments. This will help you determine whether they are likely to pay your fees on time.
✅ Check their payment behaviour – If possible, ask for references from their previous accountant or suppliers. Do they settle their invoices promptly?
✅ Set payment terms carefully – If a client has a history of late payments, consider charging upfront fees or asking for a retainer before starting work.
Step 3: Look for Compliance & Ethical Risks
As an accountant, you don’t want to work with clients who engage in unethical or illegal activities. If a client is involved in fraud, tax evasion, or money laundering, you could face serious consequences just by being associated with them.
What to do:
✅ Check their tax compliance status – Ask for a SARS Tax Clearance Certificate. If they have unpaid taxes or penalties, that’s a red flag.
✅ Assess their business activities – Does their business involve cash-heavy transactions, gambling, crypto trading, or other high-risk industries? If so, be extra cautious.
✅ Look for conflicts of interest – Do they have connections with your existing clients that could cause ethical issues?
✅ Trust your instincts – If something feels “off” about the client, investigate further before making a decision.
Step 4: Define the Relationship Clearly
Once you decide to work with a client, it’s essential to set clear boundaries and expectations. This will help prevent misunderstandings and protect your practice.
What to do:
✅ Draft an engagement letter – This should clearly define:
The scope of work (e.g., bookkeeping, tax returns, advisory services).
The client’s responsibilities (e.g., providing correct financial records).
Your fees and payment terms.
How either party can end the engagement if necessary.
✅ Get written authorisations – If you’re submitting tax returns on their behalf, get a Power of Attorney (POA) and an anti-money laundering (AML) declaration signed.
Step 5: Monitor & Reassess Regularly
A client who seems low-risk today could become high-risk in the future. That’s why it’s important to review your clients’ risk levels on an ongoing basis.
What to do:
✅ Keep an eye on their financial and tax behaviour – If they start missing payments or delaying tax filings, it might be time to reassess the relationship.
✅ Conduct an annual risk review – Every year, check:
Has their financial position changed?
Have they had any compliance issues with SARS?
Are they still a good fit for your firm?
✅ Be prepared to terminate – If a client becomes too risky or starts engaging in unethical behaviour, you should be willing to end the relationship to protect your practice.
The Final Decision: Accept, Reject, or Proceed with Caution?
After completing your risk assessment, use the following approach:
✅ Low Risk – Accept the client with standard agreements.
⚠️ Medium Risk – Accept but take precautions (e.g., upfront fees, shorter payment terms).
❌ High Risk – Reject or escalate for further due diligence before making a decision.
Final Thoughts
Taking on a new client isn’t just about getting more business—it’s about ensuring that the clients you work with are trustworthy, financially stable, and compliant with regulations. A proper risk assessment process will help you protect your practice, maintain professional integrity, and build long-term, successful client relationships.
By following these simple steps, you can confidently say "yes" to the right clients and "no" to the wrong ones, ensuring the long-term success of your accounting and tax practice.
Join us for a CPD on Taking on New Clients in Your Practice here
🚀 Taking on New Clients in Your Practice – 3 March 2025 🚀
Clients are the backbone of any successful business, but bringing in new clients comes with both opportunities and risks. Are you confident in your onboarding process, client assessment, and risk management?
Join us for a 3-hour CPD-accredited webinar where Michelle Homann, an experienced practitioner with over a decade in client onboarding and management, will guide you through:
✅ Evaluating new clients effectively
✅ The onboarding process and relationship-building strategies
✅ Managing client expectations and ensuring long-term success
✅ Navigating compliance considerations (ISQM, FIC Act, SARS checks)
✅ Billing, collections, and ongoing risk management
📅 Date: 3 March 2025
⏰ Time: 09:00 (3 hours)
🎓 CPD Units: 3 (Practice Management)
📍 Format: Live Event & Recording Available
🔗 Don’t miss out on this essential learning opportunity! Secure your spot today here.
