10 things for you to think about if a client gets to audit what you do

You may be thinking “why would there be an audit provision you have with another party?”.


Lots of reasons. Here are the top two reasons I can think of.

You might be entitled to a payment of royalties or some sort of commission under the terms of an agreement you have with another party.

Or you may have to pay something of this kind to them. In this sort of case, the audit will be literally a financial check.

The second has a wider remit. Some Clients will also include an audit provision which may have a mechanism so that they can check the amounts that you are charging them (assuming you are working on a time and expenses basis).

But the “audit” may not just be limited to financial information – it may be the right for the Client to more check that more generally you are complying with the terms of the Agreement.

Here is a (fairly extreme) example of the sort of thing an Agreement might include:

The Contractor will permit the Client or its duly authorised representative at any time to inspect or audit the Contractor’s books and records in order to verify that that sums paid under this Agreement are correct and that the Services have provided in accordance with the terms of this Agreement.

I’ve used an example for a Contractor and Client here but there could be a similar Agreement in a Licensing Agreement, Agency Agreement or Franchise Agreement etc.

In fact, this sort of provision could turn in any sort of contractual arrangement where one party might have a legitimate interest in checking up that the other is complying with the provisions of the Agreement.

What do you need to think about?

So if you are presented with such a clause, what points do you need to consider (I’m looking at this from the perspective of the Contractor – who is willing to co-operate within reason but is concerned about disruption to his or her business and the cost implications…).

1. Frequency

How often should the Client/Licensor be able to exercise this right? It will depend on the duration and extent of the contract. Personally, I would aim for not more than once a year.

2. Notice

How much notice should be given before an audit can be carried out? Again, it will depend on the circumstances and whether specific people need to be there. As a minimum it should be “reasonable notice” but that is a bit vague so aim for eg 5 Working Days’ notice. (This may mean you need a definition of “Working Days”).

3. When?

What hours do you want them turning up to audit? I guess this point ties in with the previous one. You will want the audit rights to be restricted to normal business hours on Working Days.

4. What can they have access to?

Think about the confidentiality issues relating to your other clients and business. It needs to be clear that you will only give the Client access to records relevant to them. Possibly, there may be a further restriction on what they can look at eg records for time and expenses work. How much time spent is probably irrelevant for work done on a fixed fee basis. In practice, how easily can you restrict what they see? Will you have to extract information rather than let them access your systems and records direct?

5. Where can they have access to the records?

Your place or theirs? Is access at your offices something that they want and are willing to give or can you just send (email or post) copies of the information to them to look at it?

6. Does it matter who carries out the audit?

Have you concerns about competitors? You may have concerns that the Client may appoint “representatives” to do the audit for them and that those representatives are part of their business may be competitors of yours. For example, many large accountancy firms also offer other types of services. If this is a concern, you would ideally want the right to consent to any third party involvement and ensure that any third parties were subject to a suitable confidentiality obligation.

7. Won’t it be disruptive?

Yes, probably if access has to be given at your offices. Apart from specifying the hours etc, there may not be much you can do about it other than say that they should carry out their auditing activities in such a way as to minimise disruption to your business activities.

8. Who pays?

Good question – this could be elaborated into who pays for what and in what circumstances. On the whole, the person who wants the audit pays for it. Having said that, some clauses provide that if the audit shows the Client was losing out in some way (this might be tied to a margin of error), then the Contractor will bear the cost. There is also the issue of who will bear the cost of any copies of documents made in connection with the audit to consider.

9. What about your staff time?

Who should bear the cost of this? If the audit is at your site then probably you will need to make staff available to provide information and answer questions. Should you be entitled to charge for this? Again, it will depend on the circumstances but it may be appropriate to give them a specified number of “free” hours’ assistance on the basis that they will pay for anything in excess of this at the usual rate.

10. How long does the right last?

What is reasonable after the end of the Agreement? 3 months, 6 months, a year? It will depend on the circumstances. This is, of course, a different issue from how long you will keep the relevant records – if they relate to tax or finance, this is probably going to be at least 6 years (and probably 6 plus 1) so that you can require with HMRC requirements.

Who’d have thought such a short clause could give rise to so many potential issues?

I hope you found this useful, please do share your thoughts in the comments section below.

Photo: iStockphoto ShaneKato

How to enjoy networking

Do you network in person as part of your strategy to grow your business?  How do you feel about it?

Networking1It’s something I’ve had to embrace since I left my job as a commercial contracts lawyer in a large corporate.

And I now enjoy it – by doing it on my own terms.

I’m even the joint organiser of one informal group that meets monthly.  Who’d have thought it?

Here are my tips on how to make the best of it.

1.     Find out what you’re opting in for before you turn up.

There are so many types of events and formats.  Different times of day (early mornings are a killer for me, so ideally I would avoid this): what suits you?

Is there a cost (other than your time, course!): is it worth it?  How many people will be there and are they or at least some of them your target market or linked to them?

Don’t be afraid to ask lots of questions before you attend.

2.     What’s the format of the event: are there any ‘rules’?

Your questions should also extend to the nature of the event.  Is the group for everyone or is it that some limit in terms of age, is it for men and women, type of occupation etc?

Is there a restriction on more than one person from an occupation attending?  Is it formal or informal?  Is there a good speaker, nice meal?  Do they make the cost worth it?

I’ve realised now that I only really like informal events: I tend to want to rebel against any restrictions.

3.       Is anything expected of you?

Are you going to be expected to talk about yourself/your business for 60 seconds (or another set period)?  This can be intimidating (surely that can’t be the intention?).  Some people take this very seriously and take a lot of trouble preparing.  I don’t.  It can help, however, to do something to make you more memorable – for example, taking a relevant prop (eg sample of your work) or tell a relevant story of how you helped a client.

When you hear someone’s ‘pitch’ for the first time, you are so desperately trying to pigeonhole them by occupation (in the nicest possible way!), that you can’t take most of it in and miss much of it.  And, if you haven’t had your ‘go’ yet, you will be thinking about that rather than listening.

If you attend regularly, you will have to hear more or less the same spiel each time with a topical twist.  It all gets to be rather a bore – even if you can all join in with the speaker’s tag line or slogan.

You will guess that I avoid ‘elevator pitches’ like the plague.  The reality is that people usually only remember a three or four word phrase about what you do: they will only really take in more when they know you better.

4.      Are you expected to make an ongoing commitment?

This goes back to the formal/informal issue.  Can you just turn up when you want or are you going to be expected to turn up each time (or send a substitute)?

Often you can attend groups as a visitor (but you may still have to pay, especially if there are refreshments).  How many times can you visit before you have to commit?

Networking plus bowl

Then you need to think about the cost of the commitment (time/money) and whether it is going to be worthwhile for you… bearing in mind everything that’s relevant.

In practice, I might attend groups with people I like or to support them, even if it isn’t going to bring me lots of work..  provided that I’m not expected to attend regularly and the cost isn’t extortionate.

5.      Don’t expect anything …

Just make the most of meeting interesting and/or different people who can share information and experiences with you.

One reason I didn’t like networking when I was expected to do it as part of my firm’s ‘business development’ was that I felt a failure if I couldn’t bring in a new client or cross sell the firm’s services (I wonder if anyone achieved this at one event?)

Other people have tales how someone got a fabulous job because they happened to meet someone at a networking event.  That’s not happened to me… yet anyway.

In my experience it doesn’t work like that.  I’ve made useful contacts and have got some work but things don’t happen instantly – you need to take the long view.  Enjoy meeting people and help them, if you can, and eventually this is likely to bring its own rewards.

How do your experiences of networking compare to mine?  Do please share them by commenting below.

Picture credits: ©Geraint Davies