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Professional indemnity insurance for bookkeepers


Professional indemnity insurance for bookkeepers can help If a mistake's been made and the books don't balance.

Bookkeeping is a numbers game. It relies on precision and accuracy, with little margin for error. Because if the numbers are wrong, a client’s business can very quickly go wrong too.

So, why is it important to have professional indemnity insurance for bookkeepers? It’s cover for when a mistake’s been made, after all. And bookkeepers shouldn’t make mistakes, should they?

Well, not intentionally, no. But the thing is, we’re all human. And along with being human comes an unfortunate tendency to err.

That puts even bookkeepers at risk of messing up. Because on a bad day, it’s really not that hard to enter figures wrongly, forget to make a payment, or pull together a report using the wrong info.

And that’s where the problems can start. Because if a client makes a business decision based on numbers that are out of line, it can seriously backfire. The same applies if an accountant uses those numbers to prepare an incorrect tax return and HMRC gets involved.

Paying the price

The second part of the ‘to err is human’ quotation would have you believe that ‘to forgive is divine’.

That may be so, but if a client loses money because of a mistake you made, the chances of them forgiving you are pretty slim. Instead, they’re much more likely to come after you with a claim for compensation.

Unfortunately, that can have some pretty serious implications for your business. Because besides the matter of the amount of compensation you may have to pay, there’s all the complex, time-consuming paperwork to deal with. And a possible day in court.

That means hiring a lawyer to help you find a way through the legal landscape…which also means paying by the hour. Ever come across a cheap solicitor? No, me neither. So that’s another big expense to swallow.  

Why professional indemnity insurance for bookkeepers makes good business sense

Where professional indemnity insurance for bookkeepers makes sense is that it takes all the hassle and uncertainty out of dealing with a claim and pays the costs, too. It buys you a legal expert to represent your interests and covers court expenses. Importantly, it also picks up the tab for any compensation you’re obliged to pay.

In fact, bookkeepers’ professional indemnity insurance makes so much sense that some professional associations insist on it. Anyone practising under a license from the Institute of Chartered Bookkeepers (ICB), the International Association of Bookkeepers (IAB) or the Association of Accounting Technicians (AAT) simply has to have it.

You’ll also find that certain clients will insist on seeing proof of cover before they’ll employ you to work on a contract. They see it as a mark of professionalism and a sign that you take your work seriously. Plus, they’re (understandably) covering their backs should things go wrong.

How much professional indemnity insurance do you need?

It makes good business sense to be properly protected – which is why we advise people to buy as much cover as they can afford. And although hindsight is a wonderful thing, it’s not much help if you find yourself out of pocket because your level of cover wasn’t adequate.

As well as considering the obvious costs involved with any claim, start by thinking about the size of your clients. A big company with lawyers on tap is far more likely to pursue a claim of negligence against you than a corner shop. No matter the gravity or otherwise of the mistake.

You may also have clients who insist on a certain level of cover before they’ll employ you. And think about any contracts you missed out on. Is there a chance you were ruled out of the running because your professional indemnity cover wasn’t considered enough?

Professional indemnity insurance for AAT bookkeepers

The AAT goes a step further and stipulates a minimum level of cover for its licensed bookkeepers. You can read the specifics here.

And there are other requirements. The AAT says its members’ professional indemnity cover must work on what’s called an ‘any one claim’ basis. This is something to look out for when choosing your insurance policy as it means each claim is treated separately.

So, say your level of cover is £50,000, your insurer will pay compensation up to that amount for each claim against you within the insurance period. In each case it will also pay up to £50,000 in legal costs on top.

Another of the AAT’s requirements is that its members’ professional indemnity cover should be ‘retroactive’. This is important since it means you’re covered for past work.

‘Retro’ effectively stretches your policy’s start date backwards, usually to when you started your business. It means you’re covered for complaints about work you did previously…which is a good thing, considering errors can take months or even years to emerge.

What can you do to help avoid claims?

Professional indemnity insurance for bookkeepers is your backstop once a claim’s been made against you – whether it’s justified or not.

But there are other things you can do to reduce the likelihood of a claim dropping onto your doormat in the first place – just as there are ways to increase your chances of fending off a claim once it’s been made.

  • Use engagement letters to define your relationship with your client and exactly what you will and won’t be doing for them. List all your tasks and areas of responsibility and get it agreed in writing. That way, if there’s a claim, you have proof of what reasonably could have been expected of you.
  • Be vigilant about everything to do with your client’s finances. If you feel something isn’t quite right, or certain figures look wrong, let your client know – even if what you notice isn’t part of your specific responsibilities. It can stave off problems later.
  • Document everything you do on your client’s behalf, with relevant dates. If you’re accused of doing something wrong, it’s important to have a record of what you did when, and why. Also, get written approval for any financial transactions you conduct on your client’s behalf.

Balanced approach

Your clients rely on you to keep the figures in line, keep records updated, and make sure cash flows seamlessly in and out of their business. That’s why a meticulous and methodical approach is essential.

But it all adds up to a lot of different things to keep on top of. And no matter how organised you are, and how eagle-eyed, sometimes the books can swing off balance…and the finger of blame can point in your direction.

That’s where bookkeepers' insurance can help by covering all the costs and taking the hassle out of having to deal with a claim. It’s also why it should figure among the calculations you make for your own business. 

Image used under license from Shutterstock

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