Starting a new client relationship can feel tricky. You want to impress them, deliver great service and get paid on time. But what if things go wrong or your client doesn’t fully understand your offering?
Here’s the solution: an engagement letter. Think of it as a written handshake—it clearly defines what you’ll do, the cost and your expectations. This helps create a strong, professional foundation for a successful partnership. An engagement letter should also save you time and protect you legally.
This article explains what should go into your engagement letter, why it’s important and how automation and e-signatures can make the process even easier.
Key Takeaways for Busy Accountants
- Engagement letters are your legal shield – They protect you from non-payment, scope creep, and liability issues while establishing clear boundaries with clients
- Save time with automation – Digital tools like FigsFlow eliminate manual updates and allow instant e-signatures, turning a tedious process into seconds of work
- Prevent scope creep before it starts – Clearly defined services in your engagement letter mean clients can’t demand extra work without additional compensation
- Combine proposals with engagement letters – Presenting both together streamlines client onboarding and increases the likelihood of signatures
- Templates ensure compliance – Using industry-standard templates covers all legal requirements and reduces the risk of missing critical clauses
What is an Engagement Letter?
An engagement letter is a formal agreement between your company and your client. It outlines the key details of your business relationship like the services you will provide, the fees and important legal terms like liability limits and record-keeping. This document helps both parties understand what is expected—what services will be delivered, who is responsible for what and how much will be paid.
The letter of engagement also acts as a clear confirmation of the agreement, helping to avoid future disputes caused by misunderstandings. It sets the stage for a transparent and professional relationship, and you and your client are on the same page about your roles and responsibilities.
With signature lines for both parties, the terms of engagement mean everyone agrees to the terms before any work begins. Once signed, you can get started confidently, knowing you are protected from concerns about payment, legal issues, or being asked to do more work without compensation.
A common problem for accountants is scope creep when clients request additional work without offering extra pay. Engagement letters guard against this by clearly defining the scope of services. If the client needs more, the letter can be updated to pay for the additional work.
📋 Learn More About Professional Standards
Looking to ensure your engagement letters meet industry standards? Discover how professional bodies approach client agreements.
Explore ICAEW Engagement Letter Templates →Your Short Guide to Using ICAEW Engagement Letter Templates
Proposals vs Engagement Letters
In the accounting world, proposals and letters of engagement are often confused, but they serve different purposes. A proposal is a sales tool to convince a potential client to choose your firm. It highlights your services, expertise and reasons why the client should work with you.
On the other hand, an engagement letter is a legal document that outlines the terms of your agreement—things like the scope of work and other important details. While proposals help you win clients, engagement letters make sure the relationship is clear and legally binding.
Combining the terms of engagement with your proposal can make the process smoother. The client will already have a better idea of what you offer, increasing the chances they will sign the agreement.
With tools like FigsFlow, you can quickly send automated engagement letters and access online proposals and templates. This saves you time, helps you sign clients easily and minimises the chance of any misunderstandings. Presenting both together makes the next steps crystal clear, leaving no room for confusion in the agreement.
⚖️ Understand the Differences
Confused about which document you need? We break down the key distinctions between different client agreements.
Read: Engagement Letter vs Letter of Intent →Engagement Letter vs Letter of Intent: Key Differences Explained
Why Accountants Need an Engagement Letter
Some accountants might think engagement letters are not necessary if clients do not always read them fully. But there are plenty of reasons to use them.
Terms of engagement is your first line of protection against non-payment, client fraud and liability issues. When you start working with a new client, you are legally entitled to be paid for your services, with a signature to back it up. It also shields you from liability and from being held responsible for any illegal activities your client might be involved in without your knowledge.
Without a letter of engagement , there is a higher risk of misunderstandings about what services you are providing, which can spark disputes or even legal problems. The letter clearly lays out the terms, meaning you are entitled to payment and protecting you from liability.
Beyond protection, engagement letters also help build stronger client relationships by setting clear expectations from the start. They allow for transparency, which can prevent scope creep—when clients ask for more services without offering additional payment. If this happens, the engagement letter can easily be updated to compensate for the extra work.
🚀 Ready to Modernize Your Process?
Stop spending hours on manual engagement letters. See how FigsFlow’s automation can transform your client onboarding.
Discover How to Automate Engagement Letters →Stop Wasting Hours: Automate Engagement Letters with FigsFlow
What Should be Included in an Engagement Letter?
Many accounting firms are not sure if their engagement letter covers everything it should. FigsFlow offers industry-standard templates that include everything most accountants need. Here is a general idea of what your engagement letter should have:
- Purpose, Scope & Deliverables – Clearly explain the services you will provide and what the client can expect to avoid scope creep.
- Handling Additional Services – Define how extra services outside the original agreement will be managed.
- Billing & Payment Terms – Detail how and when you will bill your client including any retainers if applicable.
- Limitation of Liability – Include terms that limit your responsibility for issues like mistakes in client-provided information.
- Confidentiality & Disclosure – Protect client information while addressing legal requirements for disclosure to authorities like the HMRC.
- Governing Law – State that the agreement follows the laws of your state and explain how disputes will be handled.
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How to Format Your Engagement Letter
The way you format your engagement letter depends on how you plan to send it. You can stick with the traditional method of printing out a PDF for clients to sign or opt for something more modern with an electronic signature system. Here are three options.
Word to PDF – You can have a lawyer draft a standard engagement letter in Word, then adjust it for each client by adding their details and any changes needed. Afterwards, convert it to PDF, print it and get the hard copy signed. The downside is you will have to update the original document each time and meet with clients in person for signatures.
Electronic Document Systems – Using software like FigsFlow makes the process quicker and more professional, allowing electronic signatures. The tool lets you save templates and personalise the design.
Integrated Digital Proposals – FigsFlow takes things further by combining proposals and engagement letters in a smooth digital format. With this option, your proposal includes everything—cover letter, brochure, service details, payment setup and e-signature capabilities—using pre-built templates. It is the fastest and most efficient option.
🔍 Compare Your Options
Not sure which engagement letter software is right for your firm? We’ve done the research for you.
See the Best Software for Engagement Letters →Free vs Paid Engagement Software: What’s Best in 2025?
Try Sample Engagement Letter Templates for Free
Creating a solid and legally sound engagement letter from scratch can feel overwhelming. Luckily, FigsFlow provides ready-to-use engagement letter templates that cover all the essential elements most accounting firms need. Like our proposal templates, it can be easily customised to meet your needs.
Your client can review, accept and sign it in seconds. The template includes important sections like the scope of work, billing procedures and liability limits. Using this template means your engagement letter is both thorough and compliant with industry standards, saving you on legal costs. Using a standard template also covers all legal and regulatory details. This is useful for firms with many clients as it trims the risk of mistakes or missing important details.
Conclusion
An engagement letter is essential for accountants and bookkeepers to set clear rules, avoid legal problems and keep things running smoothly with clients. It defines what services will be provided, how much clients will pay and protects against liability issues.
Using one, whether old-school or digital, is a smart way to protect your business and save time. With templates and automation, you can simplify the process and focus on growing your business without the headache.
📅 See FigsFlow in Action
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Frequently Asked Questions
An engagement letter is a formal document that outlines the terms of the agreement between an accountant and their client. It details the scope of services, the fees, and important legal terms such as liability limits and confidentiality clauses.
Engagement letters are essential for protecting accountants from potential legal issues, non-payment, and misunderstandings. They help define the scope of work and set clear expectations between the accountant and the client.
An engagement letter should include a clear description of services (scope and deliverables), how additional work will be handled, and payment terms. It should also outline liability limitations.
While you can use a standard template as your foundation, each engagement letter should be customized to reflect the specific services, fees and terms relevant to that particular client. FigsFlow’s templates make this easy by allowing you to quickly personalize the scope of work, billing details and any special terms while ensuring all legal requirements are covered.
Engagement letters should be renewed annually or whenever there’s a significant change in services, fees or the client’s circumstances. It’s best practice to review and update your engagement letters at the start of each tax year or accounting period. If a client requests additional services beyond the original scope, issue an updated engagement letter or addendum to cover the new work.
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