Law firm management can talk all it wants about policies, procedures and infrastructure, but results are what matter. When all the talk is done, what has your firm done to address difficulties it has with accounts receivable?
It is vital to have systems and techniques in place to help ensure law firms are set up to manage their accounts receivable. This is necessary to achieve one thing and one thing only: results.
Five key actions to focus on:
1. Reach a consensus about what priority collections should take.
Place the right people in the right positions; people who will roll up their sleeves and work as part of a team to achieve success. Give them the power to tell attorneys to address their collections and to use the firm’s resources to help them achieve results. Demanding real accountability is tough, but it’s easier than pursuing payment of aging receivables.
2. Take a hard look at accounts receivable that are more than 90 days old.
When looking at ageing receivables, many firms will see collections problems. They had such problems sooner, but did not do anything about them. If the work has been satisfactorily performed, the client should pay within 30 days. If you are not seeing payment by that point, you have the first sign of a collection problem. Contact clients that start to go over 60 days to let them know that payment is expected.
3. Work backward forward.
Work on the oldest accounts receivable first and move forward. Resolve the old issues – which are the hardest to address – before tackling the easier, newer receivables. Many times, law firms will acknowledge problems that are slowing down or preventing payment on certain accounts without taking the time and action to revisit these accounts to ensure collection efforts are succeeding. The strongest members of your collection team should be focused on the older, tougher accounts. And don’t neglect the lower-level delinquent balances. You would be surprised how significant a portion of the firm’s accounts receivable portfolio is comprised of accounts with smaller balances.
4. Understand why your clients are not paying.
Frequently, it comes down to problems with cash flow. Such problems are often masked by other issues, such as poor service, bills that are higher than expected, bills that were never received, etc. From the start of the relationship, firms and their lawyers must understand clients so when problems do arise, they can get to the source of the problems and resolve them. Although aged receivables are part of the financial report, it is the stories underneath those numbers that firms need to get a handle on, so they understand why clients are not paying.
5. Measure the results of the efforts your firm is making.
You may be gathering a lot of information about your collections, but determine whether you are getting the right information. At a minimum, you need to know if an account is actively being pursued and what is the payment status, who is pursuing the collection efforts and whether they are getting results, why clients are not paying and what needs to be done to get them to pay. Categorize receivables: (1) Are they collectible? If so, when can we expect payment? (2) Are they problematic? What are the chances we will get paid?; or (3) Are they simply uncollectible? Create reports that will show when payments can be made and frequently update information on where collection efforts and payment status stand.
Jake Krocheski is the president of Plano, Texas-based Client Connection. He has more than 25 years of experience as a management consultant to the legal profession, helping law firms develop accounts receivable management programs and client intake procedures. http://www.clientci.com/
It is vital to have systems and techniques in place to help ensure law firms are set up to manage their accounts receivable. This is necessary to achieve one thing and one thing only: results.
Five key actions to focus on:
1. Reach a consensus about what priority collections should take.
Place the right people in the right positions; people who will roll up their sleeves and work as part of a team to achieve success. Give them the power to tell attorneys to address their collections and to use the firm’s resources to help them achieve results. Demanding real accountability is tough, but it’s easier than pursuing payment of aging receivables.
2. Take a hard look at accounts receivable that are more than 90 days old.
When looking at ageing receivables, many firms will see collections problems. They had such problems sooner, but did not do anything about them. If the work has been satisfactorily performed, the client should pay within 30 days. If you are not seeing payment by that point, you have the first sign of a collection problem. Contact clients that start to go over 60 days to let them know that payment is expected.
3. Work backward forward.
Work on the oldest accounts receivable first and move forward. Resolve the old issues – which are the hardest to address – before tackling the easier, newer receivables. Many times, law firms will acknowledge problems that are slowing down or preventing payment on certain accounts without taking the time and action to revisit these accounts to ensure collection efforts are succeeding. The strongest members of your collection team should be focused on the older, tougher accounts. And don’t neglect the lower-level delinquent balances. You would be surprised how significant a portion of the firm’s accounts receivable portfolio is comprised of accounts with smaller balances.
4. Understand why your clients are not paying.
Frequently, it comes down to problems with cash flow. Such problems are often masked by other issues, such as poor service, bills that are higher than expected, bills that were never received, etc. From the start of the relationship, firms and their lawyers must understand clients so when problems do arise, they can get to the source of the problems and resolve them. Although aged receivables are part of the financial report, it is the stories underneath those numbers that firms need to get a handle on, so they understand why clients are not paying.
5. Measure the results of the efforts your firm is making.
You may be gathering a lot of information about your collections, but determine whether you are getting the right information. At a minimum, you need to know if an account is actively being pursued and what is the payment status, who is pursuing the collection efforts and whether they are getting results, why clients are not paying and what needs to be done to get them to pay. Categorize receivables: (1) Are they collectible? If so, when can we expect payment? (2) Are they problematic? What are the chances we will get paid?; or (3) Are they simply uncollectible? Create reports that will show when payments can be made and frequently update information on where collection efforts and payment status stand.
Jake Krocheski is the president of Plano, Texas-based Client Connection. He has more than 25 years of experience as a management consultant to the legal profession, helping law firms develop accounts receivable management programs and client intake procedures. http://www.clientci.com/
