WHAT ARE YOU DOING TO IMPROVE ACCOUNTS RECEIVABLE?

Actions speak louder than words. Law firm managers can say all they want about policies, procedures and infrastructure, but results are what matter. After all the talking, what has your firm done to address difficulties with accounts receivable?

Heading toward year-end, the economic picture for law firms remains tight, so now is a good time to figure out which actions work. Focus on these five steps:

1. Reach a consensus about how much of a 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 staff the power to tell attorneys to address their invoices, and allow them to use the firm's resources to help achieve results. Demanding real accountability is tough, but it's easier than pursuing payment of ageing receivables.

2. Take a closer look at accounts receivable more than 90 days old. Don't wait 90 days to be concerned about your account receivables. When looking at ageing receivables, many firms will notice collection problems. The reality is that these problems surfaced earlier, but nothing was done to address them.

If the work by your company has been satisfactorily performed, the client should pay within 30 days. If payment is not received by that point, it is the first sign of a collection problem. Make sure clients with a balance of more than 60 days old are routinely contacted to remind them payment is expected.

3. Start with the old and end with the new. Work on the oldest balance sheet first and move forward. Resolve the old issues — which are the hardest to address — before tackling the easier cases. Many times, law firms will acknowledge problems that are slowing down or preventing payment on certain accounts without taking the time to re-visit them and ensure collection efforts are succeeding. These accounts do take time and energy, but working on them can result in finding money for the firm.

The strongest members of your collection team should be focused on the older, tougher accounts. In addition, don't let the number of 90-day account receivables grow by neglecting to work on less substantial delinquent balances. It is surprising how significant a portion of the firm's accounts receivable portfolio is comprised of smaller balances.

4. Understand the reasons your clients are not paying. Why aren't they paying? It all comes down to problems with cash flow. However, such problems are often masked — intentionally or not — by other issues, such as poor service, bills that are higher than expected or bills that were never received.

From the start of a relationship, firms and lawyers must understand their clients in order to find the source of problems and resolve them when they do arise. Although aged receivables are part of the financial report, firms need to get a handle on the stories underneath the numbers to understand why clients are not paying.

To help alleviate cash flow issues, law firms should re-evaluate and implement realistic credit assessments of prospective clients. If clients are accepted after a suitable credit analysis, the amount of risk can be reduced by including provisions for retainers, evergreen retainers or personal guarantees when engagement letters are prepared.

5. Measure the results of your firm's efforts. You may be gathering a lot of information about your collections, but determine whether it is the right information. At a minimum, know if an account is actively being pursued and its payment status, who is pursuing the collection efforts and whether or not they are getting results, why clients are not paying, and what needs to be done to get them to pay.

Categorize receivables:
- Are they collectible? If so, when can we expect payment?
- Are they problematic? What are the chances we will get paid?
- Are they simply uncollectible?

Also, help efforts by creating reports that will show when payments can be made and frequently update information on the status of collection efforts and payments. If you have collection software, use it correctly to develop these types of reports.

Please visit our web-site for more information: http://clientci.com