More and more law firms are beginning to prequalify new clients by reviewing their credit history and financial information. Firms must learn to evaluate prospective clients to determine if they can and will pay their bills. Many clients simply do not have the income to pay even relatively small legal bills. Others can handle the initial costs, but don’t have enough surplus cash flow to pay later, when fees and expenses grow larger than anticipated. Then there are those that have the means to pay, but are unwilling to do so in a timely fashion. Here are three essential tips to help ensure receivables don’t age too far:
• Make sure lawyers and clients share expectations about the amount and kind of work that will be done -- and the anticipated costs.
• Learn how to use a retainer and be extremely careful about letting receivables age without a workable game plan for getting paid. Too often, lawyers are too busy to monitor client payments.
• Establish credit thresholds and set parameters around what clients can realistically incur. Being honest with yourself about payment expectations will only help in the long run.
Taking decisive action to collect aged receivables will help revenue, cash flow and profitability. However, solving accounts receivable management problems requires long-term, fundamental solutions. Otherwise, lawyers may quickly return to bad habits, and the firm will find itself in the same bind down the road. The first and most important steps are to evaluate your client/matter intake process and identify problem receivables early on.
Although a weak economy hurts all law firms, it will especially hurt those firms without proper client intake procedures and efficient accounts receivable management efforts. Don’t be fooled into thinking your firm has a system in place when it doesn't. Ageing accounts receivable can be a runaway problem if not managed early. Learn more at our web-site at: http://www.clientci.com/
