Cash flow problems have always been the number one reason why clients do not pay their bills to law firms. And now because of an uncertain economy, this problem has become more prevalent. Last to be paid are bills perceived as being non-essential to business operations. The harsh reality is that legal bills typically fall into this category. For many businesses and individuals, paying their legal bills does not carry the same urgency as payment to others. Additionally, firms are faced with e-billing issues that require a more thorough A/R management strategy.
Clients are smart. They know very little will happen if they don’t pay their legal bills on time. Law firms have conditioned their clients to pay at their convenience, without penalty. Clients often disguise their cash flow problems through delay tactics in order to buy more time, or avoid paying altogether.
Law firms should have a sense of urgency to shorten their collection cycle, not only because of the uncertain future, but also because it is critical to determine if and when client will pay in order to understand how it will affect cash flow within the firm. Here are a few tips to remember:
• Establish Realistic Time Frames – Don’t take the approach that older receivables will be paid without the right approach. Be aware that receivables over 120 days have a 50% chance of being collected, and the rate continues to drop as receivables age. If you have any hope of getting paid, these accounts must be pursued diligently; don’t wait for a client meeting, a phone call or a letter. Work with the attorneys to figure out if the clients need to be pursued, and if so, how and by whom.
• Give Your Attorneys Less Autonomy – Attorneys are often reluctant to follow up on receivables – or even to have others help them do so – because they fear that by pushing to collect outstanding receivables they will jeopardize their chances for more and better work. Many firms are losing revenue by giving attorneys too much individual autonomy in making sure bills get paid. We wonder when firms will stop tolerating “good clients” who just don’t pay their bills. When are they going to stop permitting clients to pay slowly or not at all?
• Start Addressing the Real Issues Going Into Year End -...So your firm can hit the ground running with productive A/R changes to start 2013. Firms have created accounts receivable management programs, but many do a poor job of setting attainable goals and measuring the success of their efforts. Take a step back to evaluate your objectives, and the policies, procedures and personnel you are using to achieve these objectives. Be realistic about whether or not the job is getting done and look to make changes accordingly. Accounts receivable will age rapidly unless you keep your eye on the ball and put in processes that get the job done in collecting your receivables timely.
Law firms have a great deal at stake when they see receivables sitting there….and sitting there…..and sitting there. Start making the necessary adjustments and help your firm improve its revenue, cash flow and profitability objectives. Learn more on our web-site - http://www.clientci.com/
