Law Firms May Face Worse Collections Crunch This Year

Sure, you have heard that warning from us before.

But now a recent article in The American Lawyer predicts that 2015 may prove to be a tougher year for collections than 2014 was. The article cites a report by Citi Private Bank's Law Firm Group, showing that firms took longer to convert entries on their timesheets into cash in the first three quarters of 2015, compared with 2014. The report says that revenue growth for law firms has also slowed this year, suggesting that there could be an especially large collections push at the end of this year. Gretta Rusanow, who heads advisory services at Citi's Law Firm Group, says that realization rates at law firms dropped during the years after the 2008 Great Recession, and they have not yet fully rebounded. Pre-2008, realization rates were around 94%; now the industry average is closer to 86%.

So what can you do to see that the firm is taking every possible step to ensure December ends on a high note?

• Start the month off by meeting with attorneys to determine what help they need getting their accounts collected. Don't just drop in -- schedule a meeting in advance to go over their A/R and find out how you can give them some hands-on help.
• Get payment commitments from clients who are expected to pay by year-end and the exact date when payments can be expected. This information should drive your follow-up collection effort. This is very important!
• Provide the attorneys a checklist of items that will help ensure payments are made, such as: verifying clients have copies of all outstanding invoices, determining if clients' offices will be closed the last week of December (to make sure payments have been processed before they close), providing the attorneys with routing instructions if payment is to be sent by wire, or an overnight express mail account number for quick delivery, etc.
• Get out of your comfort zone and regularly walk the halls and check in with the attorneys during December. If your firm is large or has outer offices, get others to walk the halls, too.

I know you are busy, but take ownership of what needs to get done. Get more familiar with us on our web-site at: http://www.clientci.com/
Happy Holidays!  I look forward to talking to you next year!

Recognizing When Ageing and Old A/R Have Worn Out Their Welcome

Have you had houseguests who didn't ever seem to want to leave? Once they finally vacate your premises, you swear that you will never have them back. They are something like ageing accounts receivable: if you don't watch out, they start to become a permanent fixture, with no intention of going away.

When receivables get too old, the typical response in law firms -- especially at year-end -- is to ignore them rather than take action to collect them. Sometimes firms with sizable numbers of old receivables have a false sense of well-being, believing that they can expect a lot of potential revenue. Firms wait and wait and wait to pursue these older, difficult accounts rather than facing up to problem A/R and making the most of what they can. Remember -- once receivables hit 120 days past due, they have a 50% chance of being collected -- and the likelihood of collection drops off dramatically after that. 

Consider these 4 steps January through December:

• Honestly evaluate the age of the balances of the receivables and the stories that go with them, and decide on your plan of action. Is the receivable over 120 days or is it really over 360? Acknowledging and understanding the problems and determining how collectable the receivables are will help determine if the firm has the resources and time to pursue them.
• Decide whether it is productive to focus on all the old receivables or to concentrate on those over a certain dollar amount. Be realistic and establish a cut-off, depending on how high the majority of the balance levels are for the receivables.
• Tell the attorneys that you are counting on them to be truthful about the likelihood of payment for their receivables, putting aside posturing and wishful thinking. At the same time, be thorough. Understand when the last time was that the balance was discussed with the client. But remember, clients are smart; they are not going to write a check if they are not asked to. You may be surprised to locate found money if you put some effort into it.
• Determine if you have the right people in place to help you move the ball forward. Consider whether you need experts to help deal with the backlog of older receivables and make recommendations for preventing these problems in the future, in line with the firm's management objectives, practice areas and client types.

Learn from your mistakes. Determine why clients did not pay, and start making corrections to help minimize these problems in the future. A successful law practice requires clients that pay their bills. Write-offs won't help. Learn more at our web-site at: http://www.clientci.com/

Who's On First?

Scrambling to figure out if your firm is accurately managing its accounts receivable is, for many firms, like the old comedy routine of "Who's on first? What's on second?  Yes, you do have good paying clients.  But what about all those accounts over 90 days that remain unpaid, that are getting older, with a smaller window of opportunity to collect as they age?  There's just not a clear picture of what's going on with those receivables. 

Collections for law firms are often all over the map: from not knowing if collection efforts are being properly performed, to being unsure of when and if clients will pay -- and even worse -- to having no idea at all what's going on. There is no excuse for this kind of A/R management problem in today's legal profession.

At minimum, you need to know an account's payment status: whether the account is actively being pursued, who is pursuing the collection efforts and whether they are getting results. If a client is not paying, you need to determine why and what needs to be done to get them to pay. Categorize receivables, for accounts being handled by attorneys and staff, to determine:

• Is it collectible? If so, when can we expect payment?
• Is it problematic? How good are the chances we will get paid?
• Is it simply not collectible?

To help build performance measures, do two things:

Give your attorneys less autonomy
Attorneys are given too much leeway in dealing with their clients during the first three quarters of the year, only to have their feet held to the fire during the year-end stretch. When looking at how you are handling over-90 day accounts, work to change the traditional culture of forgiveness. Replace it with high expectations that these accounts must be collected sooner rather than later. At minimum, give them a specific time frame to achieve results.

Evaluate whether you have the right staff
Staff must have a clear understanding of what is required to resolve payment issues for different kinds of transactions and practices. They must know -- and have access to -- the right techniques and resources for getting bills paid. They must be expected to handle collections on a day-to-day basis, but equally important, evaluated on their ability to get concrete results. Recognize collection managers as the "rainmakers" they can be. Although they are making rain in a different way than the attorneys, the value they can add to the bottom line can be equally great.

Want to learn more? Visit us on our web-site at http://www.clientci.com

Managing A/R: So Much More Productive When You Have More Time to Do It

Last week, we issued our new newsletter, "Take Decisive Action Before Summer Breezes Take on Autumn's Chill". In the newsletter, we talk about the need to take advantage of the mid-year mark to set the tone of how your firm will pursue collection efforts before the hectic last quarter begins.

However, many of us have dozens of things on our plate each week that often continually prevent us from tackling projects like improving year-end collection efforts, until the end of the year stares us in the face. Planning can be tough when time is limited and you are confronted with the day-to-day crunch of putting out fires. But it is vital to recognize that collecting A/R can be tougher if we don't take the time to take action before our backs are against the wall.

In addition to tips in the newsletter for the next six months, here are a few more suggestions you should consider:

• Let your attorneys know that consistent communications to clients requesting payment remains solution #1 for getting paid. Clients of law firms have come to expect that nothing will occur if they don't pay timely -- or not at all. For many, paying legal bills does not carry the same urgency as payment to others. Don't give your clients leverage not to pay; it will be as much your fault as theirs for not having tried.
• Urge firm leadership to be decisive and step in to take action. Leadership must stop tolerating attorney responses like -- "I'm working on it" or "I'll look into it". For firms that are mid-size or larger, give serious thought to forming and empowering a committee to help attack problems. For smaller firms, this problem rests squarely on the shoulders of the firm's leaders.
• When managing the backlog of receivables, look first at your oldest receivables and work your way back to those that are newer. It may seem harder (I'm not saying that it's not!), but it will be productive to spend time now with the oldest receivables, moving forward to determine their collectability.

Years ago, there was a telephone commercial with the tagline: "you can pay me now or pay me later". I'm sure many firms would be satisfied with getting paid later if they would actually get paid. That will depend, to a great extent, what actions you choose to take now. Learn more on our web-site at: http://www.clientci.com/

 

Talk to you next month!

Preventing Payment Headaches Before They Start

Summer is here and the heat of looking at those payment problems can only make you thirsty for solutions. The great American author Mark Twain once said, "The secret of getting ahead is getting started." In the world of receivables, taking the time to pre-qualify new clients gives firms a leg up on the payment challenges that lie ahead. Firms must evaluate prospective clients to determine if they can and will pay their bills. Some potential clients can handle the initial costs, but don't have enough cash flow to pay later, when fees and expenses grow larger than anticipated. Other potential clients simply do not have the resources to pay even relatively small legal bills. Then there are those that have the means to pay, but are unwilling to do so in a timely way.

 

• Here are three essential tips to minimize payment problems:   
• Make sure lawyers share with their clients expectations about the amount and kind of work that will be done, including the anticipated costs.
• Learn how to use a retainer to help stay in front of potential payment problems.
• Establish financial payment thresholds and set parameters around what clients can realistically incur. Be honest with yourself and your clients about payment expectations.

Taking decisive action to help prevent payment problems requires discipline and the right mindset, but it can be done. Resolving accounts receivable management problems may require fundamental long-term changes to your processes and procedures. Otherwise, lawyers may quickly return to bad habits, and the firm will find itself in the same bind down the road.

 

Although an unsettled economy still causes uncertainty for many law firms, it will especially hurt those firms that are without proper client intake processes and efficient accounts receivable management efforts. Don't fool yourself into thinking your firm has a results-oriented system in place when it doesn't.

 

Stay cool and learn more on our web-site at... http://www.clientci.com/

 

It's Always the Right Time to Ask "How Are We Doing?"

At many law firms, everyone shares responsibility for accounts receivable management. Which, of course, means that no one has complete responsibility.  If your firm has invested in the people, processes and technology to help ensure collection success, take the time to step back and ask the question: Are we getting the results we should from our collection efforts?
Too often, firms simply expect the structure and tools to work -- without taking the time to measure how effective they are in actually reducing their ageing A/R. While it is good that firms are willing to take a proactive approach to managing their A/R, they must not forget that this requires a step-by-step process to determine why a given client is not paying and what needs to be done to make sure that they will be able and willing to pay.
Ask pertinent questions about collections efforts, such as:

• Does the analytical data we have help us analyze our A/R numbers and benchmark our success rate?  -- Data will not show why your firm's ageing A/R remains higher than it should unless you understand the stories behind those numbers to determine why clients are not paying (i.e., cash flow problems, dissatisfied with services or fees, etc.) and what measures are being taken to reduce the ageing backlog.
• Are the attorneys and staff properly using our A/R management to handle collections?  -- Software is good, but it won't collect your A/R. However, it should be generating the right information to give your leadership a clear picture of key information like: are accounts being actively pursued, what is the payment status, who is pursuing collections and what success are they having; why are clients not paying, and what steps are being taken to get paid?
• Are we taking for granted that our clients understand our payment expectations without the need to change the way we do business?  -- Law firms are doing business in a different world. The business environment has evolved, mindsets have changed and firms must make adjustments to account for these changes. Therefore, ensure your firm institutes a regular, steady follow-up process with clients to secure dates when payment can be expected, to help guide future follow-up. While your past collection history should not be ignored, in these changing times, you may need to give more personal, day-to-day attention.

If you will be attending the ALA conference in Nashville, May 17-20, stop by to see us at booth #432. We would enjoy saying hello. Learn more on our web-site - http://www.clientci.com/

Putting Collection Rules in Place -- and Enforcing Them -- Can Only Help

Unfortunately, firms often put procedures in place and neglect to consider whether or not they are really working -- especially for older, difficult accounts. Yes, it is essential that all firms state their position on collection procedures, but they also need to allow a fair amount of latitude for decisions based on individual client relationships. This is where it gets tricky! Firms can no longer accept that ageing receivables are simply a part of doing business. Therefore, they need to ask: do we really have the right processes and procedures in place or are we kidding ourselves that what we are doing is working?
No matter the size of your firm, much of the success of your collection efforts is dependent on direction from firm leadership itself and its willingness to fully address the issue. 
There is no doubt that, however good the procedures, enforcement is difficult, even at the best-run firms. Giving too much autonomy to attorneys often lies at the root of a firm's A/R problem. However, having procedures in place gives firm leadership the gateway to step in to help attorneys understand what specific actions they must take to ensure payment, provides a clear timeframe for getting accounts collected and provides the right support to help them in their efforts.
Policies help leadership and management work through receivable issues and not just accept attorney statements like: "I'm working on it" or "I'm in contact with my client about this."  It gives the firm the opportunitiy to help move forward before a receivable becomes uncollectible.
Avoid the pitfall of waiting too long to say "we have a collection problem." It was a problem much sooner, but the firm did not address it. Learn more on our web-site at http://www.clientci.com/

Is Your A/R Team Up to the Job?

Determine if you have the right people and knowledge in place to perform collections successfully.

Jack Welch, legendary former CEO of General Electric, said, “Change before you have to.”  It’s never too early to assess if change is necessary.  If your firm has made a commitment to using non-attorney staff to perform collections, be realistic about whether or not the job is getting done, and if changes may be needed.  Collections should be measured, so you can determine the ROI of your collections team. 

Your collection team must have a solid understanding of the different kinds of transactions and the effective collection techniques needed to ensure payment.  They must know – and have access to – the right resources for getting paid.  They must understand the different payment requirements for institutional and non-institutional clients.  They must be expected to handle collections on a day-to-day basis, but, equally important, they must be evaluated to insure that they are getting concrete results. 

Recognize the collection staff as the “rainmakers” they can be.  Although they are making rain in a different way than the attorneys, they can add equal value to the bottom line.

If your firm has experienced administrative staff in place performing collections, evaluate whether they are doing the right work the right way.  Ask: 

• For the accounts they are pursuing, are they regularly reporting on the age of the accounts, how much they have collected, and what they have in line for payment? 
• How much they are working on actual collections, as compared to other, less important duties (i.e., generating reports, sending out reminder statements, providing information that the attorneys request, etc.)? 
• Are they knowledgeable enough to provide the right information to the firm that will explain the progress of collection efforts?

Most importantly – determine if your collection staff is picking and choosing the accounts they follow up on – instead of making older, difficult accounts the focus of their collection efforts. Learn more on our web-site at http://www.clientci.com/.

Aged A/R Has Gone Too Far...Literally

Albert Einstein once said, “We cannot solve our problems with the same thinking we use when we created them.”  This reminded me of how many firms continuously carry ageing receivables that are difficult to collect. Yet, year after year, they never change their mindset about managing their backlog of A/R. By and large, law firms end up focusing on receivables that are easier and more straightforward in getting paid. When there are problem receivables -- and there inevitably are -- most firms let the receivables sit – and sit – and sit – and sit. Which is why A/R starts to accumulate over 120 days. And while many clients, both institutional and non-institutional, are much more thorough in reviewing bills that can delay payment, the larger problem still lies with law firms and their attorneys not dealing with the problem.

The fact is that most of the receivables collected during the year-end crunch are less than 120 days old. Because receivables over 120 days are usually more problematic, attorneys realize they can’t resolve them by year end. So many don’t bother. In the effort to get as much money in as possible, they focus on the more current billing and avoid dealing with unhappy clients, clients who are unable to pay, situations in which the clients did not get the result they wanted, etc. With the pressure off in the first quarter, attorneys are even less inclined to face older receivables.
 
The first quarter is actually the best time to focus on cleaning up old A/R, precisely because the pressure is less intense, and because the effort will take some time. 
Here’s what to do now:

• Take time to assess the ageing A/R problem. Evaluate your older accounts top to bottom and get a handle on which receivables need to be pursued and which really are uncollectable. Sit down with each billing attorney. Request an action plan to get the accounts collected or find out if they need help.
• Get a handle on those accounts that had a payment problem early in the ageing process and figure out why the problem was not dealt with sooner and has now left older accounts uncollectable.
• Sit down with firm leadership and provide facts about your findings. They need to have the information to tell the attorneys to address their ageing receivables and the will to hold attorneys accountable.

Whether or not your firm had a good 2014, as you look forward, you need to recognize that getting accounts collected sooner rather than later can help make the difference in 2015. Learn more on our web-site at http://www.clientci.com.

Starting the New Year on the Right Foot

• All firms should take the time and effort to evaluate if they have A/R management best practices in place. Ask whether you are doing the right job, or do processes, policies and procedures exist only on paper or in theory? The key questions to ask are:

• Do you have the appropriate governance and leadership structure in place?
• Do you have meaningful reports and information?
• Do you have a good understanding of how the attorneys are managing their A/R and if they are spending enough time on their collection efforts?
• Do you have the right administrative staff in place, and are they doing the right work the right way?
• Are you measuring their performance by results they are achieving?
• Is the firm regularly collecting its older, difficult A/R?

• The financial management sector of a law firm wants to have strong black-and-white procedures that are common in most businesses, but they are often challenged because there are so many complicated transactions and relationships that do not lend themselves to black-and white procedures. All law firms should have written procedures in place concerning accounts receivable management, and communicate their expectations on collections to the attorneys. However, the procedures need to be workable, and for those receivables that must have exceptions, these exceptions should be monitored closely and not be seen as a way to avoid firm collection policies and rules.
Also, firm leadership must step in to help attorneys understand what specific actions they must take to ensure payment, give them a time frame for getting accounts collected, and provide the right professional support to help them.

• The business environment has evolved. Mindsets have changed, as have business practices. Because law firms are doing business in a different world and making adjustments accordingly, it also requires that they routinely communicate with their clients about unpaid bills to ensure timely payment or resolve problem issues. While past collections experiences should not be ignored, in these changing times it may not be entirely useful as a guide. Although some clients have set roles of when payments will be made, firms must institute regular, steady, professional follow-up of unpaid bills to secure dates of when payment can be expected to help guide future follow-up. By showing clients that the firm is regularly contacting them and monitoring their payment status, they will learn that you are well-aware of their bills and that you expect payment. However, sometimes it becomes the attorney's problem because he or she is uncomfortable about asking for payment and grants too much leeway about timely payment.

Would you like to learn more? Visit our web-site at http://www.clientci.com/