Are You Ready for the Fourth Quarter?

It may still feel like summer, but the fourth quarter is fast approaching, and if you are like most firms, you are starting to give more serious thought to collecting your accounts receivable. Now is the right time to determine what needs to be addressed going into year-end. 
You probably have a number of question marks regarding end-of-the-year collections. Your firm's ability to increase its cash flow and, in turn, increase profitability, cannot be taken for granted. However, the economy and its effect on your clients must be taken into consideration. One way to increase cash flow is to increase the flow of new work. Equally important, however, is to make sure that the firm gets paid for the work it does. Here are a few things that could help:

1. Ensure that firm leadership has the right information and reports – Get your arms around your receivables and payment commitments. Reports should provide good information about which clients are going to pay and when; if clients are not going to pay, and why not; and what needs to be done to keep the ball moving forward. There’s nothing more frustrating than having reports that only provide numbers, without the story behind those numbers.

2. Do not depend too much on historical patterns of bill collections -- Whether or not payment patterns will change may not be determined until year-end and all the checks are accounted for, especially when the economy is causing many clients to adjust their payment patterns. Be realistic about slowdowns in payments. And, to take this one step further….

3. Know your clients -- Understand those that have historically paid their bills at year-end, and try to gauge whether these clients are again anticipating paying in full at year-end. At the same time, know who your new clients are, with whom you will be experiencing year end for the first time. Since you have no history with them, make your best determination whether payment from these clients is on track.

4. Project realistic timeframes for collecting older, more difficult receivables – Don’t underestimate the effect payment of these receivables can make. But collections efforts need to be made sooner rather than later -- which means getting started now, not in December. 

The chill that you will feel after Labor Day may be the traditional autumnal trepidation that comes with the need to ratchet up collection efforts in preparation for the last quarter.  Are you ready?
For more information on accounts receivable management, check our website -- www.clientci.com

Do You Have the Right Collections Team in Place?

As we mentioned in our last blog post, law firms should evaluate whether they have the right team in place.

Determine whether the firm has the right administrative staff, and judge whether they are doing the right work the right way. Are these staff members reporting weekly on the accounts for which they are responsible, the age of the accounts, how much they have collected, and what they have in line for payment? Do you know how much they are working on actual collections, as opposed to other duties less important to their primary purpose (i.e., generating reports, sending out reminder statements, providing information that the lawyers request, etc.)? Are they knowledgeable enough to provide the right reports and management information to the firm that will explain the progress of the collection efforts?

Staff must be held to a high level of accountability, but for different reasons than the attorneys. If the firm chooses to have staff contacting clients directly, the staff must not be distracted by too many other responsibilities that keep them from dedicating themselves to the primary mission. Beware of staff that prefers doing clerical work to making telephone calls to clients.

Your collection team members must have a strong understanding of different kinds of transactions and different practices, and what each requires. They must know -- and have access to -- the right resources for getting bills paid. They must have a strong understanding of payment for both 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 providing concrete results.

December will be here soon! Are you staffed and ready?

Recognize collection managers as the "rainmakers" they can be. Although they are making rain in a different way, the value they can add to the bottom line can be equally great.
For more information on accounts receivable management, check our website -- www.clientci.com.

Money is Not Going to Just Drop Out of the Sky

Among the tasks that lawyers are asked to take time out from practicing law for, is there anything they want to do LESS than managing accounts receivable? Many lawyers find it tough enough to spend time sending bills. Facing unpaid bills -- and trying to get them paid -- is worse.

Lawyers need to ask for assistance and understand that others can help. Law firms need to support them by providing workable A/R programs that provide results.

Attorneys have other priorities than collecting their bills timely and efficiently. They are concerned about servicing their clients, like they should be, and less about when they are going to get paid.

Consider the following:

• Most clients will not call if they have a problem with ther bills, for a number of resons. They may be uncomfortable talking about money, they are totally confused by the bills and don't know where to begin, or they may be unprepared for the total amount of the bill and find themselves unable to pay.

• Collection problems continue to grow as receivables age. If bills have not been paid within 30 to 60 days, you have received a good sign that there may be a collection or a cash flow problem for the clients. And clients reason that if the firm has waited and not been diligent about collecting unpaid bills, they can wait to pay them. The longer a law firm waits to collect unpaid bills, savvy clients realize, the more likely bills will be discounted or written off altogether. 

If you understand some of the common mistakes law firms make, you can address them, which will result in less stress for you and more dollars coming across the threshold.
For more information on accounts receivable management, check our website -- http://www.clientci.com

A Few Things to Remember About Collection Software...

Software alone is not the answer. Many firms have believed, erroneously, that by installing collection software, their receivable problems are solved. They lose sight of the fact that the software is just a tool, though potentially a powerful one. More importantly, however, is the firm's strategy for using the software, and the people who are using it. Software is an aid to -- not a substitute for -- the personal contact and the strategy to get bills in line for payment -- especially older, difficult accounts.

Software works best when it is used correctly. A surprising number of law firms install software, and pay for upgrades and training, but they do not get around to using it to improve collection results. Many are unsure how to use collection software as a strategic business tool to help increase revenue, cash flow and overall profitability.

Law firms need to be ready for what software offers. Do not fall victim to your own culture, neglecting to adopt a forward-thinking approach to managing receivables. Understand what information about your receivables you need to gather and how to analyze that information.

Many firms don't know how to determine if collection efforts are successful. They make the mistake of believing that since they are using collection software, they are making effective collections progress. However, firm management needs a clear picture of the progress of collection efforts. Software -- if used right -- and the people who use it, can provide that picture.

Remember it is up to firm leadership to use software information to predict cash flow, determine when and if clients will pay, and what methods will work to achieve the best results.
For more information on accounts receivable management, check our website -- http://www.clientci.com/

Think Ahead and Act Early to Prevent Ageing Receviables

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/

LOOKING FOR THAT SPECIAL SOMEONE?

It is possible to change attorneys’ attitudes about managing accounts receivables. The success of this effort depends substantially on finding the right person to take on the key task of managing those receivables.

Avoiding the Pitfalls

More and more firms are creating an accounts receivable manager position. But they face obstacles in motivating attorneys to have confidence in the manager – and entrust in the manager their uncollected accounts.

One mistake that firms make is promoting a valued employee from within. Typically, it is a senior secretary, a member of the accounting department or some other long-time employee who the firm is unsure how to use effectively. While it is virtuous to reward employees, this approach does no one any favors and sets the employee up for failure. 

- He or she lacks experience and, therefore, credibility, in collecting successfully. 

- If the collection work is simply added to an employee’s other duties, the collections inevitably take a back seat. 

- The position is perceived by the attorneys as a clerical one, and emphasis gets placed on clerical duties, such as changing mailing addresses, processing reminder statements and getting copies of invoices for the attorneys, rather than on the professionallevel collection of receivables that is so vital to the firm.

Making the Most of Your Manager

To maximize the value of the accounts receivable manager, your firm should seek an individual either with experience in a professional services environment or as a bank loan officer or a corporate/credit officer of a Fortune 500 company. Equally important — and, admittedly, harder to identify — he or she should possess the professional savvy to understand law firm culture and thrive in it. Though it is highly unlikely that your firm will find someone with appropriate skills and actual law firm experience, you do want to find someone who does “get” how things work in a law firm.

In addition, he or she should: 

- Be a self-starter, able to work independently. 

- Have the ability to understand and adapt to the law firm culture. 

- Have strong people skills with an emphasis on building strong relationships. 

- Be comfortable with technology as a tool essential for getting the job done. 

- Be prepared to face and overcome rejection, both from clients and attorneys. 

- Be able to understand which collection techniques work for different situations. 

- Be able to analyze problems and find solutions in all areas of accounts receivable management for every practice area. 

- Recognize that there is little leverage in collecting aged accounts receivable.

Ensuring Success

Key to the success of the accounts receivable manager is the ability to interact with the attorneys and the clients. He or she must be able to discuss payment obligations with clients without hurting the relationship the client has with the firm. He or she must be able to work oneon- one with the attorneys, as one professional to another. He or she must be able to inspire the confidence of the attorneys.

Even before the accounts receivable manager has started the job, it is the firm’s obligation to ensure that expectations are clear. All involved should agree on the job’s responsibilities, objectives and appropriate methodologies for making the collections. The manager should be a professional and should be treated as one by the firm. Both attorneys and staff should understand the nature – and level – of the job. And everyone should be in agreement about how success will be measured.

In order to figure out who you need to hire and how to help that individual succeed, you may need assistance from Client Connection, outside experts in accounts receivable management.

Selecting and empowering the individual who is given responsibility for managing your accounts receivable in-house can make all the difference in the ultimate success of your collection efforts. Choose this member of your team wisely.

At Client Connection, we know how to manage receivables, and we would be happy to share a little of our knowledge with you. Client Connection assists law firms of all sizes throughout the United States by furnishing accounts receivable management services, developing practical receivable programs and training law firm staff in effective collection methods. Learn more at our web-site at: http://www.clientci.com/

NOT MY JOB: How Law Firms Give Responsibility – Or Fail to Give Responsibility – for Accounts Receivable Management

At most law firms, everyone shares responsibility for accounts receivable management. Which, of course, means that no one, ultimately, has complete responsibility. Attorneys’ idea of managing receivables commonly involves not doing anything at all, casually mentioning them to clients or writing a mildly worded letter when they happen to have a chance.

Ask many law firms, and they will tell you that it is the attorneys’ job to contact their clients. While it’s true that the attorneys are given some support in these efforts, typically that support is too little and too unfocused.

What about making accounts receivable management the responsibility of the controller or chief financial officer? They have many other responsibilities, which will not permit them to focus the needed attention on accounts receivable. In addition, the reality is that accounts receivable are more a question of practice management than financial management.

Perhaps the practice head should be responsible? While many firms do require practice group leaders to take responsibility for managing the receivables in their group, these leaders often give too much professional courtesy and latitude to the billing attorneys to handle collections their own way.

What about the billing and collection or finance committee? Many such committees exist in name only. Sometimes the committee members do not care to serve on them. Typically, they lack focus and direction. They have no game plan and insufficient information on which to act. They are not well-positioned to demand accountability. Even when they are equipped to act, too frequently they concentrate on analyzing problem accounts or offenders and give short shrift to taking decisive action.

Taking Responsibility

Following are some clear-cut actions your firm should take to get its arms around its accounts receivable:

1. Understand the status of all your receivables. Classify them. Consider these five categories:

• Collection efforts being pursued with the assistance of the firm’s accounts receivable manager

• Collections efforts being handled by the responsible attorney

• Problem/doubtful accounts in which receivables are very unlikely to be collected

• Receivables that are in bankruptcy

• Collection efforts being handled by an outside third party

2. Focus on collection efforts being handled by the attorney. If an attorney chooses to take personal responsibility for collections, understand why – and what actions that attorney will take to ensure the bill is paid. Hold him or her accountable – that is, if you determine that the firm’s culture and management style allow for true accountability. It is just as much the firm’s responsibility to make sure the attorney does what he or she says as it is that attorney’s responsibility to do it.

3. Establish a real working billing and collection committee, and give it the authority to make decisions and compel action. The committee must meet monthly, at a minimum, and committee members should be assigned specific responsibilities and asked to report back to the committee. The committee should be headed by a true firm leader, preferably a member of the management committee, someone who can and will hold the partners accountable for their actions (or lack thereof). The committee must be given all the information that is classified in (1), above.

4. Understand what obstacles are preventing collections. You might be surprised to discover how many bills go unpaid by clients for simple, logistical reasons, such as invoices lost in the mail. In the case of institutional clients, there may be no contact person listed or the individual responsible for approving the bill has left the company. There may be insufficient explanation of the services rendered, and the client needs clarification, or bills are sent without cover letters explaining payment terms. For non-institutional clients, there may simply be cashflow problems. Don’t assume that if an invoice is unpaid, the client is unwilling to pay it. Also important, however, is recognizing that some of the obstacles preventing collections are the individual attorneys themselves.

5. Be proactive, not reactive. More often than not, little attention is focused on collections management until the last couple of months of the year. It is important that the effort be year-round. Some firms pride themselves on just how well they do even though the majority of their collections take place at the end of the year. We say: imagine how much better they could do if money is coming in all year long. Even if you are unlikely to change old clients’ habit of paying at year end, teach new clients that they are expected to pay timely. During the year, educate your attorneys about the vital nature of collections to the firm’s success, and the role they play in collections. Keep attention on collections throughout the year. Receivables start to age because the firm, and its attorneys, are not acting assertively and timely.

6. Purchase accounts receivable management software to organize and analyze data and generate practical reports. Learn how to use it effectively and fully. The right software can be tremendously helpful in allowing the firm to get its arms around its receivables. Keep in mind, however, that while software serves many purposes, it is ultimately the responsibility of the individual – not the software – to actually collect and manage the receivables.

7. Educate the attorneys early in their careers about the expectations the firm has for them in managing their receivables. Teach them that it is a normal part of doing business, not something they should be embarrassed to discuss with clients. Educate them before they can develop poor management skills.

8.Write off accounts if they are not collectible. Understand your receivables portfolio. It is far more productive to recognize uncollectible receivables and deal with them than to hold out false hope that they will be collected.

9. Keep management reports about accounts receivable simple yet meaningful. The information you should be reviewing is: reports by classifications listed in (1) above, reasons why the accounts are in a particular category, balance due, last payment made and how much work in process still remains unbilled.

10. Change the firm’s attitude towards collections management. Decide that it is a firm priority to do a better job managing receivables. Recognize that this priority has to be felt, and communicated, from the top. If the firm’s leaders don’t feel it – and demonstrate their commitment through their actions – no matter how many systems, reports, software packages and committees exist to deal with the issue, nothing will improve.

Do you have a question regarding your receivables? Please send your question via e-mail(info@clientci.com ) and one of our professionals will respond, free of charge. At Client Connection, we know how to manage receivables, and we would be happy to share a little of our knowledge with you. Visit us online at: http://www.clientci.com/