Is your firm facing the never-ending challenge of a backlog of aging accounts receivable? Can that backlog be reduced and managed to prevent this problem from continuously recurring? The answer is yes.

By Jake Krocheski, Managing Consultant

Family Law Accounts ReceivableJust as firms are finding that they need to change how they deliver their services, communicate their strengths to their clients, and position themselves in the legal market, they also need to change the way they manage receivables in today’s evolving legal environment. Managing receivables needs to be about taking a proactive approach to collections, but many firms have not embraced the strategies necessary to ensure they get paid timely – or at all – for their services. Firms must see managing receivables and replenishing retainers as a true part of their revenue enhancement growth, and ensure that their collection efforts are actually working.

Start by actually managing your receivables rather than simply expecting payments to be made.

Perform a self-evaluation to figure out what you are doing right – and what you could be doing better. Do a thorough self-assessment of your A/R management practices and procedures. Many firms that have prided themselves on having the right infrastructure in place discover that what they have is flawed; some discover they really don’t have much of an infrastructure at all. Look at everything to determine where changes need to be made.

Understand why clients are not paying their bills in a timely way.

Why aren’t clients 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, even bills that were never received. From the start of the relationship, firms and their lawyers must understand their clients so that, when problems do arise, they can get to the source of the problems and resolve them. Although aged receivables are part of the financial report, it is all the stories underneath those numbers that firms need to get a handle on, so they understand why each client is not paying.

Make sure you are looking at the right information.

Most firms understand the payment pattern of clients and expect certain delays, which they can accept. But too often they let these exceptions magnify to begin a growth trend of aging A/R. Law firms tend to lose sight of the numerous reasons clients have for not paying timely. This is often coupled with a reliance on sophisticated A/R management software, but a failure to build the right reports, ones that measure progress and evaluate the efforts being performed by the lawyers and staff. Software is a good tool, but in itself it is not the solution to your collection problems.

Look at the financial information and aging reports available to you to evaluate your progress in managing receivables. At minimum, you need to know if an account is actively being pursued, what the payment status is, who is pursuing the collection efforts and whether they are getting results, why clients are not paying, and what needs to be done to get them to pay. Categorize receivables to determine whether they are problematic, how good the chances are that you will get paid and whether particular receivables are simply not collectible.

Jake Krocheski is a management consultant with 25 years’ experience and President of Client Connection, the nation’s leading provider of accounts receivable management services to law firms.

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