To manage your accounts receivable, time is on your side…but it won’t be for much longer.
By Jake Krocheski, Management Consultant
Take time now to look squarely at the state of affairs of your accounts receivable. No matter the current condition of your accounts receivable, you are not alone. Many law firms struggle with receivables’ issues – but only some choose to take decisive action to address them. Join that group of organized law firms by considering the following seven steps:
How to Manage Your Accounts Receivable
1. Calm Attorneys’ Fears about Implementing an A/R Management Program
Educate your lawyers on various techniques and strategies for contacting clients that will keep their relationship strong. Law firms lose clients by doing poor work or by failing to deliver client service, not by asking clients to pay their bills; managing receivables will not hurt the relationship if you do so professionally. In today’s economy, and in the face of changing law firm economics, it has become a best practice to contact clients about unpaid bills.
2. Figure Out What Problems You Need to Overcome
Cash flow problems and a tendency to hoard cash are primary reasons why clients pay slowly. They understand that they can ease their cash flow problems by delaying payment – or by not paying at all. They may claim that they are not satisfied with the services provided or are unhappy with the results. They may experience “sticker shock” when they expect to receive a bill of a certain size and are surprised when a much larger one arrives.
3. Deal with the Backlog of Older, Difficult A/R
Pursue these receivables actively until they are paid or until you have determined that they are uncollectable. You must make consistent efforts, including status reports going to firm leadership to ensure progress is being made. Typically, firms focus their efforts on those clients that pay in a timely manner and avoid working with older accounts because they take time and are often not pleasant to deal with. You are making a big mistake if you think these types of receivables will be paid without working closely with clients and letting them know their account is being monitored.
4. Don’t Give Your Attorneys Too Much Autonomy
Firms continue to give their attorneys too much control over collecting receivables from their clients. Frequently, no one is checking on the attorneys to ensure they are spending the time necessary to collect their A/R. Identify your problems – including problem attorneys, problem practice groups, and problem clients – and take action. Meet with these attorneys on a regular basis and ask them to tell you when bills will be paid. If they do not meet their own deadlines (or at least have a good explanation for missed deadlines), make sure others in the firm are available to help.
Attorneys are given too much leeway in dealing with their clients during the first eleven months of the year, only to have their feet held to the fire during the year-end sprint. A culture of forgiveness needs to be replaced with a culture of high expectations so revenues are increased through better collection efforts throughout the year. Remember that attorneys are vital to assess the clients’ ability and inclination to pay; they do not necessarily have to be the ones getting them to do so.
5. Gather the Right Information
Don’t just gather information on your receivables; make sure it’s the information you need. Firms that are successful in managing their accounts receivable are those that regularly review updated information on the client payment status in order to act quickly. Categorize receivables to determine:
- If they are collectible, when can we expect payment?
- Are they problematic? How good are the chances we will get paid?
- Are they simply not collectible?
Reviewing financial reports is essential to managing receivables, but read beyond the numbers and use the reports to understand clients’ stories and the relationships behind the numbers.
6. Make the Most of Your A/R Staff
If you have A/R staff, they should not be focused on keeping the attorneys happy by providing copies of bills and reports. Anybody can do that administrative work. Also, they should not just be concentrating on good-paying clients that need reminding; they should be placing a priority on collecting on older, difficult accounts.
Identify how many accounts they are handling and how many direct contacts they make daily with clients. Most importantly, determine how many actual dollars they are collecting, especially from the older accounts that continue to age.
7. Consider Using Professionals
Law firms lose clients by doing poor work or by failing to deliver client service, not by asking clients to pay their bills. Managing receivables will not hurt the relationship, as long as it is handled professionally. Firms can employ trained professionals in-house who work specifically for the legal profession to perform accounts receivable management functions. Those who specialize in this area have the necessary experience and training, and can be accepted by the lawyers as professionals performing a vital function for the firm. Alternatively, a growing number of law firms are retaining an outside receivables consulting firm, concentrating in the legal profession, with which the firm works closely.
Do not accept the idea that ageing receivables are simply part of doing business. Firms that address and actively work to get results from their collection efforts will see a real payoff in the end.
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. www.clientci.com