Month: June 2019

Chasing after clients to collect money owed is no fun. That’s why attorneys often avoid the task until their coffers reach dangerously low levels. This is not a good idea. You can’t run or grow a firm without a reliable cash flow, which not only means attracting business but devising a system to collect what clients owe.

Here are 4 simple ways to improve the accounts receivable column of your ledger

Get Involved

Nobody likes calling clients and asking for money, especially lawyers, who can’t claim collections as billable hours. That’s why most law firms assign collecting receivables to lower-level employees, like paralegals or secretaries. Although this technique frees up partners and associates to do more productive work, it often is not effective. It’s easier to dodge the call of an assistant than it is to avoid the call of the attorney who’s handling your divorce.

If attorneys in your firm balk at getting involved with collections, you could tie their compensation to the money they actually collect, rather than what they bill. Also, tell them that every dollar collected is a dollar earned without putting in extra hours.

Don’t Delay

Clients won’t pay a bill they don’t receive, so it pays (literally) to send out invoices quickly and regularly. Don’t wait until the end of a case to bill clients, who then have no incentive to pay quickly.

Invoice Often

It’s easier for a client to ignore one bill than regular, monthly statements that remind them of how much they owe. Monthly statements inform clients of the terms of your service, how much they owe, and when you expect to be paid. Make sure statements have easy-to-read contact information so clients can call or e-mail you with payment questions or problems.

Become Tech Savvy

Technology may not be your specialty, but today’s billing software is so easy to use that it pays to invest in a program that regularly invoices clients and keeps track of those who fall behind on payments. If such software makes you shutter, consider outsourcing your accounts receivable division. You’ll pay money to collect money, but when you consider the billable hours wasted while you chase receivables, or the wages you pay someone else in your firm to collect funds, outsourcing won’t seem that expensive and, ultimately, could pay for itself.

Our next CLE will address attorney billing practices and how to maximize your collections. Join us on July 30th, email us at [email protected] for more information!

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Numbers may not be your forte but keeping track of certain numbers is key to the success of any law firm. Here are some key management and financial reports you should prepare – or have an outside source prepare for you – to understand the business health of your law practice.

• Cash-flow projections:

  Spreadsheets that show how cash comes in, and flows out of, your business – usually 12-18 months of revenue and expenses. Most firms run these reports annually and update them monthly.

• Balance sheet:

  List of a firm’s assets and liabilities on a particular date.

• Profit-and-loss statement:

  Charts a firm’s profitability, either annually or quarterly. Shows revenues, costs, and expenses, and signals to a firm that, to become profitable, it must either cut expenses, increase revenue, or both. (Also called an “income statement” or “P&L” for short.)

• Accounts payable aging:

  Gives a picture of how much money a firm owes, to whom, and when. This valuable planning tool tells a firm which bills are due this month or somewhere down the line, usually in 30-day increments.

• Accounts receivable schedule:

  A monthly schedule that shows how much each client owes the firm. This schedule is key to keeping on top of collections.

• Accounts receivable aging:

  A periodic report that shows how long clients’ bills have been outstanding. Collections that are slower than normal can be a warning that a firm is slowing down or taking on risky clients.

• Hours worked:

  Every lawyer knows there’s a difference between hours worked and billable hours; both are included in this regular report that compares these hours to a daily, weekly, or monthly billing goal. A 2012 LexisNexis survey of about 500 attorneys showed a 33 percent gap between average hours worked and hours billed to clients. The biggest non-billable time-eater was “practice management and administrative tasks,” like billing, accounting, and filing. According to the survey, bigger firms typically report fewer non-billable hours than small firms with one or two lawyers.

• Write-offs:

  Lists bills a firm never expects to collect from clients. Write-offs can result from a client complaint about service or billing, or they can result from hours spent on cases that a firm decides not to collect. Write-offs are often used as a snapshot of a firm’s efficiency.

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