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Art of Collection: How-To Coaching Boosts Firm's Gross Revenue
Throughout 2012, Wayne Risoli, managing shareholder in Chamberlain, Hrdlicka, White, Williams & Aughtry, worked with a handful of shareholders in the Houston-based firm who were having trouble getting clients to promptly pay their bills.
The firm's executive director, Bob Waters, trained another group of shareholders as part of a concerted effort to improve the firm's collections.
As a result, the shareholder collection rate at the firm improved to 96.2 percent in 2012 from 92.5 percent in 2011, which exceeded Risoli's expectations. He was shooting for a 94.5 percent collection rate in 2012.
"Everyone took it to heart ... . They turned it around," Risoli says of the efforts by the 14 shareholders who received "client relations" training during the year. They were coached during 2012 because their collection rates in 2011 ranged from 78 to 83 percent, Risoli says.
Because of the improved collections and also because of better use of associates' time, Chamberlain Hrdlicka's gross revenue improved by 12.9 percent in 2012, increasing to $73.3 million, compared to $64.9 million in 2011, Risoli says.
Chamberlain Hrdlicka isn't alone in working with its lawyers to improve its collections rate in an effort to bring in more revenue and profits. Other Texas firms are paying attention to collection rates, also called realization rates.
Firm consultant William C. Cobb of Houston says it's smart for firms to train lawyers on how to collect from clients.
"Usually they don't attack that problem very well, and these guys take on business, and they bill the clients, and the clients don't pay," he says.
Cobb says firms should strive for a 98 percent collection rate on bills sent to clients. However, he notes that a realistic rate depends on the firm's mix of clients.
"The divorce practice would probably be ahead of the curve, and they would be collecting before they incur the expenses. A PI law firm, of course, they would have to wait. But if it's a general practice commercial firm ... they may put their clients on notice that they: one, pay by credit card; two, pay cash and you will get a 10 percent discount; or, three, we are not going to tolerate it and if you want to late pay, then we are out of your picture," he says.
Risoli says he's not sure if any of Chamberlain Hrdlicka's shareholders fired a client in 2012 for not paying invoices, as Cobb suggests, but he says the firm is doing less work for some clients who were "fee-challenged."
Risoli says each of the shareholders trained in collections during 2012 was receptive to the process. In most cases, Risoli says, the shareholders were simply uncomfortable having candid conversations with clients over money. Among many things, Risoli says, he advised them to communicate expectations to the clients and also collect throughout the year rather than in the final months.
At the beginning of 2012, he says, Chamberlain Hrdlicka clients paid bills on average 40 days after they were due. But, that improved to 27 days by year-end. Risoli says the firm started doing work for more Fortune 500 clients in 2012, and his experience is that they pay more regularly.
While Risoli is thrilled with the firm's collection rate for 2012, he says he would be happy to keep it at around 95 percent going forward.
TOP OF MIND
At Dallas' Winstead in 2012, the firm collected a bit more than 98 percent of the bills sent to clients, compared to about 97 percent in 2011, says Kevin Sullivan, chairman and chief executive officer. Sullivan says those rates are strong because the firm sets reasonable "regional" billing rates, so total bills may not be as high as at other firms, and the firm encourages lawyers to pay attention to billing on a daily basis.
"This is all boring, really simple stuff, but it doesn't happen by itself. It's things like getting your time in every day," he says. "What we've found is clients need to get bills reasonably soon."
Sullivan notes, however, that a lot of the firm's bills are paid at closing for instance, at a real estate closing. In those situations, it's important for lawyers to provide clients with a reasonable expectation of the bill in advance, he says.
"A lot of this gets down to very, very clear communication and making this a priority," he says. "When you send out your bill and have to fight with your client every time to get paid, it's an unpleasant day at work."
Sullivan says Winstead focuses on collections during the summer and at year end.
Glenn Callison, chairman and CEO of Munsch Hardt Kopf & Harr of Dallas, says his firm's realization rate was 91 percent in 2012 and 92.5 percent in 2011. He notes the firm received a significant premium fee in 2011 that improved realization rate, and it had a significant write-off in 2012 related to an old bankruptcy trustee practice.
After collections dropped in 2008 to around 87.5 percent, Callison says, the firm asked lawyers to make sure to communicate with clients about bills and the value of the firm's work, and to follow up. He says the firm is currently working on a process to enable lawyers to have collection information "at their fingertips," so they can see where clients stand on paying bills.
He says firms are more attentive to collections today because it's a business objective.
"For too long, law firms had the attitude that as long as they raise their rates and bill more hours, everything will be OK," he says.
Wade Cooper, the Austin-based managing partner of Jackson Walker of Dallas, writes in an email that it's his sense the firm's aggregate realization rates "remain lower than other large Texas firms."
However, Cooper writes, "We stay pretty focused on overhead with the hope that, if our rates are very competitive and we manage the files well and our clients receive good value, everything else will work out."