Still staring down that pile of unpaid client invoices? It’s late in the game for the annual year-end collections push, but that doesn’t mean that you should throw in the towel and give in to the eggnog.
Law firm managers and consultants say that there are still good ways to coax last-minute payments from clients to help boost 2016 revenue. But the more fruitful fix may be to put an eye toward preventing a mountain of receivables from piling up next year. Here, the pros give their tips on what to do today and after the first of the year.
Partners, pick up the phone.
Most large firms have collections departments working on collecting past-due bills. But for last-minute efforts to boost a firm’s 2016 revenue (and realization rate), consultants said, the most effective negotiator is the partner who did the work for the client. Not only does he or she know who in their client’s organization can cut a check, but partners also have the ability to sign off on any payment agreement. That saves crucial time.
“They’re the only ones at this late point in the game who can really make it rain,” said Patrick Siciliano, a vice president at Convergent Commercial, where he helps law firms on collections problems.
Gail Ruopp, executive director at litigation boutique Littleton Joyce Ughetta Park & Kelly, said that another way to get in front of clients this time of year is to invite them to CLE or other events.
“Emails aren’t cutting it,” Ruopp said. “It’s like your kids sending you texts. Can you pick up the phone?”
Don’t discount. Incentivize.
One time-honored way to get money in the door fast is to cut a deal with your clients. Some firms have a “discount day,” where all late bills are discounted at a certain rate. Collections pros are split on the merits of such arrangements. While it can be effective today, it can also groom clients into expecting deals when they fall behind.
“You can easily cut deals and get the money quickly, but your client comes to expect that,” said Fred Esposito, executive director of Rivkin Radler. “So while you’re getting paid, are you really getting paid what your time was really worth? I’m going to say no.”
But there are ways to limit that expectation. Attorneys can offer incentives that are seen as promoting the payment of bills rather than rewarding the bad behavior of missing payments. For instance, Ruopp said, offer a prepaid American Express card or a donation to their favorite charity. Or offer a discount on future work.
Start collecting the most recent bills.
There is a direct correlation between the length of unpaid bills and law firms’ realization rates on that work. Realization rates drop about 5 percent for bills that are 30 days late, said Seelin Naidoo, CEO of Intelliteach, which provides billing and collections software for more than three dozen Am Law 200 firms. But bills that are 180 days late have a realization rate of 47 percent. A full year late? Firms collect, on average, 9-10 percent of that money.
“That’s a pretty dramatic shift,” Naidoo said.
So, when short on time, Naidoo’s advice is to start with the freshest bills. Catching them early can avoid compounding the broader problem of falling realization rates in the industry. Last year, realization rates hovered around 83 percent—down from about 93 percent a decade ago, according to data from Thomson Reuters Peer Monitor.
Take a new approach in the New Year.
There are plenty of ways to ensure better collections: Write more detailed engagement letters so clients won’t contest the work you performed. Hire more collections managers and have them, rather than distracted partners, send out the bills. Start invoicing twice a month. Send out late payment notices sooner.
Designate a firm collections manager who makes calls on behalf of other partners’ clients.
“That peer pressure can work very effectively, because no partner wants another partner calling their client and asking for a bill,” said Joel Rose, a law firm consultant from the Philadelphia area.
Peggy Gruenke, a Cincinnati area law firm consultant, said that there can also be a benefit to waving the white flag at the end of the year. Writing off legal work can serve a bigger purpose, she said.
“If you have to write it off, write it off,” she said. “And let it be painful, so it doesn’t happen again.”
Contact Roy Strom at firstname.lastname@example.org. On Twitter: @RoyWStrom