Every law firm is different, but nearly all of them share common accounts receivable challenges. To help firms address their collection problems, we have compiled a list of the questions we hear most frequently from law firms, and offer our answers.
(1) How should we evaluate our firm’s accounts receivable management needs and strategy to ensure we are making progress?
Answer: Ask yourselves: are we doing the right job, or do our processes, policies and procedures exist only on paper or in theory? All firms should take the time and effort to evaluate if they have A/R management best practices in place. The key questions to ask are:
- Do you have the appropriate governance and leadership structure?
- Do you have meaningful reports and information?
- How are the attorneys managing their A/R and are they spending enough time on their collection efforts?
- Do you have the right administrative staff in place, and are they doing the right work the right way?
- Are you measuring their performance by results they are achieving?
- Is the firm regularly collecting its older, difficult A/R?
(2) What role should firm leadership play in A/R management and collection efforts?
Answer: Effective receivables management needs to start from the top. Leadership needs to tell the attorneys to address their collections, but also understand the need sometimes to use other resources to help them achieve results. Start with a self-evaluation to figure out what the firm is doing right and what you could be doing better. Take stock of what you are doing—and why—and evaluate what is and is not working. Look at everything, including how your firm historically has managed its receivables, to determine where changes need to be made based on today’s legal profession and how clients pay. Assess whether you have the right people, with the right skills, in place to do the job. This includes both attorneys and A/R staff.
(3) We have policies and procedures for our attorneys to follow. Why are they not working?
Answer: While the financial management sector of a law firm wants to have strong black-and-white procedures that are common in most businesses, there are so many complicated transactions and relationships that do not lend themselves to black-and-white procedures. Have written procedures in place concerning accounts receivable management, and communicate expectations on collections to the attorneys. However, the procedures need to be workable, and there need to be exceptions, which should be monitored closely and not be seen as a way to avoid firm collection policies and rules. Giving too much individual autonomy to the attorneys is often the root of a firm’s A/R problems.
Firm leadership must help attorneys understand specific actions to take to ensure payment, give them a time frame for getting accounts collected, and provide the right professional support to help them.
(4) How can we best overcome the backlog of our older, difficult A/R?
Answer: These receivables must be actively pursued until they are paid or determined to be uncollectible. But do not expect payment without substantial effort on the part of the firm. There must be dedicated efforts, with status reports going to leadership to ensure progress is being made. Typically, firms focus their efforts on those clients that pay timely and avoid working with older accounts because they take time and are often not pleasant to deal with. Consistent follow-up efforts are the key to making progress with these types of accounts.
(5) What kind of A/R management information should we be looking at?
Answer: A/R reports have to give firm leadership real, actionable information; they need to show that collection activity is moving forward and progress is being made on each account. Detailed reports should provide information on whether accounts are actively being pursued, what the payment status is, who is pursuing collections and what success they are having, why clients are not paying, and what steps are being taken to get them to pay.
(6) How should we evaluate administrative staff dedicated to managing and collecting our A/R?
Answer: The staff should not be evaluated on how well they keep the attorneys happy by getting copies of bills and reports; anybody can do such administrative work. Rather, determine what age group of receivables they are working: is their success with good-paying clients that just need reminding, or are they making collecting older, difficult accounts the focus of their efforts? Also, determine how many direct contacts they make daily with clients and how many accounts they are handling. Most importantly, determine how many actual dollars they are collecting, especially the older, difficult accounts that continue to age.
(7) How can we put an A/R management process in place while respecting our attorneys’ concerns about hurting their client relationships?
Answer: 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. In today’s economy—and in the face of changing law firm economics—it is a best practice to contact clients about unpaid bills. And do not be reluctant to hire professional staff with experience in accounts receivable management for the legal profession.
(8) How can we help clients understand payment expectations and train them to pay timely?
Answer: Because law firms are doing business in a different world and making adjustments accordingly, it also requires that they routinely communicate with their clients about unpaid bills to ensure timely payment or resolve problem issues. Firms must institute steady, professional follow-up of unpaid bills to secure dates of when payment can be expected. By showing clients that the firm is regularly contacting them and monitoring their payment status, they will learn that you are well aware of their bills and that you expect payment.
(9) What are the main problems law firms are experiencing with the slowdown in payments?
Answer: Cash flow problems and hoarding cash are the main reasons why clients do not pay or pay slowly. They understand that they can ease cash flow problems by delaying payment or not paying at all. They may claim that they are not satisfied with the services provided or are unhappy with the results. They may also experience “sticker shock” when they expect to receive a bill of a certain size and a much larger one arrives. Additionally, the growth of e-billing and the greater length of time needed to resolve e-bill issues with clients has caused many firms to reevaluate their collection issues by separating e-bill and non e-bill collections.
(10) How do we prioritize our collection efforts throughout the year instead of waiting until the last couple of months?
Answer: Throughout the year, stop tolerating “good clients” who just don’t pay their bills. Although waiting until year-end may work for some institutional clients that typically pay then, many clients require much more effort throughout the year. Measure monthly revenue projections, but more importantly, be realistic about whether the firm is underachieving in its collections goals and if the firm has developed bad collection habits. Help your lawyers understand that when they see problems with older and difficult A/R later in the year, many of these problems actually started early in the year—but there was nothing done about them.
Jake Krocheski is president of Client Connections, the only company in the United States devoted exclusively to helping law firms manage their accounts receivable.