Recent LexisNexis research showed that 73% of small law firms have past due accounts, which is a killer for cash flow. In that survey, attorneys admitted to something we all know is true: lawyers hate asking clients for money. They find it embarrassing, distasteful, even greedy, but I don’t know any lawyers who find money itself embarrassing, distasteful or greedy!
The problem is if you don’t expect to be paid, your receivables will probably reflect that. If you pursue your work on your client’s behalf with passion, you should pursue payment for that work with the same passion.
There are several ways law firms can lower their accounts receivable and improve cash flow; here are 7 steps you can take right now:
- Make sure you have a written procedure in place for when a client is to be charged, payment options, how to verify that client accounts are up to date, how to notify attorneys and paralegals to stop work on a client who is overdue, how to handle overdue accounts as well as how and when to send them to collections.
- Be sure to review an aged A/R report every month and have a system in place to notify people to stop working on a case when a client hasn’t paid. Create a series of letters and emails to send to clients who are overdue.
- Include “No Charge” line items on your bills. Just about every lawyer does stuff for his or her clients that aren’t billed. Keep a list of those freebies as you go through your month and then include them as line items on your bill with the notation, “No Charge.” Instantly adds value!
- Eliminate surprises. No one likes a billing surprise, so if you are constantly getting pushback on charges clients did not expect, then you need to do a better job of managing their expectations. Give them fair warning on big ticket line items. If the bill is going to be particularly high, call them to explain.
- Cut out nickel and dime charges. Roll up all your miscellaneous charges for postage, copies and other small stuff into your hourly rate. Clients hate to see that stuff on a bill.
- Don’t charge for phone calls. I’ve never met a single client who likes to be charged for a phone call so be sure to follow up the call with an email that details the conversation, any action steps that will be taken, deadlines to remember, and any major points.
- Consider charging more frequently. Ask your clients how often they want to be billed. Most will probably say monthly, the way most of you do it now, but there could be some who want you to bill more or less often. If it’s more often, that’s good for your cash flow.
And speaking of cash flow…you should not miss our free webinar on Law Firm Finance for Contingency-Based Firms!
Many attorneys don’t know the questions to ask or who to trust when it comes to law firm financing. And many traditional lenders and banks will not even consider you if your firm is a personal injury, workers compensation, SSD or another contingency-based practice area.
If you are looking to significantly grow your law firm, getting the right financing can play a big role.