There are a lot of law firms out there with a cash flow problem. While it’s easy to blame your cash flow issues on slow-paying clients, the problem really lies with you and your lack of a process to ensure you get paid for your work.
The truth 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 simple steps you can take right now:
Step 1 – 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.
Step 2 – If you’re in the type of practice that has to deal with overdue client payments, then 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.
Step 3 – 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!
Step 4 – 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.
Step 5 – 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.
Step 6 – Stop charging 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. Roll up the time you spent on the phone into the casework itself and not as a line item on your invoice.
Step 7 – 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.
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.
This free webinar will show you:
- The most important financial concepts and terms you need to know
- The most common challenges contingent-fee law firms face in the marketplace when seeking capital
- 5 steps you can take to improve your financial health right now!
- Insider recommendations for how to maximize your chances of landing funding for your law firm
- The advantages, disadvantages, costs and risk abatement criteria for the 10 most common forms of capital accessed by contingent-fee law firms
If you are looking to significantly grow your law firm this year, getting the right financing can play a big role. Learn how by watching this free webinar.