Today’s law firms are learning that improving the firm’s A/R is not just the responsibility of the collector. In order to truly be successful, it must become a collaborative effort between the collector and the firm’s management. Firms are also learning that the collections process does not begin when the account becomes overdue. The collections process begins at client intake. In conjunction with methods for client intake and billing processes, the person who is responsible for collections has to have the necessary tools, action plan, and support in order to be effective. The difference in collecting for a law firm lies in the culture and mindset of the members of the organization. Many attorneys forget one of the most important steps to profitability and cash flow: billing promptly and collecting on those bills.
Allow room for exceptions. The policy need not be rigid. It is easier and better business to make exceptions to a policy than to make it up as you go along. Without a policy, collectors do not have clear direction and the potential is created for each client to have a separate policy.
Timely Billing. Smaller, regular bills tend to be paid sooner. The more timely the bill, the more timely the payment. And a timely bill reduces the chance for questioning of the bill later. What is timely varies widely. In most successful firms, “timely” is considered to be WIP to billing attorneys by the 5th of the month, reviewed WIP and instructions to billing department by the 10th, and bills out to clients by the 15th of the month.
State your terms. Make sure invoices and statements have the payment terms clearly printed on them. Disclose discounts you allow for early payment and penalties you assess for late payment. Unless you want to provide free financing to your customers, add and collect late payment charges.
Timely Collections. The biggest impact you can make is with new clients.
You have an opportunity to convey your tight receivable policy right from the start. If you have 30-day terms, you should be on the phone with the client on day 31. If you choose to send out a reminder letter (statement of account) first, the message you are really sending is that you have 45-day terms. Why is that? Because you let the client know that whenever a bill is received from you, if it is not paid within 30 days, they’ll get a letter one week later and a follow up call after that. One of the major causes of overdue receivables is that the client is not educated to pay in a timely manner.
Letters and reminders are not that effective. If the client has not paid by the first or second reminder, something is wrong. Chances are slim that they will pay after the third or fourth reminder. Letters are one-way communication, and they don’t fix problems.
Resources. Whether your firm has an entire collection department or one part-time collector, the resources they need to effectively collect must be afforded to them.
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