How to Handle Collections and Late Payments
For most law firms, it is a familiar pattern: while some clients remit promptly, others drag their feet, and regrettably, some may not pay at all. Because attorneys generally cannot withdraw representation based solely on a client’s failure to punctually pay an invoice, firms must have a system in place that improves collections. Doing so will have a positive effect on the firm’s cash flow.
The first step is to send clients invoices on a regular and timely basis. The sooner you bill, the sooner you will see the revenue. Clients tend to devalue services received as time goes by, so it pays to be prompt. Billing promptly may subtly suggest to clients that you expect to be paid quickly, whereas sitting on invoices may send out the message that there is no hurry to collect.
Promptness depends on the type of matter involved. For transactional matters, bill at or before closing, as clients usually do not waste time before reinvesting proceeds. For protracted litigation, bill monthly or even semimonthly (especially if you are fronting fees for third parties, such as experts and litigation support). And do not forget, for your firm to bill promptly, attorneys must regularly record their time. Have attorneys submit time records daily, or at least weekly.
Invoices must accurately describe the services rendered in a manner easily understood by the recipients. If an invoice is not clear, it is likely to be set aside. Also make sure the invoice’s due date and amount are obvious. Smart invoices — electronic programs that streamline invoicing — can cut the number of billing disputes, which almost always delay payment.
Do not be tempted to offer discounts to delinquent clients just to get some money in the door on a relatively timely basis. Even if it works and they pay part of their bill, providing discounts to late-paying clients conditions them to pay late. Instead, extend discounts only to clients who pay in full on time or, better yet, ahead of schedule.
Get It in Writing
No matter its size, every law firm should have written policies and procedures regarding billing and collection practices. Include in your firm’s policy a timeline of when invoices are sent, and when and how follow-up is conducted. As for delinquencies, set the number of days past due that constitutes delinquency, and how delinquencies will be handled.
Then follow these policies and procedures consistently. Do not allow firm attorneys to go outside the standard practices for favored clients. While attorneys should be involved in collecting from delinquent clients, their collection role needs to be within established firmwide parameters. For example, have the billing attorney add a handwritten note to a standard past due notice.
Time to Talk
Firms cannot afford to sit back and hope that clients pay their invoices on time — you must be proactive. While this makes many people uncomfortable, the best course of action is to routinely follow up when invoices go unpaid. Again, it is best to follow a timetable. For example, send a new statement as soon as the initial statement is more than 30 days out, with additional follow-ups at 60 and 90 days. Communicating frequently with delinquent clients is a crucial component of the collection process.
Finally, consider using data analytics to identify trends and patterns among your chronically late-paying clients. Data can reveal red flags that indicate impending payment problems. Use such indicators to identify clients you should monitor and communicate with more frequently.
Prevention is the Best Medicine
Satisfied clients generally are more likely to pay their bills on time. So to help keep clients content, regularly update them on the status of their legal matters and assure them that progress is being made. And to avoid circumstances that lead to late payments, take the time to develop an effective collection plan. Do not wait until your cash flow deteriorates.
For more information, contact Rob Swenson at firstname.lastname@example.org or 312.670.7444. Visit ORBA.com to learn more about our Law Firm Group.