Make More Rain : cash flow issues, firm culture

Law Firms Are Discounting Fees--Unintentionally!

Admin — Fri, 07 Jul 2006 17:38:00 GMT

By guest author Brian Ritchey, JD

Juris Professional Services Senior Consultant

I just returned from an engagement with one of our law firm clients where we discussed opportunities to improve the firm’s financial performance. Not surprisingly, one of the issues that partners were interested in was the opportunity to increase rates. Specifically, they wanted intelligence information to determine the competitive room for an increase.

The firm may need to consider an increase but our work disclosed that the firm had no formal structure in place for managing the collection of fees once billed. As you might expect they were also slower than most firms when it comes to billing for work already performed.

Studies show that there is only a 70 percent chance of collecting a 60-day-old receivable in full. You only have a 45 percent chance of collecting the full amount after 90 days. The value of uncollected fees declines over time—not only because of the time value of money, but because the prospects of collecting an account in full becomes unlikely. The older an account becomes, the more likely it will require an adjustment or write-off before you can get your money.

Based on data from the Department of Commerce, the net present value of uncollected receivables decreases by 10 percent after 60 days. The value drops by 20 percent at 120 days. Would you have offered those late paying clients a discount of ten or twenty percent? That is exactly what you are doing if inattention to collections encourages or tolerates late payment. Most firms are guilty of doing so. The average law firm takes 60 days to collect its fees after they are billed. That means, on average, you are unintentionally giving your clients a 10 percent discount.

You can increase partner income by focusing on collections:

Make prompt payment a part of fee negotiations. Faster billing and collection yields the same result as a rate increase. Firms who don’t consider the time it takes to collect a debt leave an important variable on the table when negotiating rates.
Get deposits and prepayments up front.
Get bills out the door faster. If you take your time billing for services, your clients will not feel a sense of urgency regarding your expectation for payment. Use technology to record billable time and events as they occur. Hold billing attorneys accountable to bill promptly.
Appoint a member of the administrative staff to call before bills are past due and keep calling until the money is in the bank. Use technology to alert the appropriate person when attorney intervention is required.

Law firms need to place more attention on collections. A commitment to faster billing and collection can yield the same result as a rate increase without the same client resistance.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Is Law Firm Branding Worth the Effort?

Admin — Fri, 23 Jun 2006 17:37:30 GMT

Among the discussions during the June ALM Law Firm Business Forum was the emphasis on branding.

The topic crept into presentation after presentation, including those that would otherwise appear completely unrelated. It arose time and again as essential to law firm continuity—long-term success. It also arose as an expression that law firms can no longer depend solely on ineffective attorney rainmaking. And finally, it appeared as a strategy to entrench the firm’s culture and core beliefs. I was impressed by the faculty's understanding that “who we are” makes a difference.

Angelo A. Paparelli of Paparelli & Partners said it this way: “Branding can become a self-fulfilling phenomenon. The more a firm succeeds in establishing a distinctive brand, the more probable it is that like-minded attorneys will apply for employment with the firm, and that clients who want or need a particular type of branded legal services will search out the firm for help.”

I was also intrigued by a case study reported by the faculty that illustrates how slippery the branding slope can be. A particular law firm was undergoing a branding program to make sure that the brand clearly communicates the firm’s value proposition. The firm’s current website emphasizes the firm’s courtroom successes. But when targeted prospects were surveyed, those prospects indicated that winding up in court was considered a failure. Potential clients valued quick resolution of issues over successful court trials.

The reported case is an example of what Peter Drucker called the “wrong quality”—when we get so caught up in what we are technically capable of doing that we build products and services that are out of synch with what the marketplace wants to buy. It is also reminiscent of a prior post, “Too Good, Too Expensive and Too Inconvenient."

Defining "branding" isn’t easy. I would define it as matching your unique qualities with problems that your defined market wants to solve and then finding a way to convey that through image and style. Branding also involves deciding what you are not and the business you will not pursue.

The first step is to define your strengths
Second, match those strengths with problems the prospects want solved
Next, define your market as narrowly as practical with an eye toward market leadership
Lastly, invent a way to combine your strengths, the market you are addressing, and the benefits your customers will realize into a “brand”—a combination of the visual, audio, print and style that conveys that message.

It is not an easy task, but for more partner income it is one worth pursuing

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Law Firms Can Stop the Client Expense Cash Drain

Admin — Mon, 10 Apr 2006 17:11:29 GMT

Under the heading BIG IDEAS, the March/April 2006 issue of Legal Management reports on an innovative approach for managing client expenses advanced by the firm. Why bother? AmLaw 100 firms alone advance more than $4.5 billion in interest-fee loans when prepaying their clients’ hard disbursement cost. Any law firm funds tied up in uncollected funds comes out of the pockets of partners.

The new approach involves the firm’s use of a Dedicated Hard Disbursement Line of Credit (DLOC). Checks for client expenses are paid from the DLOC. The hard disbursement amounts and interest and audit fees are automatically added to the client’s next invoices by software that integrates with the firm’s accounting system. The firm simply passes on the carrying cost to their clients without added markups. Legal Management reports that the DLOC complies with the ABA’s Ethics Standards.

For more about DLOC, check out Disbursement Management Associates and their sister organization PTFM.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

Why Are Law Firms Slow to Bill Their Clients?

Admin — Mon, 09 Jan 2006 20:49:53 GMT

I enjoyed reading Andy Peters’ article recently in the Daily Report. He was reviewing the highlights of a session that placed two prominent law firm attorneys as panelists before 100 in-house corporate counsels. Jeffrey Haidet, Chairman of Long & Aldridge, and William Brewster, the managing partner of Kilpatrick Stockton, took their lumps and served with honor handling such questions as:

Why are outside firms slow to send invoices.....?
Why don’t outside lawyers understand the business models and corporate culture of their clients?

Regarding the question on invoices, I am always amazed that law firm’s don’t understand that their corporate clients are not happy about being billed for work done over two months ago. It isn’t even unusual for the bill to be three months behind the actual work by the time it gets to the corporate counsel. That causes problems with their records. People tend not to be very appreciative of work done two or three months in arrears. The average law firm has 78 days of work in process and it takes 60 days to collect once the bill has gone out the door or across the Internet. That is money that is not in the partners’ pockets and it is an irritant to the law firm’s client. So, why not solve the problem? It isn’t rocket science. The steps are clear and simple:

Require fee earners to track and report time extemporaneously as work is performed
Give them the tools to do so including the ability to do so anywhere, any time preferably using BlackBerries or other PDA devices
Use tools with spell check and automatic testing against the engagement standards (pricing and billing rules) required by the client
Require time entries to be correct as submitted by the fee earner or as edited, throughout the month, by the fee earner's secretary or assistant
Run bills immediately after month end
Require billing attorneys to return changes within three business days or the bills go out the door “as is”
Send bills electronically or by e-mail wherever you can
If clients will accept it, change your service (billing month) to cover the period from the 26th through the 25th. Doing so means you have a bill in the clients hands by the end of their month even though it is a few days out of sync with the calendar. Many clients will prefer it.

As for the second question—why outside lawyers don’t understand the business models and corporate culture of their clients - I will save my comments for a later post.