Make More Rain : cash flow issues, technology

Cash Flow An Important Metric For Law Firms

Admin — Thu, 10 Apr 2008 07:00:03 GMT

No matter how much you work, until you convert it to cash it is worthless. The average days in the law firm cash flow cycle (from worked to collected) is 169 (source: 2007 Law Firm Economic Survey from LexisNexis). Shortening your cash flow cycle has a positive impact to liquidity and thus your cash flow cycle should be measured.

There are two metrics that need to be measured: days to bill and days to collect. Determining these numbers on a timekeeper level identifies those timekeepers who are efficient and those who aren't. The opportunity then is to set a standard and work towards compliance by all timekeepers.

What is this standard? It depends on the area of practice. Many insurance companies just won't pay under 60 days of accepted electronic invoice and will only accept these invoices quarterly. In this case, 150 days isn't so bad. Some areas of law (many domestic relations situations come to mind) should, by default, be prepaid. Any work in process should be billed immediately and applied against the prepayments. In these cases a cash flow cycle of 60 days should be cause for concern.

Tools such as Juris from LexisNexis' Active Information can help you track this key performance indicator so that you can improve your liquidity.

We have begun taking submissions for the 2008 Law Firm Economic Survey. If your firm is interested in participating, please contact Brian by clicking here.

Law Firm Pricing Management

Admin — Thu, 21 Feb 2008 08:00:46 GMT

One of the more common questions I hear asked by attorneys is how to set their rates. Many attorneys raise their rates periodically but not as part of a strategy to maintain or increase margin. Pricing management is addressed in detail in an article in Managing Partner Magazine titled Pricing Management. Noting that most firms still use a "reactive" approach to pricing, the article suggests instituting a pricing management function within the firm closely tied to the finance and marketing functions. A systematic approach is recommended that positions pricing with your strategic goals.

According to the article, firms should prioritize consideration of the price it will charge for its services and to ensure that the firm’s value and pricing propositions are constantly reviewed and improved upon, and communicated to clients at all levels of the firm. Firms should manage the pricing function around three levels: industry, practice and engagement level.

Industry Level: invest in understanding how variables drive supply and demand for legal services in your particular industry of practice.
- Systemic drivers: focus on short and long term considerations in the industry affecting client demand.
- Service delivery: leverage your firm's technology and skills as value that sets your firm apart
- Client patterns: how often they are a source of new business, how well they pay, etc.
- Talent supply: look into alternatives in how services can be delivered to be more cost effective.
- Pricing Czar: A finance director or equity partner should be dedicated to reviewing these drivers and organizing a pricing strategy and structure that meets the financial needs of the firm.
Practice Level: understand the markets that your firm and its practices operate.
- Testing client perceptions: client interviews, surveys, etc to better understand client need and provide better value.
- Discriminating among clients: develop rates that fit the client and practice area, not one-size-fits-all.
- Objectively reviewing fee schedule: periodically check market position as well as reputation of key partners by conducting blind study of key clients.
- Central pricing function supporting practice-group leaders: remove discretion in pricing except at practice group level - discounting should be first approved by pricing czar.
Engagement Level: getting the best price for each matter
- Training: partners need to understand the effect even minor discounts have on the bottom line; develop skill in communicating value.
- Tools: having proper tools to measure performance so as to maximize profitability based on comparison of historically similar matters.
- Systems: develop processes to review efficiency and improve on it to better price similar matters in the future.

Though some feel trapped in their pricing scheme, firms can and should plan how they price their services. With a well-conceived and implemented pricing plan, firms can be proactive and systematic in developing a pricing structure aligned with their strategic plan.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

What to do When Clients Don't Pay?

Admin — Tue, 06 Feb 2007 19:14:03 GMT

Many mature law firms have learned that their attorneys are not the best bill collectors. The job belongs to the administrative staff. At least, it is the administrative staff that should be the front line for routine collection efforts. When meeting with a group of managing partners several months ago, one partner explained that when routine collection efforts fail, the firm still does not let the responsible attorney get involved. A second member of the firm who has no responsibility for the client or case in question is assigned the role of being the “heavy”. Will law firms sue to collect? A growing number say “yes,” in spite of the countersuit risk. They refuse to leave their money on the table.

There are four places to turn to reduce losses from the wasting value of billed but uncollected fees:

Intake Policies and Procedures
Billing Speed and Procedures
Routine Collection Efforts
Non-Routine Collection Action

The first rule is, of course, to screen out those prospects for your services that are likely to be a collection problem and to have a clear written understanding concerning how the client will be billed and how the law firm expects to be paid. The engagement letter should also spell out the consequences for non-payment within the agreed upon terms. Take the extra step of adding to your engagement agreement information to be used in routine collection efforts--clearly state within the agreement who the law firm should contact to confirm receipt of the bill and who to contact in case of a missing payment. Uncollected fees for services are a loan to your client. Where permissible, you can reduce that financial burden and head off possible collection problems through the following steps:

Require advance payment

Require an evergreen trust deposit

Accept credit cards

Automatic debit to the client’s bank account

Installment payment agreement

Etc.

The second rule is to bill promptly for services provided. Your clients’ attitude is if you expected prompt payment you would have billed promptly. If you take your time, they are going to take theirs. Prompt billing conveys a sense of urgency. Consider the following steps for increasing billing speed in your firm:

Bill more frequentl - weekly or every two weeks vs. monthly, etc.
Use e-mail or e-bills vs. paper bills
Agree that on-time payment does not waive client’s right to dispute charges.
Insist that billable information be tracked and reported as worked
Get time in on schedule¾daily, weekly, etc. This discipline needs to be a job requirement—period
Require fee earners to submit time accurately with correct spelling and grammar
Go mobile with PDA devices, like the BlackBerry®.
Use time tracking software that turns your e-mails, appointments, and calls into time entries without the need to reenter
Use time tracking software that passes time entries directly to your billing system once the timekeeper deems them to be complete and correct
Administration must be thorough and accurate in new matter setup¾get it right from the start (use software that automates much of the handling once a client is properly set up, i.e., prices automatically handling exceptions for you, pre-audits entries against engagement rules, produces multiple bill copies to multiple addresses for different purposes, e-billing, etc.)
Test e-mail addresses and e-bill formats before the first billing!
Have the accounting area plan ahead¾prepare a calendar of dates to run bills considering weekends and holidays. Make it a priority and get it done.
Run your A/R statements monthly but separately from the billing cycle
Have your prebill formats set up to give the billing attorney all the information they need when reviewing the billing
Do not run prebills for clients with A/R-only balances¾run only those that need actual review prior to sending
Run prebills (draft bills) on colored paper so they stand out and are easy to identify
As with time entries, prompt review and approval of prebills (draft bills) should be a job requirement with published turnaround times and performance should be measured—and billing attorneys held accountable.
Attorneys should review bills only once¾get it right the first time
Don’t send custom cover letters; send a status letter under separate cover.
Implement procedures that provide for exact attorney and administrative review of initial bills to assure accuracy. Your initial bill will set the client’s expectations. Initial errors, incomplete information, deviations from the engagement rules will create an expectation that the firm’s bills require review, rejection, correction, and rebilling each and every time prior to payment.
Invest in software that facilitates management and editing of prebills
Accounting has to take the initiative to track outstanding prebills and retrieve unreturned prebills
Editing bills should be almost as easy as editing a document and software should handle the accounting and retain original information, changes, and the final bill data.
Use window envelopes when mailing bills
Don’t waste a day by letting bills remain in your mailroom
Negotiate fixed fees with advance payment and/or progress payments

The third rule is to always remember that the majority of past due fees are attributable to clients that pay a little late. Be proactive and work collections before they become past due. When all else fails, the account gets kicked up to the professional staff. The accounting or administrative staff should never threaten. Theirs is a softer role. Persistence in asking for payment and following up when it isn’t received works in almost all cases.

The time to work accounts receivable is before accounts becomes a problem, not afterwards. And the preferred way is to work them as low as possible in the organization. Assign collection duty to someone in your administrative staff who has a friendly phone personality. If you are billing individuals, have him or her call and confirm that they received the bill. Ask if they have any questions. Remind them of the due date. If payment isn’t received within days of the payment date, call back and let them know you haven’t received the check. Ask if they mailed it. If they haven’t, ask if they will place it in the mail that day or bring it by the firm's office.

If your client is a business, get the client's agreement for you to mail the bill directly to accounts payable with an information-only copy to your engagement contact. Let the client know that paying the bill on time will not waive the client's right to raise questions or dispute charges once he or she has reviewed their copy of the bill. If the client insists that the bill be sent to their attention, find out the name, phone number, and e-mail address of their secretary (or assistant). Have the person in charge of routine collection call the secretary after the bill is mailed and ask the secretary to be sure the bill makes it to the top of the contact’s to-do stack. Let the secretary know you will call back in a few days to check on the status of payment.

If you can establish an awareness that if the bill doesn’t get paid, “that nice person” from the law firm will be calling”, you will find that your bills sail through the system. Of course, to make it happen, you need software to keep up with collection activity and payment promises. Working your fees receivable before there is a problem will dramatically lower funds tied up in accounts receivable; 80% of your excess investment in AR is from clients paying a little late.

Rule number four is that when all else fails and the client refuses to pay or simply hasn’t paid, there is usually a reason. Taking strong arm collection steps without knowing the reason is asking for trouble. When routine collection efforts fail to produce results it is time for one of the firm's legal professionals to get involved, but not the attorney or partner responsible for the case or matter. By having an uninvolved legal professional contact the client, the discussion is on a business level involving the unpaid balance. It is not on the professional level dealing with the case or matter. The pursuing attorney will be unfamiliar with the case details, and thus the discussion can not be redirected into a rehash of events. Likewise, the pursuing attorney’s objectivity means that he or she can listen to the client's complaints or position without becoming defensive. The objective should be to work out a payment plan or to reach a fair compromise and settlement of the bill. If the client has the ability to pay but refuses even after the efforts of the pursuing attorney, a next-step alternative is the Fee Dispute Resolution program of your state Bar. When nothing seems to move an intransient client, the firm has to make the decision to sue and risk being sued or to just walk away.

A growing number of law firm are willing to sue in spite of the countersuit risk. They refuse to leave their money on the table.

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 Firm Collections Efforts: Are Yours Too Little Too Late?

Admin — Mon, 15 Jan 2007 19:23:11 GMT

I was paging through an expensive resource guide for managing partners when I saw it. It was A Model Collection System, a semantic or procedural flow chart illustrating recommended collection efforts for a law firm. The chart included the following steps:

Send the client a bill
If there is no payment in 30 days, send a statement and letter and have the lawyer make a reminder call to the client
If there is no payment in 60 days, send a statement and letter
If there is no payment in 90 days, send a statement and letter
If there is no payment in 120 days get serious about collection:
1. Strong letter
2. Lawyer to call client
3. Refer to committee
4. Pursue collection or write-off

“It is too late to close the door after the horses are out of the barn.” Old sayings like the previous sentence are sound business advice for managing partners. Why in the world would collection efforts be directed at past due accounts? Why not close the barn door before the horses get loose and have to be rounded up?

The typical law firm, according to the Juris Economic Survey, has 76 days of unbilled time still in its work-in-process at the end of every month. It takes another 72 days on average to collect for amounts once they are billed. That is a 148-day cash flow cycle. That is getting close to half a year!

Improving collections is achieved through procedures to avoid collection problems rather than trying to solve them after the fact. How do you do that? You do it by directing your energies as follows:

Improve intake procedures
Bill faster—speed up your billing process
Move routine collections out of attorney’s hands
Work accounts before they become past due

For more on improving law firm collections, including a checklist for speeding up billing and collections, read the following previous posts:

Speeding Up Law Firm Billing and Collection

Attorneys Are the Wrong People to Collect Firm Accounts

Collection Tip – Honey vs. Vinegar

You might also reread or distribute the post on problem solving, A Problem Solving Policy for the Law Firm.

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.

Leasing Keeps Money in Law Firm Partner Pockets

Admin — Mon, 13 Nov 2006 19:09:12 GMT

Technology-related investments are on the rise in law firms. It not just for replacement purposes, although Y2K-related purchases are now solidly in the obsolete camp. A host of new technologies in hardware and software provide law firms with new ways to increase income and cash flow. They include both new products and services as well as remarkable new capabilities in the current generation of mainstay law firm systems. Microsoft’s Vista, wireless technology, .NET technology, PDAs like the BlackBerry™, dashboard technology, peer group benchmarking, workflow improvements, automated event and exception tracking, automatic client engagement rules compliance, revolutionary changes in how information is reported and used in law firms—these and other technologies are driving new IT investments in law firms.

They are investments that usually more than pay for themselves, but the payback takes time. My friend John Dondey, at Baytree Leasing, reminded me that there are better ways to use cash than tying it up in depreciating assets such as IT equipment and software. With leasing, law firms have an easy way to finance IT investments without it taking money out of partners’ pockets. With leasing, law firms can avoid upfront payments all together, and monthly leasing payments should be offset by the higher income-producing benefits of the new investments.

With outright purchase, the law firm has to choose between making investments that they know are needed or using their cash for partner distributions. Leasing lets the firm do both. The firm can keep pace with peers and competitors without reducing partner distributions. Leasing provides the law firm with fixed, scheduled payments to simplify expense budgets and provides a hedge against rising interest rates. Cash requirements, including partner compensation, can be forecast and managed with greater accuracy.

Leases will cover the full cost—hardware, software, training, implementation and other related services. Companies like Baytree offer lease facilities that not only cover initial cost but also accommodate subsequent upgrades, add-ons, and technology refreshment during the term of the lease. And the process is super easy. Baytree, for one, has reduced the process to an art form—fast credit approval and simple applications make the process quick and efficient.

There are a number of leasing companies targeting law firms, but when I think of law firm leasing, I think of John Dondey and his team at Baytree Leasing Company. If you are interested in pursuing leasing for your IT investments, you can e-mail John Dondey at jdondey@baytreeleasing.com or call 877-229-4888, extension 224. You can also visit their web site. You can find other quality leasing vendors listed on the Ancillary Products and Services page within the Alliance Section of www.juris.com.

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.

Corporate Clients to Demand More Electronic Information

Admin — Thu, 07 Sep 2006 17:39:22 GMT

There are important changes in the works involving the Uniform Task Based Management System (UTBMS) and for the Legal Electronic Data Exchange Standards (LEDES).

If you deal with the corporate world, you are submitting invoices electronically using the LEDES98 standard or some variations on that standard. Likewise, you are coding time entries using UTBMS codes (at least for litigation matters).

First, the group responsible for the maintenance and improvement of the UTBMS code set has merged with the LEDES Oversight Committee. That group has developed new code sets for trademark, patent and project legal work. The proposed new codes sets are still open to comment. The group plans to formally ratify the final code set prior to the end of 2006.

The big news is the move to XML by the LEDES group. This will begin to impact some firms in 2007, but widespread adoption by law firm corporate clients isn’t expected until 2010. Nevertheless, the impact will be significant, equivalent to the initial phase of electronic billing by corporate clients. What does that mean for the law firm? It means you need to be sure your legal business software vendor is one that keeps their software in synch with electronic billing standards.

The LEDES XML as a replacement of the LEDES98 standard will eventually result in demands from the corporate world for the electronic move of an expanded array of information. In addition to the new LEDES XML standard for billing information, the LEDES Oversight Committee had a new proposed standard for budgeting information. Work underway for timekeeper profile will accommodate the electronic conveyance of timekeeper information such as rates, where and when admitted to the Bar, law school dates, etc.

As it becomes easier to provide information and keep the law firm and corporate client information in synch, the hope is that friction cost is removed from the system, benefiting both law firm and client. However, make no mistake; the corporate objective is to reduce legal cost. Steven Levy with Microsoft Corp., who heads more than one LOC subcommittee, commented at a recent LOC meeting in Orlando that Microsoft saves two percent on law firm bills as originally submitted just by auditing timekeeper rates against engagement rules.

What you can expect is an increase in corporate demands for information. By 2010, you are likely to be submitting budgeting information and regular projected cost updates on work undertaken for major corporations. You are likely to be required to update timekeeper information in real time for any change to that information. Don’t be surprised when your corporate client begins to demand variable rates for timekeepers depending on the complexity of the matter or work undertaken.

Law firms with business and billing software that is not on the leading edge of LEDES developments will find they are at a competitive disadvantage when competing to gain or retain work from major corporations and financial institutions. The following legal business system vendors are on the board of Directors of the LEDES Oversight Committee: Juris, Inc., Aderant, Thomson Elite, and RainMarker.

PS: LEDES XML is also a replacement for the inadequately designed LEDES 2000, which while an XML version, was never embraced by the legal community due to its inadequate design.

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.

2006 Technology Survey of Law Firms

Admin — Thu, 24 Aug 2006 17:15:43 GMT

Exhibiting vendors at the Orlando Annual Educational Conference of ILTA, International Legal Technology Association, received a private briefing from the association. Representatives from Envision Agency reviewed results from the 2006 Technology Purchasing Survey conducted on behalf of ILTA.

There are some pretty remarkable insights. First, it is important to note that the survey respondents are members of ILTA. Thus, for the most part, those responding are non-attorney technology heads of their firm—CTOs, CIOs, and technology managers and directors.

What do these law firm technology leaders think are the most exciting technology or trends?

Microsoft® SharePoint®
VoIP (Voice over Internet Protocol)
VM ware (Virtual Machines)
KM (Knowledge Management)
Portals
Wireless
Matter Centricity

Besides hardware (workstations, notebooks, etc.), what tops the buying wish list for 2006?

Disaster recovery-related programs
Document and record management
E-mail management
Scanning
Litigation support
Internet/intranet/extranet
Microsoft® upgrades
Workflow automation
Phone system—VoIP

One notable item is a significant decline in the number of firms looking to implement wireless technology and devices. The decline reflects a universe where wireless technology is now widely implemented by law firms. In short, if you are not wireless, you are now behind the curve.

While Business Intelligence Software and Customer Relationship Management software (BI and CRM) are not at the top of the list, they still appear to be priorities. Likewise, business systems (accounting, bill auditing, and budgeting) viewed collectively would make the top of the list. Business systems like Juris® are also crossing over into business intelligence, which would place plans for new investments in law firm business software even higher on the list.

If you are wondering what to read to keep up with law firm technology, the most popular legal/technology publications among ILTA members were:

Peer to Peer (The association’s publication)

Interestingly, technology leaders do not appear to be big blog readers. Here is the list of Blogs that showed up on their “Yes, I read” list: