Make More Rain : law firm bus model, cash flow issues

Law Firms Rethink Receivables

BoYancey — Fri, 21 Aug 2009 16:35:00 GMT

One of the biggest surprises to me when I began studying law firms was the lack of importance clients placed on paying for work. I had always assumed that lawyers were the last people on earth you'd want to stiff, and had always paid any legal bills...(read more)

Why the Year End Collection Push is Not a Best Practice

Admin — Tue, 09 Sep 2008 16:38:57 GMT

It is that time of year again, at least for the early starters, when the legal industry begins its preparations for the year end collection push. The push has become an industry standard and buzz word over time. Each year countless hours are put into collecting massive amounts of receivables every December in order to meet targeted numbers. Although it is a foregone conclusion that there will be a year end push for most law firms, is this really a best practice?

The “ideal” approach with respect to legal industry inventory management is to have a continual billing and collections push year round, so everyone can enjoy the holiday season without worrying about making a budgeted target for collections. Although ideal, given the history of the industry, this is unfortunately a practice that will take time to implement. Even if that happens, the remains of the year end push might still have legs. For most firms both lawyers and, more importantly, their clients are used to and expect a year end push. It is a behavioral pattern that is established and therefore not going away anytime soon. That said there are negative ramifications to such a practice and a few firms have recognized this and smoothed out their collection pattern.

Client Behavior

The first obvious detriment to a year end collection push is the impact on client behavior. If clients expect a year end collection push then they are less apt to pay within a consistent, timely manner. Some clients even have said to relationship attorneys who have tried to smooth out the process, “Why pay now if I know you are just going to look for more in December.” In fairness to the client I would probably hold on until December as well. For example, if my mortgage company let me pay all of my mortgage payments in December, I would do so - which brings me to my next detriment of the push, the Time Value of Money impact.

Time Value of Money

A dollar today is worth more than a dollar tomorrow, so everyday a firm does not collect on a receivable they are foregoing the opportunity of re-investment. In my previous mortgage company example, I would take all of the money I owe the mortgage company invest it in some sort of portfolio that would give me a return on that money which would go straight to my pocket instead of the mortgage company. That is the same thing that occurs with the year end collection push within the legal industry: Investment income is left on the table as receivables age.

Aging Inventory

The next 2 problems are more internally focused within each firm. Not only can the collections push can have a negative impact on client behavior, it can as well with attorneys . A colleague of mine wrote a blog back in June on “Valuing your Firm’s Inventory” which I encourage everyone to read as it outlines how, as receivables age, the likelihood of realizing the original amount of those receivables diminishes. Since attorneys also exhibit the behavior of letting work age before it is billed, and billings age before they are collected, the probability of billing or collecting the original work/bill amount goes down.

Other obvious detriments include the ability to know where you are to your budgeted numbers as the year goes along, and how to budget for next year given a lack of information on your collections; a final drawback of the year end collection push is the impact on the age of your inventory. In the graph below, you can see three years worth of inventory pushes. There is a significant drop in balance each December (as depicted in the bar graph), but you can also see a spike in the age of inventory. Why does this occur?

I ask many of the firms I work with and they almost always point to the answer: At year end, with pressure to make budgeted goals, most of the collection effort is on receivables that firms know they can collect and are more recent in nature. Therefore, the older inventory that has been aging over the years continues to get older and may get to a point where it is completely uncollectable. This is an unfortunate side effect of the collection push and one that should be accounted for in any inventory management strategy.

Although I have gone over many reasons why the year end collection push is not a best practice, I am not blind to the fact that it is not easy to make a quick switch to a continual inventory management process. So given that the “ideal” practice is not a readily accessible current option, are there things firms can do to prepare and approach the year end billing and collection push to try to maximize its result while working on the before mentioned strategy shift ? The first suggestion is start billing early –nothing earth shattering. With most firms you see an upward trend in periodic billings in October and November. That trend should start in the 3^rd quarter, and those firms that have a more gradual collection slope in the last few months also have an increased slope in billings from August until November. The easy explanation to this is that billing is a more controllable portion of the inventory cycle than its counterpart. In the example below, you can see such steep a slope in each of the prior 2 year end pushes where as in the last year that billing was much more gradual and steady as the end of the year approached.

The natural benefit is that by getting the built up WIP out the door in a timely manner will give you the ability to focus on collections for a longer period.

The firms that I have worked with who have had the most success with respect to WIP management are those that have some stipulation on billing in a timely manner when it comes to their partner compensation. Knowing that many firms cannot simply switch their compensation system on a dime, this type of action is not widespread, but it is a proven method. Each firm has seen an improvement in inventory management when a portion of partner compensation has been tied to that driver. “Compensation” in this regard can be defined as a direct input into the partner compensation equation or, alternately, can equate to monetary “fines” for late billing and/or collections.

It may be inevitable within current industry conditions that December will be the month with the most collections. Again, it is in the best interest of the firm to change the status quo and begin collecting earlier and in a timely manner. Not only will you be able to have a better idea of where you will stand to budget sooner, but it will set your firm up for budgeting the next year. Still, if focus can be put on opportunity balances (those that have aged past an expected pay time) early in the process it may help avoid the side effect of the ever aging inventory. Those older balances can have the focus early on and perhaps generate collections while in December the focus can shift to the more readily available receivables.

I certainly hope that as time goes along the year end collection push will lose its luster as a buzz word and be replaced with continual inventory management. At the end of the year the firms that take this to heart just may see increased realizations, additional investment income, and perhaps most importantly a little more piece of mind that you are on target and can enjoy the holiday season.

- Posted by Russ Haskin

Associate Salary Increases & Firm Margins

Admin — Thu, 04 Sep 2008 17:20:23 GMT

It should come as no surprise to anyone that the most recent wave of associate salary increases have helped to erode law firm profit margins. Whether the wave begins in west coast technology firms, or east coast financial capital firms, its effects are felt beyond big law in the mid-size and regional firms headquartered in the mid-west and southeast. And, with 80% of law firm expense tied up in compensation and occupancy, the impact can be devastating. What is more surprising is the response of law firm leaders in this new economic environment. Reactions run the gamut from slash and burn tactics to taking it on the chin and silently watching margins erode. Formulating a balanced strategy and resisting the urge for an emotional response is critical. Consider the following.

First, is increasing associate salaries is an appropriate response to increased competition for the best talent in your market or just a follow the leader reaction? Associate salary increases typically begin in markets where competition is fierce for not only attracting the best talent, but also keeping that talent as the reality of billable hours requirements hits home. Increasingly, associates are not willing to trade work life balance for a big paycheck. This attitude is not pigeonholed in the bottom half of the law school classes, but pervades throughout. Are there other work life benefits your firm can offer to entice top talent?

Secondly, recent surveys suggest the demand for legal services have declined in the first two quarters of 2008, and making sure your lawyers are properly utilized is essential to maintaining profitability. As margins become slimmer, there is no room for unproductive associates taking up space. But are associates really the problem? Most associates have little control over the projects they are assigned and virtually no ability to generate new business. They, like everyone else in the firm, rely on the rainmakers to generate enough billable hours to support the business. Before taking a defensive posture and eliminating positions, look for ways to improve your business development efforts. Are you effectively cross-selling your services to existing clients? Do you place enough emphasis on developing new business and in the right sectors?

Lastly, in today’s competitive marketplace, passing increased costs on to your clients is rarely an option. Even in big law, where clients were thought to be less price sensitive, general counsels are scoffing at increased rates as a result of higher associate salaries. Can you blame them? That doesn’t mean you have lost the ability to control your average rates. The next time someone asks you for an alternative billing arrangement, consider the request an opportunity to control your own destiny. Look for ways to strengthen the value proposition, improve practice management at the matter level, and increase leverage.

Can you avoid the impact of associate salary increases? Not likely. But focusing on the positive economic aspects of your business, rather than going on the defensive, may help you roll through the downturn and leave you prepared for the eventual upswing.

- Rick Rawls

Managing Partner Advocate Summer Issue In The Mail

Admin — Mon, 30 Jun 2008 23:30:57 GMT

The summer issue of the Managing Partner Advocate is now in the mail. This issue is focused on ways to combat the effects of a contracting economy. Highlights include retaining talent, managing associates, planning for the unexpected, measuring marketing activity and measuring timekeeper profitability. There is also a guide to minimizing facilities costs written by guest author Luke Raimondo, an attorney and commercial real estate broker, and a guide on how much debt a law firm should carry.

The summer issue provides excellent guidance for law firms to help improve profitability even as the GDP struggles to grow. If you are a subscriber to the site, you may download the summer issue by clicking here. You may also have the advocate mailed to you at no cost by clicking here and requesting a subscription.

It is with great regret that I am leaving LexisNexis and will no longer be associated with the Managing Partner Advocate and More Partner Income. I took over the blog from Tom Collins in January of this year, a mere 6 months ago. In that time I have moved the site to a new host, completely re-built the blog and have enjoyed record numbers of readers, building on the solid foundation Tom Collins built over the past 3 years. I sincerely appreciate all of you who have read this blog and utilized it as a resource to help your firm.

This is my last post as editor of this blog. I have enjoyed my brief time hosting More Partner Income and hope that you have found value in the posts I have written.

Valuing Your Firm's Inventory

Admin — Fri, 27 Jun 2008 17:16:24 GMT

Most law firms understand intuitively that the value of inventory (both WIP and A/R) degrades over time, but by how much and how quickly? The ability to understand and answer these two questions is the first step in preparing a realistic, forward looking valuation model; one that can identify opportunities and drive action, rather than simply report on past performance.

To begin to answer the question of the future value of current inventory, it is important to realize there are two different forces diminishing a firm’s return on work performed, and both have the same basis: time. In essence the old adage “Time is Money” is true; as time passes, your inventory becomes less valuable.

The first and most basic of the two forces is widely known and easily calculated. For our purposes, we will call it the Time Value of Money effect, or TVM. A dollar today is worth more than a dollar tomorrow. Anyone who has ever used a credit card, carried a mortgage, or borrowed or lent money in any fashion, understands this concept. However, many law firms simply disregard this as a cost against their inventory, or use such a low discount rate, as to make it negligible. When considering a firm’s discount rate, too often factors such as reasonable market expectations of returns and inflation are swept aside. In the model below we use a simple method (with two different Discount Rates) to determine the cost of time on a firm’s inventory: Amount X Daily Discount Rate X Open Days; where the Daily Discount Rate = Yearly Discount Rate/365 days.

The second, and in most cases much larger charge to your inventory, is what we will call the risk of default (this refers to both defaulting on receivables and not billing work in progress). This is the risk that a firm will not realize a portion, or the entirety, of the value of work performed. In most cases it is instinctively understood that receivables a year old are far less likely to be realized than those just billed. The same can be said for WIP. But how do we measure this concept? One possible way (and there are many) is to use available historical billing and payment patterns to develop a forward expectation curve. We can then apply this curve to our current inventory to determine the amount that is realistically likely to bill or collect. This method can be made more complex or simple depending on various assumptions and the level at which the expectation curve is developed to (i.e. practice group, type of work, client, etc) but the concept remains the same -- past performance is an indication of future performance.

In the example below, such a curve is constructed for a client based on a set period of time and then applied to four matters with outstanding A/R (a similar model can be built for the WIP side). A total of $200,000 has been billed over the life of this client, with $175,000 eventually being realized (or 87.5% seen at day 0). As might be expected, the majority of the collections (> 50%) have historically taken place within the first 90 days. The Fwd A/R Expectation Curve helps quantify the expectation of collection (or non-collection) as current A/R ages based on prior practices (i.e. at 240 days, $50,000 has been available to collect, but only $25,000 has been collected, giving us a historical realization expectation of 50%; therefore, if current A/R now ages to 240 days, we would expect to realize 50% and lose 50%). Of course, like any forecast, our model will not be 100% correct at each level of granularity, but it does provide a logical, and historically proven, method to value inventory, particularly at the firm level.

While simplified, the models above allow us a better understanding of a) how much of the work we have currently performed we expect to realize and b) the actual value of that work once we do realize it. Any questions, concerns, or comments on the above can be directed to Dschutz@redwoodanalytics.com.

Forecasting Collections and Inventory Management

Admin — Thu, 12 Jun 2008 07:00:51 GMT

In today’s unstable environment, driven by outside economic forces, higher associate salaries, and increased competition, law firm leaders are faced with the tough job of forecasting cash collections. Many existing forecast methodologies focus on production and collection realization. However, these models often fall short because they ignore the other drivers of collections, and do not provide any information about collections beyond the forecast period. A better model:

1) Forecasts bills and collections as they relate to inventory levels thus allowing analysis into the impact of the next period’s collection funnel,

2) Drives the forecast according to the speed of the billing and collection cycle,

3) Isolates the quality of inventory separate from collection timing by analyzing realizations at the time of collection.

A key aspect to understanding collections is to think of the process as an inventory funnel. Each month production is added to the funnel, increasing inventory available to bill and collect. At the same time, bills and collections, as well as write downs and write offs drain the funnel, thus reducing inventory levels available next period. By analyzing this inventory turnover, modelers can focus on the drivers of collections: beginning inventory, production, inventory turnover, and realizations. Consider the following example:

	Last Year		Forecast
Beginning Inventory	$50,000		$60,000
Production	$150,000		$170,000
Total Available for Collection	$200,000		$230,000
Written down/off	$10,000		$11,000
Cash Collected	$130,000		$150,000	(3)
Inventory Turnover	$140,000		$161,000	(4)
Ending Inventory	$60,000		$69,000

Inventory Turnover %	70%	(1)
Realization %	93%	(2)

1) Inventory Turnover/Total Available for Collection

2) Cash Collected/Inventory Turnover

3) Total Available for Collection * Last Year’s Inventory Turnover %

4) Inventory Turnover * Last Year’s Realization %

In this model, the total available for collection is beginning inventory plus production. By comparing the amount available for collection and the ending inventory, the modeler may derive the inventory turnover. Also, by looking at the type of turnover, collected vs. written down or off, the modeler can calculate realization. Applying Inventory Turnover % and Realization % to future inventory, produces a cash collected forecast based on all of the cash drivers mentioned above and provides a starting point for the next period.

Redwood Analytics has helped law firms forecast collections using this and other methodologies since its inception. Our Business of Law Consultants are prepared to help law firm leaders take their forecasting to the next level by sharing best practices forecasting techniques, separating inventory turnover for billing and collection cycles, and capturing the seasonality of collections. In addition, our business intelligence solution is uniquely positioned to help law firms not only improve their forecast, but also their actual results.

The Likelihood of Full Collection Decreases With Age

Admin — Thu, 26 May 2005 17:58:00 GMT

Since I have been on a soapbox about the 138 days (4.6 months) that the average law firm takes to bill and collect for work performed, Beth Keno shared some of her research with me. Beth Keno is a Juris representative in the Michigan and the greater Chicago market areas. Her research is in connection with a speech she will be making at a regional bar association conference.

As a reminder, the typical law firm takes 78 days to bill for services performed and another 60 days, on average, to collect that bill. In addition to excessive investment in uncollected services, long delays result in unnecessary adjustments, write-offs and bad debts. Statistics show that an invoice over 60 days has only a 70% chance of being collected in full. After 90 days, the chance of collecting the invoice in full drops to 45% and after 120 days, it falls to 20%.

The average overall realization (the percent of services rendered that actually get collected) for US law firms is 91%. 9% of the firm's revenue goes down the tubes and most, if not all, is a result of the long delay between rendering that service and collecting for it.

The 2.8 months of unbilled fees results entirely from a combination of inadequate tools and procedures, plus a lack of management discipline and enforcement. In short, you can fix it and it is easy to do. The additional two months it takes to collect the bill can be shortened, but is beyond the total control of the firm. However, one of the things a firm must understand is that if you are going to take almost three months before you bill your client, that client is not going to have a sense of urgency about paying the bill.

Speeding up payment starts with faster billing, followed by implementing procedures that create a sense of urgency for payment.

Don’t wait for bills to become past due. Have a member of the administrative staff call and confirm receipt of the bill. The engagement letter should clearly set out payment terms and provide that payment does not waive the client’s right to dispute charges later.

Invest in the right tools. Collection software will track all collection activity between the firm and its clients. That software will let you know when payment promises have not been kept. When integrated with your client accounting system, collection software will automate dunning communications, lowering cost as well as shortening collection time.

Days to Bill

Admin — Wed, 25 May 2005 18:27:00 GMT

Hardly a day goes by without a discussion with a law firm partner about funds tied up in unbilled and uncollected fees. While those partners can't put their finger on the exact number, they understand the long delay results in unnecessary adjustments and write offs.

I find it hard to understand why the typical US law firm would allow 78 days to go by before issuing a bill for services performed. Or the fact that, on average, it takes an additional 60 days to collect that bill. That is 138 days or 4.6 months. Iezzi uses 4.7 months in the sample business models included in his book Results-Oriented Financial Management.

Does it make any sense at all to let 78 days go by before billing a client for work performed? It doesn't. Unlike 60 days of billed services tied up in fees receivable, "days to bill" is 100% controllable by the firm. This is a management problem. It results from defective procedures and/or inadequate tools. The truth is this is a problem that is easy to fix. All it takes are the right tools and management's determination to solve this problem with a no-return policy. It takes a top-down, or collective, determination not to accept lax billing practices:

It begins with client intake and the engagement letter:
- Negotiate trust deposits and/or prepayments together with minimum trust deposits
- Agree on billing frequency/monthly or every two weeks
- Set the billing period to end one to three days prior to the billing frequency. For example, to be billed on the 16^th and the 1^st of each month for the service period ending on the 15^th and the end of each month.
- Document payment terms
- Agree as to E-bills vs. paper bills
- Identify the person to receive bill
- Identify the person to contact to confirm bill receipt and payment schedule
- Agree that on-time payment does not waive client's right to dispute charges
- Provide for penalties for late payment
- Negotiate progress payments.
It depends on consistent internal discipline:
- Fee earners are expected to submit time accurately with correct spelling and grammar. In short, editing should not be required.
- Get the right tools to timekeepers and insist on zero tolerance that billable information has to be tracked and reported as worked. Having your time in on schedule, daily, weekly, etc. is a job requirement, period.
- Pre-bills have to be distributed by 10:00 a.m. for the day following the end of the service period.
- Pre-bills must be returned to accounting by the day following distribution. If not returned, bills will be mailed or e-mailed as is.

If as a result of management's determinate, time to bill is reduced from 2.6 months to 1 month, it would mean that a firm with $12,000,000 in annual fee revenue would have a one-time increase in revenue of $1,600,000. That freed-up cash becomes available for distribution to the partners and/or for a reduction in debt with a corresponding decrease in interest expense.

If "days to bill" is 100% controllable by you, why let this money remain beyond the reach of partners? Why not fix the problem?

Billing through the twenty-fifth

Admin — Fri, 08 Apr 2005 16:39:00 GMT

Why wait until the end of the month to start your billing process. Your billing period can just as easily be the 16th through the 15th of every month or, my preference, the 26th through the 25th of each month.

The typical law office has a 7- to 10-day bill preparation cycle. If you bill through month end, it may be the 15th of the next month before the bill actually gets in your clients’ hands. Individuals typically pay their bill once a month and a lot of small businesses pay on the 10th or 25th of the month. By changing the monthly bill period, you can improve the chances that your bill will be included in the next check writing session.

And wouldn’t it be nice if all the month-end crunches we have to go through were spread a little more evenly across each month? Why focus everything on the month end time. There is nothing written in stone that says your billing period has to be the natural calendar month.

Come to think of it, there is nothing that says you can’t bill every two weeks. You know the old 80% rule, 80% of your fee revenue is likely to come from only 20% of your active matters, why not bill that 20% every two weeks. Think about it.

Invisible Expenses

Admin — Mon, 21 Mar 2005 21:15:07 GMT

I was cleaning out my “C” drawer the other day -- which is where I put ”B” things that haven’t made it to my “A” list. If they never do, I eventually toss the “C” items. I came across an article by William Brennan of Altman Weil, Inc., discussing “Invisible Expenses". He rightly noted that write-downs of billable time can be one of the largest “expenses” of a law firm.

Think about it. If you had to show write-downs on your financial statements, how would it stack up against other expenses of the firm? The industry mean for realization of billable effort worked is around 90%. You may be better than average or worse. But, if you average and collect $15,000,000 in fees annually, that is after write-downs, adjustments and uncollectibles of almost a $1,700,000. Brennan noted that just write-downs of billable time averages about $30,000 for every lawyer in the firm. For a 40-attorney firm, that means an expense of $1,200,000 every year.

What is the answer? The answer is management. First and foremost, you have to have the information you need to manage and that should come from your law office business system. You want to know who is writing off billable time and whose work are they writing off and why? You must hold people accountable to justify their action. That justification will point you to the solutions. The firm will need to have the determination to implement the solutions which usually involve either changing the people or getting the people to change. Information is one thing, getting information in time to make a difference is another. Your law firm business system should track who is pulling their weight and who isn’t in all respects. Ideally, it should be able to send the appropriate person in your firm an automatic message when excessive write-downs are occurring ¾ not just measure write-downs after the damage is done.

Collection Tip - Honey vs. Vinegar

Admin — Sun, 20 Mar 2005 21:20:04 GMT

The time to work accounts receivable is before accounts becomes a problem, not afterward. The preferred way is to work them as low as possible in the organization. Use honey instead of vinegar.

Assign honey duty to someone in your administrative staff who smiles over the phone. 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 it is a business, try to get agreement to mail the bill directly to accounts payable, with a copy to your contact regarding the firm’s services to the firm. 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 you have to send it to your client contact, find out the name, phone number and e-mail address of their secretary (or assistant). Have the person in charge of dispensing honey 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. What happens when the honey doesn’t work? That’s when your business software needs to be smart enough to automatically notify the appropriate person in the firm that their intervention is required.

Using honey will not eliminate the need for dispensing vinegar, but what is astonishing is that you will dramatically lower funds tied up in Accounts Receivable by working accounts before they become a problem. It is the old 80/20 rule. 80% of your excess investment in AR is from clients paying a little late versus real collection problems.

Concentrate on what matters for Better Cash Flow

Admin — Wed, 16 Mar 2005 23:53:53 GMT

Every firm would like to improve cash flow.

One simple approach to getting better results is to implement a system that helps focus resources on the areas that can have the most impact on results. This doesn’t mean necessarily the “worst” performers (i.e. slowest billing attorney, slowest paying client or vendor with the worst terms). Instead, you should segment these groups into categories based on their materiality or impact on the firm’s cash flow. Usually, it’s fine to establish 3 groups – groups A, B and C. Once done, you put your time and effort into the A group, with less time and effort on B, and maybe little or none on group C.

Let’s say you have 20 billing partners. You intuitively know some of the billing attorneys are better than others about getting their bills out quickly, but you never really have ranked them based on the total dollars that each bills. So, you decide to focus your efforts to reduce WIP by finding out which attorneys need the most improvement. Using billing system data, you rank each attorney by average monthly fees billed AND by average days to bill and split them into three groups:

Group A — >10% of the firm’s fees

Group B — 5% to 10% of the firm’s fees

Group C — < 5% of the firm’s fees

You, then, decide you want Group A billers to get bills out in 20 days or less, Group B 30 days or less and, Group C, you won’t worry about pestering unless they are 60 days late on billing.

Then rank each attorney for groups A, B and C by how quickly they typically bill. Group A might look like this:

Attorney 1 — 17% of annual fees and 45 days average days to bill

Attorney 2 — 12% of annual fees and 15 days average days to bill

Attorney 3 — 11% of annual fees and 28 days average days to bill

For Group B, you only have 1 attorney who takes more than 30 days, and she bills 7% of the firm's annual revenues, and in Group C, no attorney failed to meet the requirement.

Based on your criteria, you can now focus your efforts on 3 attorneys who manage 35% of the firm’s billings. Develop an action plan to get these 3 individuals billing in 10 to 15 days and think of the huge improvement on cash flow!

For collections, simply apply the same sort of process by grouping your clients into A, B, C groups based on their percentage of fees for the firm. Then further segment these groups, based on 6 months to 12 months payment history, into “always on time 30 days or less average days to pay", “mostly on time or 45 days or less average days to pay", and “always late 60 days or less average days to pay".

By doing this segmentation, you could focus your collection efforts on a small percentage of clients which will have a big impact on collections. For your “A” group, you could formulate a completely different communication process to make sure bills are paid on a more timely basis.

You can use A, B, C type segmentation to manage just about anything for better results. The bottom line is to measure performance, focus on the things that have the most impact on the element of performance being measured, and then put 100% effort and thought into improving performance for the more focused group.