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.

Make More Rain : subscriber content, cash flow issues

Concentrate on what matters for Better Cash Flow