Year-end countdown: accounts receivable

Year-end countdown: accounts receivable

 

As we approach the end of September, firms with fiscal years ending in December should already be taking the first steps in their year-end fee collection campaign.

Your firm's billing team will probably do most of the heavy work, but in well-managed law firms the billing partner for each file is the one who is responsible and accountable to his or her partners for collections.  Firms with active partner involvement have a much collections record, measured in terms such as

  • lower accounts receivable at the end of the fiscal year
  • lower average age of accounts receivable

These translate into higher profit distributions to partners, more generous bonus to associates and staff, and more money for investment in marketing, productivity, and service delivery capabilities to prepare for the new year.

If your fiscal ends in December, here are some things that you should be doing now to improve realization.  (Actually, you should be doing these year-round; but any effort that you can make now will pay off.)

For each file on which you are the billing partner or matter partner:

  • If you have even the faintest hint of client dissatisfaction or a possible fee dispute, investigate it and address it now.  Don't expect them to go away on their own.
  • Identify all unbilled work in progress and all unbilled disbursements that are more than 45 days old.  Find out when they are going to be billed.  If it is not going to be in 15 days, find out why.
  • Personally contact the client about all accounts receivable more than 60 days old.  Find out when each one is going to be paid.  This is usually a better approach than asking why it hasn't been paid.  As Dale Carnegie said, "Start with a friendly tone."  If there is a reason, the client will usually volunteer it.


This last tactic is especially important.  Except for matters with billing cycles longer than 60 days (which we do not recommend unless the client insists), there are four reasons that account for the vast majority of unpaid bills:

  • The bill was mislaid.
  • The client simply forgot.
  • The client is experiencing cash-flow problems.  (This gives you an excellent opportunity to build client loyalty by offering longer payment terms.)
  • There is a misunderstanding about the billing cycle or due dates in the matter.

And even if the reason is that the client simply does not want to pay the bill, this is something that should be discovered and addressed sooner rather than later.  The longer you wait to confront and try to resolve the issue, the lower the probability of collection.

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