Last week I wrote about some win strategies to improve and advance your firm technologically – for 2021 and beyond. None of it will mean a thing though, if you don’t also keep a beady eye on your cash. Many firms are having a really tough time of it lately.
Some sectors more than others. A lot of these headaches are not of your making though. Some clients of law firms have been so badly affected by the lockdown and restrictions that they simply cannot pay – either in full or in part. Quite a bit of lucrative work has been withdrawn or insourced (RAF and volume debt collections being prominent here). Clients are increasingly demanding more work for less pay because they sense, correctly, that there is not enough to go around and that they hold most of the cards. Other clients might be using the pandemic as a convenient excuse to not pay or pay less than they ought to – a prime example (culprit?) being the Government. I know of firms that invoice Government and a year later have still not been paid and the pandemic has worsened this because it has become the ideal and convenient excuse to what was already a bad payment cycle long before covid was a thing. Do you go out on a limb and extend payment terms or even write off while still continuing to work for clients who want to pay but cannot? My gut feel tells me that most practitioners would do this especially for loyal and long standing customers. I commend those who can afford this and actually do this, but do you extend leniency at the risk of your own survival? Each must make their own decisions on merit, I suppose, by knowing and making a judgement call on each circumstance. Know your clients!
So, a lot of what causes our financial strife is out of our control and there is no use harping on about things we cannot change. The point of this article is to emphasise that you should be making the most of what you actually can control to minimize your risk of running out of cash. Here is a guideline (actually it’s a bit of a strategy) that will definitely help – and it will be that much more beneficial to your firm if it becomes a sustained habit to continue with after the pandemic – and beyond.
The legal industry is unique and unique credit control thinking is therefore required. In the World of an attorney, once the work is done and the invoice has gone out – that’s it. You either get paid in full or you don’t. There are no returns, there is nothing to repossess and your stock in trade (being your time and expertise) has gone. So the adage of prevention being better than cure is particularly relevant for law firms. A lawyer who merely sends out hopeful invoices and statements will soon become disillusioned – and poor.
My advice to Law firms is to be “cash aware” at each and every level of engagement with your client. This needs to be done subtly – imperceptibly if possible to avoid giving life to the unfair “money grabbing” opinion that some would be clients have about the legal profession.
So, if we look at the how the clients and their matters are engaged by, or flow through your operation and processes, perhaps we can make some suggestions as to what can be done at each stage of business to prevent tears, trauma and a constipated age analysis. Hopefully you will be able to compare this to what is happening in your operation right now and then work out where improvements can be made – and at which level.
You should, as far as possible, lay down the rules up front. Explain what you will be doing and what costs you will incur along the way. Make it known that just to place yourself in front of the client has already cost you money in resources, salaries and infrastructure and your hourly rate has been carefully calculated to do justice to all concerned – including the client. Explain how and when you will invoice and when you expect to be paid – and then consider discounts for early payment as well as penalties for late payment. Use the carrot and the stick. By using both you will finally put paid to the argument over whether the carrot or the stick is better!
It will be great if you can have this conversation with your client up front but even better if it can be documented as well. If I am not mistaken, this is going to become obligatory quite soon anyway so now is a good time to implement it. Document systems such as our Xpressdox can easily facilitate this and it can be automated according to bespoke requirements if necessary.
It’s just sensible. It seems obvious but easier said than done in a lot of instances. You can’t do this all the time but you should at least consider doing it every time. Clients, their matters and their circumstances are different all the time and your approach has to be flexible – but you should at least treat every client or potential client on their merit in terms of asking for a deposit. You could include it as a standard thing on your letter of engagement which will eliminate the awkwardness of having to verbally ask for it. You will be surprised how many clients will not bat an eye at a reasonable deposit. Be careful, however, to take a deposit and then forget about it. Don’t let it create a false sense of security because the deposit will run out sooner than you think. Systems such as AJS have mechanisms in place to manage and inform you when you need to ask for a top up.
Even non-billable file entries and file notes. This will strengthen your hand at each and every stage during the life of the matter – but especially when the client starts complaining about charges and asking for discounts. You will have a much stronger case when the client can see how much you have put into his work. Our AJS system is comprehensively designed with this in mind. You can even start recording activity (consultations) before you have opened an account for your client. It still surprises me after all my experience in the industry that so many practitioners are still so undisciplined with this aspect. You simply have to accept at some point that you cannot remember everything. You must record all activity all the time and the only way to do this is to have a system that is available to you all the time – at your fingertips. Remember that there are elegant tools out there that allow you to record everything as work in progress (WIP) which will keep everything up to date until you want to invoice – you can even report on all the WIP in your office including an age analysis and what the unbilled value in your firm is at any time.
Don’t wait until the work is finished on the file, or even until the end of the month for that matter. Let your client know what is going on. Don’t keep them in the dark and then surprise them with an unaffordable account at the end of the matter. Your system should be flexible enough to be able to bill at any time. You will identify a potential bad debt early on. If the client cannot pay you after a month they certainly cannot pay you after a year. Avoid bad blood, avoid time wastage, avoid financial loss, record everything, and send accounts early and regularly.
This is an extremely valuable credit control mechanism mostly because you already have the client (debtor) engaged and listening. The client still needs your service so while you are chatting you need to be looking at their account and the account enquiry needs to be designed in such a way that you can quickly see what is going on and whether the person you are talking to is in arrears or not. You will then be able to politely ask for a payment, further deposit, or decide whether to continue working or to grant further credit.
You will only be able to do this every single time if you have an on line/web based system at your disposal – and then again if that system has an account enquiry or quickview that displays intelligently and clearly.
Make sure that you analyse your financials regularly – at least once a week. If you don’t the problem areas will soon run away with you. Your system should at least be able to produce basic age analysis but preferably you should get this per department/ fee earner, ordered by descending balance so you can tackle the larger debts first and prioritise those. You should also get a cash flow analysis to confirm where your problems might be headed so you can take early action. If you are able to schedule your reports in your financial system then set this up to email you the reports at the same date and time every week so that you don’t have to remember to do this regularly. The email in your inbox will remind you every time. If your system cannot do this then there should be a standing instruction to your bookkeeper to do this for you. You don’t want to neglect this aspect of financial management and find out too late that you’re not getting paid. This is a habit that you need to get in to – it’s not a quick once -off fix. You have to constantly keep an eye on it and systems such as AJS are designed to make this easier for you.
So, in conclusion it’s important to create a culture of being cash aware right from the beginning – as soon as you engage the customer for the first time and before you start working or billing. Create the expectation from the get go and then manage it proactively and fastidiously at every stage of business and interaction thereafter. I guarantee that you will see positive results and you will have happier clients.
Contributed by: Digby Vickers – Director at AJS