In Part Two of this blog series we predicted that 15 years from now, almost all law firms would have policies and systems in place that would see them always being:
- Paid in full and within credit terms (most often); or
- Paid in full and upfront, via a funded fee arrangement.
This vision of the future would mean your law firm would also have:
- no overdue debtors
- very predictable business cash flow
- no costs or frustrations from chasing slow payers.
But we we’re looking 15 years ahead – what about right now? The chances are that today your firm has one or more of the very real issues below:
- Your terms of trade are 14 days, but are paid on average around 60 days after invoice
- You have a detailed process and system for fee collection, but it’s not universally followed
- There are times of the year that cash is very tight, typically December – February
- You have signalled to clients tighter terms of trade, but they still pay slowly
- You waste time repeatedly billing, collecting and reconciling small recurring payments
- You endure endless hours discussing slow payers at partner meetings; meetings that feel like ground-hog day
If so, then right now is the time to start making a change.
Why not prepare your firm for a future with streamlined, seamless payments and predictable cash flow? Set a pathway for a strategic transition from, wherever your firm may be now, to improved accounts receivable.
Drawing on our experience of more than 15 years helping professional firms with their accounts receivable, we can suggest a four-step guide to improving your firm’s cash flow. The basic steps are below:
1. Step One: Get Serious
Start by asking yourself: “Am I completely happy with the status quo?”. Assess your current position (e.g. Debtor Days, Payment Options) and consider any shortcomings.
Use that information to gauge the upside of a project to improve. Is there a firm-wide willingness to change? If there is, use the financial, administrative and team benefits that will come with the change to drive your motivation for an improvement process.
2. Step Two: Get Smart
It’s important to understand the strategic and long-term benefits of any changes to your credit and collections policy.
Ask yourself: “If we were starting our law firm today – would we set up to be a “PIP” or “BIP” firm?”
PIP – stands for “Payer Initiated Payments”. These firms bill clients with agreed credit terms and then leave it to the Payer to make the payment when the bill is due. The Payer is in control of when and how the payment is made.
BIP – stands for “Biller Initiated Payments”. These firms set up payment systems that take the money from clients after the agreed credit terms. So, an invoice that provided 20 days credit between service completion and payment is taken (e.g. by Bank Debit or Credit Card) on the 21st Day.
This decision alone will affect all of your policy making in the future. It’s most likely you are PIP firm now – but do you really want that? Why not take a courage pill and start to change now?
3. Step Three: Get Realistic
Change won’t happen without … well changes. You can’t improve accounts receivable if your leadership team veto’s every new policy, process, payment option or resource change needed to improve.
Sure, there may be some uncertainties and even setbacks. You may occasionally have to face some brutal realities of change (e.g. some team members or clients may move on). Remember though, keep your vision in front of you and within a short time frame you will see your competitors behind you.
4. Step Four: Get Started
Yes – right now is good. And better still there is great news for firms that do start quickly. The payoff for an accounts receivable improvement project is almost instant. More cash, fewer hassles, and reduced administration costs.
Your best and quickest boost to immediate cash flow lies within the first steps you take.
Just like Elvis implored: “a little less conversation and a little more action, baby”.
We’ve covered a lot of theory and we hope, a few helpful ideas in this Three-Part Blog series. One of the most important keys to success is to take action to move you closer toward your goals.
Or you might choose to download our DIY Accounts Receivable Improvement Guide.
Whatever your next action step is, rest assured, smartAR is available to help and guide you towards a goal of faster more predictable cash flow for your law firm.