Well I suppose the only real way to do the above is to retire from the legal profession so please take the above headline with a grain of salt.
But I am constantly trying to alleviate some of MY clients’ “payment problems.” Part of my attempt to deal with “the problems” was to pick-up my copy of Ed Poll’s, The Business of Law, which I’ve owned for several years but hadn’t ever read. I don’t know Ed personally but I’ve been following him on Twitter (@LawBiz) for the last several months and I’m a regular participant in his LawBiz Forum. Ed’s background in helping lawyers become more profitable speaks for itself. I’m not through the entire tome as yet but I have been focusing on the several chapters in the section entitled Financial Management.
Some general things to check out are some of his financial forecasting tools and his two suggested methods for pricing legal services (his so-called Cost-Plus & Market pricings). An interesting factual nugget, “The average national accounts receivable cycle for lawyers’ services is 4.3 months.” Ugh.
But we want some action points to put dollars in your pockets, no? That’s what I need.
Here are 3 easy-to-implement billing/financial planning nuggets I’m thinking about and I’ll report back on the final implementation:
- Billing cycle change. My firm sends out client bills on a monthly basis. I’d guess most lawyers who are primarily involved with hourly billing sorts of matters send out monthly statements. For the 4+ year history of my firm we’ve closed our billing cycle on the last day of the month and then mailed bills to clients the first few days of the next month. The problem? The majority of our clients’ payments don’t come in until roughly the 15th-25th of the month. And this is often a problem because both within my business and personally I have bills that sometimes are dependent on client payments due at the start or middle of the month…and that’s a problem! My solution: Change the end date of our billing cycle to somewhere in the early 20s day of the month and then mail bills essentially 7-10 days earlier than we’ve been doing. The goal being to move the client-payment-received window forward to the 5th-15th.
- Incorporate “Evergreen” Retainer deposits. With the exception of real estate transactions, we generally require a retainer deposit from clients up front which then gets billed against as we do a clients work. I suppose we can always take larger retainers upfront which is probably half of the solution. However I do often think clients might struggle to make too large of an upfront deposit. Yet on the back end of things my problem has been once the retainer deposit has been used then we’ve been in the habit of simply billing clients for the work done that month. And then we start to have payment problems because we’re totally at the client’s whim. My solution: Ed mentioned the “evergreen” retainer idea to me being simply a client must always keep some minimum amount in my trust account until the representation is completed. Then if there’s a payment problem I will always have some funds to collect against. I haven’t finalized the amount of the “evergreen” retainers as yet and I think it will vary by the nature of the case…seems like a range might be $250-$750.
- Consider a discount for clients who pay promptly. Here I’m aiming at the same problem as the billing cycle change…simply, getting client payments more quickly. So I’m deciding about what date deadline I’ll use that will qualify a client for a discount & what should the discount be. I’m leaning towards post-marked by the 15th of the month for the date. As for the amount, kind of wavering between a fixed-fee vs. a %. 10% sort of sounds good and would be easy to calculate but that seems too large.
Thoughts??
