May 25, 2005
Days to Bill
Hardly a day goes by without a discussion with a law firm partner about funds tied up in unbilled and uncollected fees. While those partners can't put their finger on the exact number, they understand the long delay results in unnecessary adjustments and write offs.
I find it hard to understand why the typical US law firm would allow 78 days to go by before issuing a bill for services performed. Or the fact that, on average, it takes an additional 60 days to collect that bill. That is 138 days or 4.6 months. Iezzi uses 4.7 months in the sample business models included in his book Results-Oriented Financial Management.
Does it make any sense at all to let 78 days go by before billing a client for work performed? It doesn't. Unlike 60 days of billed services tied up in fees receivable, "days to bill" is 100% controllable by the firm. This is a management problem. It results from defective procedures and/or inadequate tools. The truth is this is a problem that is easy to fix. All it takes are the right tools and management's determination to solve this problem with a no-return policy. It takes a top-down, or collective, determination not to accept lax billing practices:
- It begins with client intake and the engagement letter:
- Negotiate trust deposits and/or prepayments together with minimum trust deposits
- Agree on billing frequency/monthly or every two weeks
- Set the billing period to end one to three days prior to the billing frequency. For example, to be billed on the 16th and the 1st of each month for the service period ending on the 15th and the end of each month.
- Document payment terms
- Agree as to E-bills vs. paper bills
- Identify the person to receive bill
- Identify the person to contact to confirm bill receipt and payment schedule
- Agree that on-time payment does not waive client's right to dispute charges
- Provide for penalties for late payment
- Negotiate progress payments.
- It depends on consistent internal discipline:
- Fee earners are expected to submit time accurately with correct spelling and grammar. In short, editing should not be required.
- Get the right tools to timekeepers and insist on zero tolerance that billable information has to be tracked and reported as worked. Having your time in on schedule, daily, weekly, etc. is a job requirement, period.
- Pre-bills have to be distributed by 10:00 a.m. for the day following the end of the service period.
- Pre-bills must be returned to accounting by the day following distribution. If not returned, bills will be mailed or e-mailed as is.
If as a result of management's determinate, time to bill is reduced from 2.6 months to 1 month, it would mean that a firm with $12,000,000 in annual fee revenue would have a one-time increase in revenue of $1,600,000. That freed-up cash becomes available for distribution to the partners and/or for a reduction in debt with a corresponding decrease in interest expense.
If "days to bill" is 100% controllable by you, why let this money remain beyond the reach of partners? Why not fix the problem?
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Filed under Cash Flow Issues, Management by Tom Collins