Many mature law firms have learned that their attorneys are not the best bill collectors. The job belongs to the administrative staff. At least, it is the administrative staff that should be the front line for routine collection efforts. When meeting with a group of managing partners several months ago, one partner explained that when routine collection efforts fail, the firm still does not let the responsible attorney get involved.  A second member of the firm who has no responsibility for the client or case in question is assigned the role of being the “heavy”.  Will law firms sue to collect?  A growing number say “yes,” in spite of the countersuit risk.  They refuse to leave their money on the table.

There are four places to turn to reduce losses from the wasting value of billed but uncollected fees:

• Intake Policies and Procedures

• Billing Speed and Procedures

• Routine Collection Efforts

• Non-Routine Collection Action

The first rule is, of course, to screen out those prospects for your services that are likely to be a collection problem and to have a clear written understanding concerning how the client will be billed and how the law firm expects to be paid.  The engagement letter should also spell out the consequences for non-payment within the agreed upon terms. Take the extra step of adding to your engagement agreement information to be used in routine collection efforts–clearly state within the agreement who the law firm should contact to confirm receipt of the bill and who to contact in case of a missing payment. Uncollected fees for services are a loan to your client.  Where permissible, you can reduce that financial burden and head off possible collection problems through the following steps:

            Require advance payment

            Require an evergreen trust deposit

            Accept credit cards

            Automatic debit to the client’s bank account

            Installment payment agreement

            Etc.

The second rule is to bill promptly for services provided.  Your clients’ attitude is if you expected prompt payment you would have billed promptly.  If you take your time, they are going to take theirs.  Prompt billing conveys a sense of urgency. Consider the following steps for increasing billing speed in your firm:

• Bill more frequentl - weekly or every two weeks vs. monthly, etc.

• Use e-mail or e-bills vs. paper bills

• Agree that on-time payment does not waive client’s right to dispute charges.

• Insist that billable information be tracked and reported as worked

• Get time in on schedule¾daily, weekly, etc.  This discipline needs to be a job requirement—period

• Require fee earners to submit time accurately with correct spelling and grammar

• Go mobile with PDA devices, like the BlackBerry®.

• Use time tracking software that turns your e-mails, appointments, and calls into time entries without the need to reenter

• Use time tracking software that passes time entries directly to your billing system once the timekeeper deems them to be complete and correct

• Administration must be thorough and accurate in new matter setup¾get it right from the start (use software that automates much of the handling once a client is properly set up, i.e., prices automatically handling exceptions for you, pre-audits entries against engagement rules, produces multiple bill copies to multiple addresses for different purposes, e-billing, etc.)

• Test e-mail addresses and e-bill formats before the first billing!

• Have the accounting area plan ahead¾prepare a calendar of dates to run bills considering weekends and holidays.  Make it a priority and get it done.

• Run your A/R statements monthly but separately from the billing cycle

• Have your prebill formats set up to give the billing attorney all the information they need when reviewing the billing

• Do not run prebills for clients with A/R-only balances¾run only those that need actual review prior to sending

• Run prebills (draft bills) on colored paper so they stand out and are easy to identify

• As with time entries, prompt review and approval of prebills (draft bills) should be a job requirement with published turnaround times and performance should be measured—and billing attorneys held accountable.

• Attorneys should review bills only once¾get it right the first time

• Don’t send custom cover letters; send a status letter under separate cover.

• Implement procedures that provide for exact attorney and administrative review of initial bills to assure accuracy.  Your initial bill will set the client’s expectations.  Initial errors, incomplete information, deviations from the engagement rules will create an expectation that the firm’s bills require review, rejection, correction, and rebilling each and every time prior to payment.

• Invest in software that facilitates management and editing of prebills

• Accounting has to take the initiative to track outstanding prebills and retrieve unreturned prebills

• Editing bills should be almost as easy as editing a document and software should handle the accounting and retain original information, changes, and the final bill data.

• Use window envelopes when mailing bills

• Don’t waste a day by letting bills remain in your mailroom

• Negotiate fixed fees with advance payment and/or progress payments

The third rule is to always remember that the majority of past due fees are attributable to clients that pay a little late.  Be proactive and work collections before they become past due.  When all else fails, the account gets kicked up to the professional staff.  The accounting or administrative staff should never threaten.  Theirs is a softer role.  Persistence in asking for payment and following up when it isn’t received works in almost all cases.

The time to work accounts receivable is before accounts becomes a problem, not afterwards.  And the preferred way is to work them as low as possible in the organization.  Assign collection duty to someone in your administrative staff who has a friendly phone personality. If you are billing individuals, have him or her call and confirm that they received the bill.  Ask if they have any questions.  Remind them of the due date.  If payment isn’t received within days of the payment date, call back and let them know you haven’t received the check.  Ask if they mailed it.  If they haven’t, ask if they will place it in the mail that day or bring it by the firm's office.

If your client is a business, get the client's agreement for you to mail the bill directly to accounts payable with an information-only copy to your engagement contact. Let the client know that paying the bill on time will not waive the client's right to raise questions or dispute charges once he or she has reviewed their copy of the bill.  If the client insists that the bill be sent to their attention, find out the name, phone number, and e-mail address of their secretary (or assistant).  Have the person in charge of routine collection call the secretary after the bill is mailed and ask the secretary to be sure the bill makes it to the top of the contact’s to-do stack.  Let the secretary know you will call back in a few days to check on the status of payment.

If you can establish an awareness that if the bill doesn’t get paid, “that nice person” from the law firm will be calling”, you will find that your bills sail through the system.  Of course, to make it happen, you need software to keep up with collection activity and payment promises.  Working your fees receivable before there is a problem will dramatically lower funds tied up in accounts receivable; 80% of your excess investment in AR is from clients paying a little late.

Rule number four is that when all else fails and the client refuses to pay or simply hasn’t paid, there is usually a reason. Taking strong arm collection steps without knowing the reason is asking for trouble. When routine collection efforts fail to produce results it is time for one of the firm's legal professionals to get involved, but not the attorney or partner responsible for the case or matter. By having an uninvolved legal professional contact the client, the discussion is on a business level involving the unpaid balance. It is not on the professional level dealing with the case or matter. The pursuing attorney will be unfamiliar with the case details, and thus the discussion can not be redirected into a rehash of events.  Likewise, the pursuing attorney’s objectivity means that he or she can listen to the client's complaints or position without becoming defensive.  The objective should be to work out a payment plan or to reach a fair compromise and settlement of the bill. If the client has the ability to pay but refuses even after the efforts of the pursuing attorney, a next-step alternative is the Fee Dispute Resolution program of your state Bar.  When nothing seems to move an intransient client, the firm has to make the decision to sue and risk being sued or to just walk away. 

A growing number of law firm are willing to sue in spite of the countersuit risk.  They refuse to leave their money on the table.

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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I ran into two situations last week that illustrate why you should not settle for “no” when asking “Why can’t I?” questions about your law firm’s enterprise system. If the software is not working the way you think it should or not giving you what you want, do not accept an unsatisfactory answer from the firm’s staff. Insist that the staff member go to the software vendor and that they explain to the vendor what you want and why—what you are trying to accomplish. If the answer is still unsatisfactory, you should personally go directly to the software vendor. If you have to, go to the top—the COO or CEO. What will surprise you is that the right answer is almost always “Yes!”

When it comes to software, most of us only use a small portion of the product’s capability, and that goes for individual attorney use of the enterprise business software for the law firm. Training is front-loaded—it occurs when law firms first install systems. Unfortunately, skills are not always updated with refresher training. It gets worse. Updates to software add new capabilities and features that, without training or self-paced study, go unused. Law firms experience turnover among accounting and administrative staff, and before long, the people in the law firm with primary responsibility for the system only know what has been handed down from their predecessors.

Today’s systems have options and defaults that will change how the software works to fit individual preferences and patterns of work. What works for one person’s work pattern can be cumbersome and frustrating for another. Unchanged, those hand-me-down settings become frustrating to the attorney.

Almost all enterprise software provides the capabilities for custom reports and views. The leading software vendors offer services to design these custom capabilities for you and most include optional tools to equip the firm to do their own.

Chances are that your firm is not using all of the vendor’s products. If there is something you need, you can pretty well assume others do as well, and the vendors may have optional products or services that fill that need.

At two different firms last week with two different issues, we ran into attorneys that were upset because their system would not do what they wanted and they had been putting up with this adverse condition for months. We showed them how their existing system already does exactly what they wanted exactly the way they wanted it done. It was a simple matter of changing built-in options and defaults. The problem was the law firm’s staff only knew what had been handed down and the attorneys had accepted “No” as the answer.

There are two morals to this story. The first is, do not accept “No” as the answer. The second is that there is material value in continuing training to update and refresh staff knowledge and skill regarding the firm’s enterprise systems. The Juris team reminded me the other day that the newest Juris law firms have a more valuable system than long-term Juris customers. It is the same software, but the newer firms have been recently trained on the system’s full and powerful capabilities. The long-term clients only have hand-me-down knowledge.

It doesn’t have to be that way. Companies like Juris will go to the law firm site to conduct refresher training. They offer off-site classroom training. Training CDs are available and online supplemental training is available over the Internet. Juris, Inc. recently put in place a certification program and will take responsibility for continuing certification of key staff members in your firm. Other vendors may offer a similar program. Ask your staff for the ongoing training options offered by your vendor and put in place a regimen of ongoing training to keep their knowledge and skills updated. It will pay off. What they learn will increase per-partner income.

ASK, don’t settle, and demand the best… Several years ago the folks at Juris coined the phrase “The Power of Yes” to convey to all Juris team members and Juris law firms that saying “Yes” is the company's objective.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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Put a plan in place to reduce the time it takes to bill for services. Couple faster billing with deliberate collection efforts, and law firm partners will enjoy a record income year.

On average, 148 days pass before payment for legal services is deposited in the law firm’s bank account. That is almost half a year’s worth of fees. Based on the 2005 Juris Law Firm Economic Survey, the typical midsized law firm takes 72 days to put a bill in the mail. Another 76 days elapse before that bill is collected.

Because most law firms use the cash method of accounting, neither work in process (unbilled fees) or accounts receivable (billed but uncollected fees) appear on the law firm’s balance sheet. Combined, these represent the typical firm's largest asset.

Law firms don’t pay enough attention to cash flow in a systematic way. They aren’t in tune with the value of unbilled fees and uncollected cash, especially when cash flow seems consistent with past patterns. If you don’t get the bills out quickly and accurately, your firm is going to perform poorly relative to what the outcome could be. Slow billing and collection appears to be a problem with firms of all sizes and across all levels of performance.

There is no justification for slow billing. How do you speed it up? Start the process by asking your accounting and administrative staff for a plan to do just that. Work with them to finalize that plan. Support that plan. Give them objectives (targets) based on their approved plan. Measure performance against those targets. Recognize and reward their accomplishments. Hold people accountable (including partners) for their role in the plan.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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By Guest Author Barry Lancaster: Juris, Inc. Senior Director of Client Services

Citrix® technology has been used by law firms as an effective method of providing legal professionals and administrative staff with remote access. The question is, “Are newer technologies making Citrix obsolete?”

Virtual Private Networks, VPNs, now allow firms to set up secure direct access to their network over the Web. For “office-like performance,” VPNs require a broadband Internet connection. What is different today is that home Internet users and law firm branch offices now have broadband access. Likewise, most hotels offer broadband services. Many towns and coffee shops offer free broadband services. In addition to broadband access, dedicated phone line connections between law firm branches and the firm’s main office are now moderately priced and provide even better data transfer quality. Today, if you are working from home, on the road, or in a branch office, quality high-speed connections are now readily available and inexpensive. That high-speed accessibility for users outside the office has made the VPN approach an alternative to Citrix.

In addition to the direct network connection alternative using VPN technology, there are a growing number of developments making Citrix less essential. An increasing number of the applications used by law firms now offer a browser version, for example. Smart Client technology (under Microsoft® .NET) and similar new technologies coming from the browser side of the fence are starting to show up in law firms. These Smart Client products are designed for easy direct access over the Web. Smart Client applications (including, for example, the Juris, Inc.’s attorney dashboard application, MyJuris®) use security services to protect data, providing full confidentiality over the Web.

There are advantages and disadvantages to the various technologies, including Citrix. However, changes in connection speeds and software designs make it appropriate for you to re-evaluate Citrix on a recurring basis. Depending on your particular circumstances, you may find that you can improve office-like performance for your traveling and remote team members while also lowering IT-related cost.

Lower cost is always nice, but it is the potential for productivity gains that should drive your decision.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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The most profitable firms don’t have the lowest cost structure. That was one of the findings from a recent Juris, Inc. survey. Top performing firms had higher per-head operating expenses and a higher ratio of non-fee earners to fee earners. Full survey details will become available later this month.

The findings provide more evidence that it pays to focus on revenue rather than cost reduction. That is not to say that profitable firms spend recklessly. While costs per head are higher, the firm’s total cost as a percentage of revenue was lower due to higher revenue per partner and per head.

Cost cutting campaigns will not move a law firm into the category of a top performer. If you want to increase profitability, you need to concentrate on increasing revenue rather than focusing attention on reducing expenses. You should pursue business development as well as opportunities to increase productivity, effective rate, and realization. Eliminating amenities, downgrading facilities, reducing personnel, holding back on salary increases, and reducing administrative staff is likely to cause more harm than gain.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Always keep in mind that the approach to raising per-partner income should be done with long-range considerations.  First, determine how the firm stacks up against its peers.  Use survey benchmarks like those available from Altman Weil, http://www.altmanweil.com.  Take corrective steps where you fall short.

The list below is a reminder of steps that you can take, among others, to increase margin and improve per-partner income.

Steps for Increasing the Firm’s Margin

• Consider relocating for a lower cost per-square-foot
• Pursue alternatives for lower communication cost
• Conduct a general cost reduction campaign and work with administrative staff to improve on-going cost controls
• Take advantage of outsourcing for lower or variable cost
• Improve marketing, especially to existing clients to increase fee revenue
• Improve productivity both at support staff and professional level through capital investment—technology, equipment, training, etc.
• Increase professional and front office direct access to systems and information
• Reduce support staffing ratios through use of technology
• Plan office space to enhance workflow
• Establish systems and controls to improve recovery of client expenses and soft costs
• Implement an administrative charge (3%-5%) of fees billed to cover soft costs
• Budget firm expenses and compare to actual for improved performance
• Engage in structured strategic planning to reduce the cost and impact of off-track or poorly planned activities
• Set goals and hold people accountable
• Invest in better business systems that eliminate duplicate work and increase performance and efficiency of the accounting and administrative staff 

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I spent a weekend meeting with law firm administrators and law firm administrative and accounting staff. I was struck by how many law firms have hands-off policy for the administrative staff when it comes to collections.

The typical firm waits an average of 4½ months before they have completed the billing and collection process—that is how long it takes to get the money in the bank. Pardon the expression but that is nuts. Attorneys are the wrong people to play the collection role. Collection is an administrative function. The professional staff should get involved only after administrative efforts fail.

Many mature law firms have learned the above lesson. When meeting with a group of managing partners a couple of months ago, one partner explained that when routine collection efforts fail, the firm still does not let the responsible attorney get involved. A second member of the firm that has no responsibility for the client or case in question is assigned the role of being the “heavy”. Will law firms sue to collect? A growing number say “yes” in spite of the countersuit risk. They refuse to leave their money on the table.

The administrative and accounting group I was meeting with agreed that collections start with client intake. That is where the firm sets the expectations for payment. Payment policy should be clear. The client should sign off including signing off on the stated consequences of late or nonpayment. I believe the engagement agreement should also clearly state who the law firm contacts to confirm receipt of the bill and who we contact in case of missing payment. This is also where you can practice proactive collection:

Require advance payment;

Require a Trust deposit;

Accept credit cards;

Automatic debit to the client’s bank account;

Installment payment agreement;

Etc.

Always remember that the majority of past due fees are attributable to clients that pay a little late. Be proactive and work collections before they become past due. When all else fails, the account gets kicked up to the professional staff. The accounting or administrative staff should never threaten. Theirs is a softer role. Persistence in asking for payment and following up when it isn’t received works in almost all cases.

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Since I have been on a soapbox about the 138 days (4.6 months) that the average law firm takes to bill and collect for work performed, Beth Keno shared some of her research with me.  Beth Keno is a Juris representative in the Michigan and the greater Chicago market areas.  Her research is in connection with a speech she will be making at a regional bar association conference.

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I am in San Francisco attending the ALA annual conference (Association of Legal Administrators). This is the best ALA since Boston. Attendance is between 1700 an 1800.

An administrator just told me that their managing partner had put a moratorium on all non-fee earner travel. They canceled the rented flowers and stopped all subscriptions and association memberships for non-attorneys.

Come on - what do they think that accomplishes other than a negative image of management and the law firm. Do they take pleasure in treating everyone else as second class citizens? That is so shortsighted, and yet it is fairly common. But it is just a lot of sound and fury accomplishing nothing. For all practical purposes, a law firm’s operating expenses are made up of compensation and rent. Cutting cost by reducing the quality of the environment and denying the administrative staff will not make a material difference except on the attitude of the people the partners depend on to keep the wheels of their enterprise well oiled. In short, this managing partner is biting himself in the you know what.

Cost cutting campaigns will not turn around a law firm in trouble. If you want to increase profitability, you need to concentrate on increasing revenue rather than focusing attention on reducing expenses. You should pursue opportunities to increase chargeable hours, to increase billing rates and to improve realization. Eliminating prerequisites, reducing personnel, holding back on salary increases, and reducing administrative staff is likely to cause more harm than gain.

Excellent managers focus on opportunities rather than problems. Pursue the right opportunities and most problems take care of themselves. Granted, there are problems that need to be solved. But they are distractions from the main objective of capitalizing on opportunities. So, choose your problems wisely and get them behind you quickly so you can focus on what you are being paid to do- identify opportunities and pursue them.

I had an experience early in my adulthood that drove this concept home in a way I will never forget. I was still at Price Waterhouse and had been married for a couple of years. I was talking to my father-in-law. He was working in his garden one early summer day. As he always did, he was wearing a suit and tie. He was a classic old-time southern gentleman and successful businessman with snow white hair. The suit and tie had become his uniform for all occasions. He was, also, one of those people who never got dirty. While not particularly careful at the dinner table, nothing ever spilled or splattered on him - sauces, gravy, soup, wine, ketchup, etc. It was as if he was Tefloned from head to foot, and that was before Teflon had been invented. I was telling him how difficult it was to live on a budget. He thought for awhile and then replied by saying, "Yes I know. I tried that for a while. Then I decided that I would just earn more than I spent."

That is what I have done ever since. That is what your firm should be doing!

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