In Part Two, Cosgrove Associates will focus on billing practice and collections policy.
7. Regular billing cycle: Send bills out at regular intervals, or at the end of work stages. Holding off to send one big bill at year end can result in “bill shock” for the client and can create unnecessary difficulty in making payment. However, it is best to avoid interim billing when payment is deferred (to be paid by settlement or funding for a business transaction) because it clutters up the reports and can cause tax liability.
8. Charge interest on late payments: A common and sometimes effective business practice is to indicate on invoices that overdue accounts will begin to accrue interest. The Law Society of Ontario states that interest should only be charged on accounts past 30 days in arrears. However, whether or not they actually intend to enforce the interest charges, smaller firms consider this a somewhat divisive approach and don’t want to risk it on their clients.
9. Holdback policies: Holdback is a simple and popular policy among law firms. It can stop unpaid bills from ballooning out of control. When an account is not paid on time, or the firm receives an insufficient-funds notification, work should stop immediately until the client brings their account up to date. At the very least, a discussion on securing payment should transpire.
10. Collections Policy: Having a collections policy can help prevent accounts receivable from mounting and perhaps leading toward excessive bad debt and write-offs.
Because many people are not comfortable in collections, especially lawyers, it is fundamentally important to assign the right person who is experienced in diplomacy and tact to follow up on overdue accounts on a regular basis. The chances of collection are greatly reduced as time goes on past 60 days. Below is a commonly used collections schedule:
15 – 30 days late: Reminder notices should be sent out automatically, barring special circumstances such as security collateral.
60 days late: The lawyer should be involved in communications to the client.
75 days late: Management should review and determine a strategy. This might include any of: a payment plan, stop work, allowance for doubtful, collection agency, small claims court or judgement, or account write-off.
“Write down” accountability: To align interests, Cosgrove Associates suggests that management authorization be required before any rate changes or time or disbursement reductions are applied to any client’s bill. These checks and balances are good practice to avoid time consuming accounting corrections. Unbilled disbursements are often cash out of pocket for the firm and special attention should be paid to holding lawyers accountable for repayment or collection of these monies.
Review the first 6 of 10 tips to preventing lost revenues in law firms by referring to Part One.