Tips to Avoid Lost Revenues (Part One)

As an associate with Cosgrove Associates Inc., I have worked on collections projects with several client firms and would like to share our tips to prevent lost revenues. Every firm is unique with its own culture, but there are a number of common practices that firms can use to avoid issues with collections, before they arise.

Part One relates to the set up and planning for successful account management. Part Two focuses on billing practices and collections policy on delinquent accounts.

Tips for preventing lost revenue in law firms:

1. Client intake discussions: At the point of engaging a new client, lawyers should openly discuss rates and payment options and carefully explain the firm’s billing and collection process. That may mean agreeing on a specific payment plan, or providing post-dated cheques for smaller amounts. If there are serious doubts about a client’s ability to pay, firms could conduct a credit check or consider not engaging with them at all.

2. Retainer funds: In an ideal situation, an appropriate retainer fund amount would be deposited in the firm’s Trust account at the same time as the client signs their engagement letter. These funds in Trust can then be applied against the initial services.

3. Replenishing Trust account funds: For ongoing matters, it might be prudent for lawyers to request the client periodically replenish the Trust account funds as work progresses into new stages. When the funds are already in reserve and appropriately applied to billings as stages conclude, it eases the stress on the client and the firm’s cash flow.

4. Payment options: There are so many ways for people to pay these days – including e-transfers, cheques, drafts, credit cards or cash – that it might be worth setting them out these convenient options on the bottom of your invoices to make payment easier for clients.

5. Review rates and delegate: Happy clients are more likely to pay on time.  One way that firms can demonstrate how they are saving their customers money is by increasing the level of detail on their invoices, showing when lower-end work was delegated to law clerks or junior associates charging lower rates. It not only enables senior lawyers to focus on the high-end work, but it builds goodwill with clients whose bottom lines are better off as a result.

6. Monthly Financial Reports: Firm management should provide lawyers access to monthly reports. The reports should include work in progress (WIP), accounts receivable (AR), and funds in Trust. The reports will enable them to analyze their docketing and determine whether it’s time to: bill, access the Trust funds, or attend to collections. Lawyers should be responsible for keeping their own AR lists clean and up to date. It’s also a good tool to identify which clients are good at paying their bills, and which are not.

Stay tuned for tips 7-10 in (Part Two) which focuses on billing practices and collections policy.