Collections can be a challenge for law firms in the best of times. But in the unpredictable economy brought on by the Covid-19 pandemic, those challenges have in many cases become even more daunting than normal. With that in mind, law firms should focus on increasing collections, reducing outstanding balances and limiting potential losses in their billings
In addition to the economic uncertainty brought on by the pandemic, new government economic relief programs have had an impact on businesses of all types. Well over 95% of businesses which secured Paycheck Protection Program (PPP) loans have had or will have the loans forgiven. Some firms are choosing to see the loans as financial “cushions” which in reality can obscure serious cash flow, accounts receivable or other financial issues.
The Problem Can Grow with the Firm
Small firms can often monitor accounts in the arrears more closely than can a large firm. As firms grow, making certain collections are being handled by a dedicated person or team. It’s also important to be certain the person or people handling collections has the systems necessary to stay on top of past due A/R.
Handling collections can be stressful and challenging and not everyone has the personality or skills to successfully resolve A/R issues. Successful collectors often bring a genuine client service ethic to the process. While these collectors are persistent, they’re also committed to helping the client resolve their issues by viewing the situation as an opportunity to assist a client.
Area of Practice Can be a Factor
Some areas of law such as criminal defense, family and divorce law typically have greater issues with collection than for example, real estate. Typically, these areas of law average approximately 85% realization on billings, while firms offering other services collect at above 95%.
Prevention Can be the Best Medicine
Several strategies can prevent clients from falling behind on paying law firms in the first place. Fixed fees enable clients to better plan for payment. And keeping retainers at an adequate level creates a safety net for law firms. Being clear in communication lets clients know where things stand on the legal work and the hours required to execute the work, which means clients are less likely to get a “surprise” when they receive a bill.
Also, making payment as convenient as possible can increase realization on billings. Payment portals on firm websites, ACH payments, LawPay and other methods of payment make the process easier for clients and firms, while increasing realization rates.