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Getting a Handle on Receivables
by Barbara Lewis MBA and Dan Otto MBA

 When the case is completed, attorneys bill their client the final amount and, oftentimes, expect the fee to be immediately remitted.  However, the average law firm client takes an unbelievable 120 days to pay an invoice!    

In many instances, attorneys don’t track their past due invoices, usually segmented by over 30, 60, 90 and 120+ days.  Moreover, many don’t have collection procedures in place to ensure that past due amounts don’t roll over to the 60-day column.

Here are a few tips to help manage your accounts receivable:

1.  Get a retainer fee from the client.  If clients balk at retainers, there’s a good chance that they won’t pay on time or maybe ever at all.  It’s better to know up front if a client is leery about the attorney’s fees.

2.  Time is money and so timesheets should be completed on a daily basis.  Research indicates that time collection on a weekly basis loses 15 percent of the time.

3.  Invoices should be sent around the 20th of the month to ensure client payment around the first.  

4.  Make sure that the invoice has a due date.  You can accelerate collections by about 50 percent with a due date.  Many law firm invoices have a statement date, but no due date.

5.  Attorneys shouldn’t dun clients.  Physicians don’t taint their relationship with patients by collecting fees and neither should attorneys.  Most attorneys don’t like to collect fees and this task should be put in the hands of professionals.

6.  Monitor your aging to identify problem accounts before they become financial nightmares.

To determine the success of collections, use this formula each month.  Take the total outstanding accounts receivable divided by total billing for current month and multiply by 30.  This amount is the average time in days that a client takes to pay an invoice. 

The goal for this amount should be 45 days or less.  By monitoring this amount and instituting better invoicing and collection policies and procedures, you ensure that your accounts receivable will be healthy.  

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