Law Firm Cash Flow: You Should Aim for “90 in 90”
As a veteran of nearly 39 years of real law practice (by “real” I mean a broad general practice serving the general public, small businesses, families, and individuals in a myriad of contract, trial, and appellate matters), I know the importance of cash flow. In my quest for financial security and success, I have perused every bar journal article, attended numerous practice management CLEs, and varied my approach to billing and collections to see what worked.
Doing good work, of course, has been the overwhelming focus of my practice, and thankfully, I have had very few complaints in that department. But what I have learned about getting the money in the door promptly and securely has proven to be an art. I am happy to tell you that, last year, I had a billing collection rate of approximately 97%, which is far above the national average for solo-small firms. But with a broad practice, there is no single magic secret to this achievement. It is a combination of excellent communication, billing discipline, and intentional follow up.
Bearing this in mind, here are a few tips I’ve put to work in my practice to help me achieve my collection rate.
First: Learn to interview in a way that will result in client confidence, reasonable expectations, and realistic time frames for completion of your work, as well as a realistic range of fees to get the matter completed.
Second: Always execute a fee agreement. Clients take things that are in writing more seriously than handshakes. Also, you should rarely start work until a promised retainer check clears.
Third: Have billing systems in place that allow you to record time daily and produce comprehensible bills with necessary details.
Fourth: Diligently record your time each day. You will forget tomorrow what you did yesterday. A reminder hint I use when I can’t remember is to check your outgoing email each day. Your email is a terrific source of clues as to what you worked on during your busy day.
Fifth: Know how to bill accurately and amicably. Use the client’s name: “Telephone call to Robert (rather than “to client”) concerning hearing.” Then review every bill for errors or double billing before putting bills in final form.
Sixth: Send out your bills at least once per month (I recommend the first business day, after most people have received a paycheck). If you don’t do this, clients believe, “Hmm…they’re obviously so rich they don’t need my money.” Clients hate paying you 3 or 4 months after you’ve completed the legal work, so make billing a priority. Sending out late bills is a huge management error.
Seventh: Follow up! When you are doing your bills, and you see client John Doe didn’t pay last month, immediately stop and send him a friendly email reminding him that you have not received payment and offer him the immediacy of an internet payment link. In my practice, this has worked like a charm!
Eighth: Be modern! Offer to email bills (more and more of my clients only want bills via email), and give your clients easy payment links to a provider like LawPay. With LawPay, you can give your clients a link to your secure payment page, allowing them to pay you from anywhere with an internet connection, even on a cell phone. Additionally, LawPay was designed specifically for the legal industry, guaranteeing complete separation of earned and unearned fees. Supercharge your cash flow by giving your clients an efficient, simple, and online way to pay for your services.
Client Satisfaction Curve
Clients are most likely to pay you immediately following the final achievement of their goals. But their interest in paying you later drops off exponentially. So, get that bill to them during that brief period that they appreciate you.
Day 0 – Case settles. Yay! Client very happy.- Get client the bill today! Day 30 – If the legal fee bill arrives after a month, the client already is alarmed that it is more than the fantasy he hoped it would be. Day 60 – Two months after the settlement date, the client is convinced you are deliberately overbilling, and becomes angry. Day 90 – Client tells anyone who will listen that they didn’t even need a lawyer and could have handled the matter on their own. Arrivederci, Legal Fee.