Bailout: Are Accounts Receivable Sinking Your Profitability?

Lots of small and solo law firms have staggering amounts of accounts receivable; and, even if those numbers are not sky high, for you – smaller amounts are still vexing.  Accounts receivable end up counting against your profitability, because these reduce the amount of gross revenue you collect = the top line for your profit margin.  So, the more you collect: the more you make. 

But, what if you have existing accounts receivable?  Do you just write them off, entirely?  Now, while it rarely makes sense to sue your clients for unpaid legal bills – there are a whole host of things you can do short of that, which may help you to recoup (at least, some) of your billing.  And, as with most things related to business management, it starts with a process – that you likely don’t have now.  So, the very first thing you can do is followup with folks who have unpaid invoices.  Build up a strategy, same as you would for trying to get someone to book an initial consultation with you: set up a followup schedule, and use different methods to reach out to people.  And, as you would also do with a followup schedule related to lead management, determine when you’re going to stop wasting your time, on someone who won’t pay you and won’t communicate.  At that point, you can refer that person to collections, if you’re willing to pay for and utilize a service like that.  But, if you do get someone who picks up your call, or answers your text – and, there is a willingness to pay . . . but, not the full amount: be prepared to have the conversation about a payment plan.  And, if that option is available: make sure you automate electronic payments – rather than waiting for another check to come in, that won’t. 

 

Of course, the best possible solution to managing accounts receivable, is not to.  Try to take payments in advance, where possible; or, utilize flat fees, subscriptions or other alternative payment models; try to tie payments to points in time before action needs to be taken on a case, to align motivations properly.  And, always: take electronic payments, automating the payment motion, when you can. 

 

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If your law firm finances are tangled up in blue, we can help to undo the mess. 

Through a unique partnership between the bar association and Jared Correia's Red Cave Law Firm Consulting, National Creditors' Bar Association members have access to experienced law practice management consultants at a special discount rate.

To get started, visit Red Cave's NCBA landing page, and start running your law practice like a business.