According to a survey by LexisNexis, 73% of law firms report having past due accounts. Lawyers in small firms reported that up to 39% of their total client base is past due.
What causes this? And what can be done about it?
More than 80% of the law firms surveyed said that client financial hardship was the biggest cause. This suggests that the best way to reduce past due accounts is through better client selection. If you refuse to accept clients who are having financial issues, you will eliminate the number one reason clients fall behind.
Make sure clients have the ability to pay you before you do any work. Ask them to submit a financial statement before you accept them as a client.
This is not always possible of course, and financial statements don’t always reflect reality, so in addition, make sure you get a sufficient retainer at the time of the engagement, and make sure this is replenished when it falls below a certain threshold. You can also request collateral and personal guarantees, and get set up to accept credit cards and other financing arrangements.
Next, make sure that you bill promptly and frequently. A delay in billing is one of the biggest factors in clients’ falling behind. If you want to get paid on time, send a detailed invoice no less than every 30 days.
Finally, if you want to avoid large unpaid receivables and write offs, make sure you have procedures in place for addressing late payments immediately after they occur. Don’t let a small unpaid balance become a big one.
These three strategies, better client selection, sufficient retainers, and prompt and frequent billing, should help you eliminate 80% or more of your billing and collection problems and increase your cash flow. For more strategies, get my ebook, Get the Check: Stress-Free Legal Billing and Collection, as a PDF or on Kindle.
