CLEANING: GETTING RID OF ACCOUNTS RECEIVABLE PROBLEMS
problems do not exist in vacuum. You do not have a good client one day and
then suddenly "poof" he/she turns into a deadbeat. Clients who
pay regularly start when you make a decision about what clients to take,
your fee agreement, your communication with the client and your billing
process. Listed below are some tips that you can start to use if you want
to improve some of the problems that you have collecting some of your
accounts receivable. If you begin to use some of these techniques and
continue with them, you can improve your collections and cash flow. These
tips will work regardless of whether you are a solo or in a small firm.
Unfortunately even when we do everything right , we still have a
problem collecting a fee. You must be diligent when dealing with your
accounts receivable. You must make certain that you review your aged a/r
on a weekly basis. In small firms, everyone should understand the
importance of collecting the accounts receivable.
As with billing, time is of the essence. Statistics show that an
invoice over 60 days has only a 70% chance of being collected in full.
After 90 days the chance of collecting the invoice in full drops to 45 %
and after 120 days, it falls to 20%.
All firms should be using one of the time and billing products
available for solo and small firms. Learn about the reports that are
available and use them. You should be able to generate the following
information from your time and billing system on all of your clients and
you should review this information regularly:
1. How much each client owes you in total and on each separate matter
2. How much has been billed to date
3. What is total work in progress and how old is the work in progress
4. How much work remains to be done on this matter/client
5. What is the payment history of this client
6. Your fee agreement with the client
7. Other factors such as whether or not the client is a fantastic
referral source or is the brother-in-law of the president of your best
COLLECTION TIPS AND
Concentrate your efforts on your current clients.
We all have clients and former clients that we have allowed to get
too far behind. We should not allow our past errors to prevent us from
making certain that we allow our current clients to get too far behind
Develop a collection policy.
The policy should be simple to administer and enforce. It should
address what should be done when a client goes past 30 days, 60 days and
90 days. For 90 - 95% of the cases, the process should be automatic. It
can be a simple as sending a letter after 30 days to determine if there
is a problem or having an office manager contact a client. Keep in mind
that you may have to have two separate policies - one for new or current
clients and one for clients that have serious a/r problems. It is
unrealistic to think that if a client has been a problem for some time
that simply putting in a new policy will get the client to pay more
Consider taking something for old a/r if you can get cash in the door
If an a/r is over 6 - 12 months old, it is unlikely you are going to
collect anywhere near 100%. Consider 50% if the client agrees to pay
Communicate with clients.
Do not avoid discussing collection of fees with clients. If you are
providing quality legal services and are charging a fair and reasonable
fee, you should be paid for those services. If you choose for whatever
reason, to do the work pro bono, then the decision should be yours and
not the client's.
Contact Clients When They are Late Paying
Have someone in your firm or if necessary a part-time person hired
just for collection to contact clients when payment is past 30 days or
when they do not live up to a payment arrangement. Follow up is the key.
If the client knows they are going to be called they are more likely to
live up to their obligations.
When Phoning for Payment, Make Certain You Contact the Person Who Can
Regardless of who in your office does the phone or mail contact, make
certain you talk to the right person. It is no good to talk to someone
who has no authority to approve payment. This will slow the process.
Stop Work if Clients Do Not Live Up to The Fee Agreement
If you monitor your a/r regularly, you will catch payment problems
early enough to withdraw from representation.
Consider Taking Credit Cards
The Maryland State Bar Association has a plan with Bank Of America for
acceptance of credit cards. For more information, contact Bank Of America at
800-526-8286 and tell them you are a member of the MSBA and you want
information about accepting credit cards.
Consider giving a discount for paying with 15-30 days
This will speed up cash flow if that is an issue.
Depending on the Client, Find Out When They Cut Their Checks
This works more for business clients than for individuals. Some
businesses cut checks on the same day every month. If you can find out
that date, make certain that your invoices are mailed to coincide with
If You Agree to a Discount, get a Quid Pro Quo.
If you agree to discount an invoice to get quick payment, consider
saying something like you will agree to reduce it by $75.00 if payment
is made immediately.
Consider Hiring a Part Time Person to Monitor Your A/R.
This person's sole responsibility will be to contact clients. He/She
will meet with you to discuss problems and then given the task of
contact all clients with collection problems. This will be money well
Consider Handwritten Notes on Invoices to Speed Collection
This may work to "embarrass" clients into paying the invoices
Monitor Your A/R Weekly. Age Your A/R Monthly.
Today's time and billing systems make it very easy to run an accounts
receivable weekly and to age it monthly. This will allow you catch
Monitor Collections and Deposits Daily
Know which clients have promised to pay and when. You can use MS
Outlook to keep an automatic list of when payments are due. Enter
the information and the date the payment is due and it will remind you
on that date.
If You Have Employees Make Certain They Know Your Collection Policy
Employees are fully aware of those clients who do not pay. It is very
important that all your employees know your policy and your firm's
commitment to it.
Good management of our firms will result in quality service and
satisfied clients who will value your effort and be willing to pay you for