Wednesday, February 1, 2012

A Recipe for Billing/Collection Success


 

From:
Mike Marget
Sent:
February 1, 2012
To:
Billing & Collection Committee
Cc:
Management Committee
Subject:
A Recipe for Billing/Collection Success
Attachments:
[None]

Most partners believe the secret ingredient to the law firm’s financial success is the frenetic, all-hands-on-deck commitment to the year-end billing and collection effort. This exercise, often dubbed “the Push,” commences sometime in the fourth quarter, focusing first on deferred billing, then shifting into high gear with “plea bargaining” – a series of phone calls between partners (pleading to get paid before year-end) and clients (bargaining for discounts in return). While this drama plays out annually in nearly every law firm, over-reliance upon the Push can easily become a Recipe for Disappointment.

Inspired by the television series Iron Chef America, the following is my Recipe for Billing/Collection Success. On the TV show, celebrity chefs prepare five dishes, within 60 minutes, to impress the palates of a panel of judges. In the business of law, the law firm manager similarly makes use of an assortment of ingredients, various cooking techniques, copious planning and careful preparation to blend everything together just right and within the allotted time, in order to achieve the partners’ highest score – i.e., by meeting or exceeding financial expectations. While others may espouse slightly different culinary techniques, I've had many successes cooking with the following recipe. Good luck and bon appetite!

Step 1. Preheat your firm. Keep the temperature low during the first quarter of the year. This is prep time. Gather your ingredients. Make your plan.

·         Everyone-- partners and clients alike -- are tired from the the just concluded year-end collection frenzy. Any attempt to whip them into action at this stage is likely to flop. However, don't hesitate to encourage partners to revisit continuing clients who promised certain payments before year-end which did not materialize.

·         Use this time frame to distribute month-by-month budgets for billable hours, billable hour value, fee billing and fee collections. The purpose is to set benchmarks to ensure the firm produces sufficient billable work at appropriate rates, to generate invoices throughout the year for collection. Set stretch-but-realistic monthly goals. For example, if your firm historically records 15% of its billing for the end by the end of March and 35% by the end of June -- push those numbers up to 17% and 38%. Do the same for collections. With luck, these slightly more aggressive projections will lessen the dependence upon last minute/December results. These targets are your timetable/benchmarks as the clock ticks down throughout the year.

·         After this brief respite in January and February, begin vigorously processing invoices and pursue collections every month until done.
 
Step 2. Gently begin to stir things up in the second quarter.

·         Produce reports; talk to everyone; repeat. Which clients are falling behind early? Which partners are slow to get back into top billing form? Never forget magicians and lawyers are masters of misdirection. Make sure your reports lead with issues you wish to discuss first. Use Crystal Reports or Excel spreadsheets to reorder your typical billing/collection aging data. Separate contents into Category 1 concerns, Category 2 concerns, and so forth. Don’t give your partners opportunities to filibuster about on-track clients while glossing over the problematic ones.

·         No Iron Chef cooks alone. You can’t do it all by yourself. Good sous chef candidates are your managing partner or a billing/collection champion who can spur others to follow by example.

·         Employ a food processor or pressure cooker to save time. Group therapy sessions on Saturday mornings can be helpful and enlightening – with everyone explaining peer-to-peer why something can’t be billed right now or won’t be collected until…. Peer pressure is a highly motivating tool.

Step 3. By the third quarter it is time to really heat things up.

·         Break a few eggs, as needed. Not every good lawyer is good at billing and collecting. Step in (or have the firm step in) as appropriate. Get authorization to have a staff member contact the client’s Accounts Payable department. If the invoice is scheduled to be paid by week’s end, no call to the General Counsel is necessary. On the other hand, if AP doesn’t have the invoice, it may be lost on the GC’s desk or the GC may have a problem with the bill -- either way, this is useful information if gleaned early and a follow-up call by partner is in order.

·         By this date it is important to confirm clients with numerous outstanding invoices actually have them in hand. Send reminder statements detailing all outstanding invoices. A client can’t pay an invoice that was “lost in the mail.”

·         Watch the clock. Verbal assurances should ring hollow. Payment plans for problem clients should be considered. In egregious situations, recommend an increased retainer or possibly “firing the client,” if permissible. While individual partners tend to believe steadfastly in their clients’ ability to eventually pay, major credit issues are best decided collectively by the firm.

Step 4. By the time the fourth quarter rolls around, every oven/every burner should be red hot; all the fixings falling into place.

·         Blend in the Push. Gently at first, start in late September/early October. Increase speed as time goes by; whip vigorously from Thanksgiving through year-end.

·         Avoid temptation to over-season things. Discounts to encourage former clients to pay-up before year end are not bad per se and can be particularly helpful to squeeze juice from deadbeat clients. However, use sparingly with clients you intend to continue to representing.

·         Bring problems to an early boil. Certain users of legal services (insurance companies come to mind) know big, big discounts on outstanding fees is more likely to be negotiated in December than September. Address collection issues as early as possible; letting things simmer for too long creates a bitter taste all around.

·         Keep track of "the clock" and know the status of each dish. Get amounts and dates certain as to when payments will arrive – e.g., a check for $10,000 will come via FedEx on Monday; 50% of the amount due will be wired on Wednesday and the balance on arriving five days later. Follow up is essential. If the funds do not materialize, notify the billing partner who should contact the client promptly and get back to you with new information.

·         Countdown to the bell. Whether your firm uses a drawing of a mercury thermometer or quantum mechanics to illustrate the gap between current collections and the year-end target, the important thing is that everyone in the kitchen (firm) knows how much is still to be accomplished and how much time remains. When the final bell rings – whether on December 31 or December 37 – the end is the end.

After all of the work in the kitchen, the chef has earned a fine bottle of wine – or something stronger if you prefer. Be sure tip the waiters with praise (if not cash) -- i.e., your accounting staff and the secretaries who interface with partners and clients on your behalf.

But all the work is not end. A good chef supervises the clean-up. Write-off the bad stuff and get rid of bad clients. If something wasn’t collectible last year and is bad, you don’t want to mix that produce in with next year’s ingredients.

After the cleanup you can begin planning the next meal – a 12-course menu for the year already underway. Make note of what went well with last year’s recipe and make adjustments as appropriate. Then, you too will be able to say, “Allez Cuisine!”

For the record, I'm not a cook, but am a frequent viewer of Food Network and Cooking Channel programming on those evenings when my spouse has control over the remote. mrm

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