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

Wise Words on Taxes and Money

Parsley Sage Rosemary & Ginsburg llp

“always a reasonable result for a reasonable fee, always”

MEMORANDUM

To:	All Partners
From:	Mike Marget
Date:	January 31, 2012
Re:	Your 2011 K-1s needed for your personal tax return

Your K-1s for 2011 should be distributed by the end of the day.  Should you have any questions concerning the numbers reported on your K-1, do not hesitate to contact me.

In the meantime, the following are some inspirational thoughts on the subject of taxation and money:

“The hardest thing in the world to understand is the income tax.”  Albert Einstein

“Taxes are the price we pay for a civilized country.”  Oliver Wendell Holmes

“The only thing that hurts more than paying an income tax is not having to pay an income tax.”  Lord Thomas R. Dewar

“Unquestionably, there is progress.  The average American now pays out twice as much in taxes as he formerly got in wages.”  H. L. Mencken

“Of life’s two certainties, taxes is the only one for which you can obtain an automatic extension.”  Anonymous

“Income tax returns are the most imaginative fiction being written today.”  Herman Wouk

“The avoidance of taxes is the only intellectual pursuit that carries any reward.”  John Maynard Keynes

“The income tax has made more liars out of the American people than golf has.”  Will Rogers

“The best measure of a man’s honesty isn’t his income tax return.  It’s the zero adjust on his bathroom scale.”  Arthur C. Clarke

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”  B. Franklin

“On my income tax 1040 it says ‘Check this box if you are blind.’  I wanted to put a check mark about three inches away.”  Tom Lehrer

“There’s always somebody who is paid too much, and taxed too little – and it’s always somebody else.”  Cullen Hightower

“Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.”  F. J. Raymond

“Death and taxes and childbirth!  There’s never a convenient time for any of them!”  Margaret Mitchell

“Of all debts, men are least willing to pay taxes.  What a satire is this on government!” 

Ralph Waldo Emerson

“Another difference between death and taxes is that death is occasionally painless.”  Anonymous

“If those [taxes] laid on by the government were the only ones we had to pay, we might be more easily discharge the, but we have many others….  We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly.”  B. Franklin

“Look, we play the Star Spangled Banner before every game.  You want us to pay income taxes, too?”  Bill Veeck, former owner of the Chicago White Sox

“I’m proud to be paying taxes in the United States.  The only thing is I could be just as proud for half the money.”  Arthur Godfrey

“I see a good deal of talk from Washington about lowering taxes.  I hope they do get ‘em lowered enough so people can afford to pay ‘me.”  Will Rogers

“It is the duty of a good shepherd to shear his sheep, not to skin them.”

Tiberius Caesar

“The difference between tax avoidance and tax evasion is the thickness of a prison cell.”

Denis Healey

“Only little people pay taxes.”  Leona Helmsley

“The taxpayer.  That’s someone who works for the federal government, but doesn’t have to take a civil service examination.”  Ronald Reagan

“I make a fortune from criticizing the policy of the government, and then hand it over to government in taxes to keep it going.  George Bernard Shaw

“And it came to pass in those days, that there went out a decree from Caesar Augustus, that the entire world should be taxed.”  St. Luke 2:1

“Rich bachelors should be heavily taxed.  It is not fair that some men should be happier than others.”  Oscar Wilde

“He who builds a better mousetrap these days runs into material shortages, patent-infringement suits, work stoppages, collusive bidding, discount discrimination and taxes.”  H.E. Martz

“If you want to know what God thinks of money, just look at the people he gives it to.”

Dorothy Parker

“I’m living so far beyond my income that we may almost be said to be living apart.” 

e.e. cummings

“If you count your money, you don’t have billions.”  J. Paul Getty

“The IRS spends God knows how much of your tax money on these toll-free information hot lines staffed by IRS employees whose idea of a dynamic tax tip is that you should print neatly.  If you ask them a real tax question, such as how you can heat, they’re worthless.  So, for guidance, you want to look to big business.  Big business never pays a nickel in taxes, according to Ralph Nader, who represents a big consumer organization that never pays a nickel in taxes….”  Dave Barry

“I owe the government $3,400 in taxes.  So I sent them two hammers and a toilet seat.”

Michael McShane

“The wages of sin are death, but by the time taxes are taken out, it’s just sort of a tired feeling.”  Paula Poundstone

“Civil servants and priests, soldiers and ballet-dances, schoolmasters and police constables, Greek museums and Gothic steeples, civil list and services list – the common seed within which all these fabulous beings slumber in embryo is taxation.”  Karl Marx

“The Florida Lottery:  A tax on people who are bad at math.”  Anonymous

“There is one difference between a tax collector and a taxidermist – the taxidermist leaves the hide.”  Mortimer Caplan

“To please universally was the object of his life; but to tax and to please, no more than to love and to be wise, is not given to men.”  Edmund Burke

“The American colonies, all know, were greatly opposed to taxation without representation.  They were also, a less celebrated quality, equally opposed to taxation with representation.”

John Kenneth Galbraith

"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
Jean Baptiste Colbert, mister of finance to Louis XIV

“If you drive a car, I’ll tax the street,

If you try to sit, I’ll tax your seat,
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet,
Don’t ask me what I want it for
If you don’t want to pay some more
‘Cause I’m the taxman, yeah, I’m the tax man”
            The Beatles, Taxman