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 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, all within the allotted time, in order to achieve the partners’ highest score by meeting or exceeding financial expectations. While others may follow slightly different
recipes, I’ve had many successes cooking with this one. Bon appetite!
Step 1. Preheat your firm, keeping the temperate at low during the first quarter of the year. This is prep time. Gather your ingredients. Make your plan.
a. Everyone – partners and clients alike – are tired from the just-concluded Push. Any attempt to whip them into action at this stage is likely to flop. However, don’t hesitate to encourage partners to revisit ongoing clients who promised to pay up before year-end, but didn’t.
b. Distribute a month-by-month budget for billable hours, billable hour value, fee billing and fee collections. The purpose is to set benchmarks to make sure the firm produces sufficient billable work, at appropriate rates, to generate invoices for accounts receivable needed for collecting throughout the year to cover expenses plus partner compensation. Set stretch-but-realistic monthly goals. For example, if the firm historically records 15% of its billing for the year by the end of March and 35% by the end of June, push those numbers to 17% and 38%. Do the same for collections. The key is to shift billing
and collection targets earlier to lessen the dependence on December results. Your hours-BHV-billing-fee collection targets are your timetable as the clock ticks down to close of business on December 31st.
c. After a brief respite in January/February, vigorously process invoices and pursue collections monthly until done.
Step 2. Gently begin to stir things up in the second quarter.
a. Produce reports; talk to everyone; repeat. Which clients are falling behind early? What partners are slow to get back into top billing form? Lawyers and magicians are masters of misdirection. Make sure your reports lead with the 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 clients who are not billing/collection concerns, while glossing over problematic ones.
b. No Iron Chef cooks alone. You don’t do it all yourself. Good sous chef candidates are your managing partner or a billing/collection champion who can spur others to follow by example.
c. Employ a food processor or pressure cooker to save time. Group therapy sessions on Saturday mornings – with everyone explaining peer- to-peer why something can’t be billed right now or won’t be collected until – are enlightening. Peer pressure is a highly motivating tool.
Step 3. By the third quarter it is time to heat things up.
a. 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.
b. By this time, 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.”
c. Watch the clock. Verbal assurances should ring hollow. Payment plans for problem clients may be in order. In egregious situations, recommend an increased retainer or possibly “firing the client,” if permissible. While individual partners tend to believe in their client’s ability to eventually pay, major credit issues are best decided by the firm.
Step 4. By the time the fourth quarter rolls around, every oven/every burner should be red hot; everything falling into place.
a. Blend in the Push. Gently at first, starting no later than October 1st. Increase speed as time goes by; whip vigorously from Thanksgiving through year-end.
b. Avoid temptation to over-season things. Discounts to encourage former clients to pay-up before year end are not bad per se and are particularly helpful with old receivables due from deadbeat clients. However, use sparingly with clients you continue to represent.
c. Bring problems to a boil early. Certain users of legal services (insurance companies come to mind) know a 25% discount 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 may create a bitter taste.
d. 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 the 15th. 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.
e. Countdown to the bell. Whether your firm uses a thermometer drawing or quantum mechanics to illustrate the gap between current collections and the stated goal, the important thing is that everyone in the kitchen (firm) knows how much is still to be accomplished and how much time is left, down to the very last second. When the bell rings – whether on December 31st or December 27th – the end is the end and judging period is closed.