Whether you employ flat-fee or hourly billing, getting clients to pay on time is key to running a financially healthy firm. But getting clients to pay isn’t easy. Outstanding invoices may hurt firms financially, result in hidden costs, and risk damaging relationships with clients.
To help law firms improve their collections processes, we teamed up with law firm financial expert, Chelsea Williams of Core Solutions Group to create a sample collections workflow. The workflow is a Word document you can customize with email templates, phone scripts and a sample billing timeline to help you respectfully and efficiently collect from clients.
It's easy to see the benefit of collecting on accounts receivable that your firm otherwise wouldn't collect. If you improve your processes, and your collection rate goes from 75% to 85%, that's more revenue and more profit for your firm. But what's less obvious is the impact of collecting faster.
Let's say your firm has $50,000 in accounts receivable, and you typically collect that on average in thirty days. What would be the impact of improving your collections process and reducing your average collection time down to fifteen days? Either way, you are gaining $50,000 in revenue, right?
The difference between profit and cash is an important distinction and one that can cause problems that sneak up on businesses owners. Issues like missed payroll, low distributions and an inability to reinvest in the business may not be profitability problems. Many profitable businesses have gone under because they ran out of cash. To learn more about the impact of collection times on your firm's financials, see the Real Cost of Accounts Receivable.