Last-minute bills: firms are losing sight of four key steps to securing and managing business

It can take months to win a client and seconds to lose one. This is a mantra that has been drilled in to me over many years in a client facing, competitive and fast moving sales and service environment. It’s also one that should have greater focus and profile in traditional law firms, but has that ethos been translated yet, especially given the competitive market and changing landscape legal services providers now finds themselves in?

Matter generation is the first element of the billing cycle. This aspect is vitally important as
it is the lifeblood of any law firm. Although no single element of the billing cycle has greater importance than the other, matter generation
is where it all begins.

A large number of firms are good at generating business and ensuring the first-touch client experience secures the work. Unfortunately, experience suggests that for many the creation
of a sales-style culture is still some way off, if it is seen as a priority at all.

Generating a sufficient volume of quality work has always been a challenge. I have witnessed thousands of pounds spent on marketing, promotions, entertaining and networking events, all designed to generate new clients and additional work. This is of course all well and good, but how many firms can place a value of clients and/or work gained against the value of pounds spent? What return on investment do you target as a business?
Is it 3:1, 1:4 or is it measured at all? I would want to know what return I’d be getting.

Missed in-house opportunities

Before spending any money on grandiose marketing plans or lavish promotions to attract clients, how many firms have truly tapped the potential within the firm first? Most firms have an extensive database of clients they have acted for, often on a transactional basis, i.e. one service/product/interaction. Has an opportunity
been missed?

For example, is every house sale or purchase client offered the chance to speak to your wills and probate team? A property transaction almost certainly changes the wealth dynamic for a client, so a review would be the best advice to give under client care. It could be argued that not to at least offer advice is negligent.

Think about how seldom wills, sitting in vaults across the country, are reviewed. There must
be thousands all over the UK that are now out
of date or been succeeded elsewhere. How many firms monitor this type of information and continually engage with their clients?

It’s possible to draw a link between every
aspect of client needs with a service that a
multi-disciplined firm offers. Unlock the potential within and get a balance between generating new clients and keeping existing ones on board.

Matter generation is just the beginning. Converting it into work in progress quickly at a
cost or value that works for the client and firm
is stage two.

Pricing-model evolution

There is no point in giving work away, or discounting a fee just to secure it. Assess the value to both client and firm and don’t forget that it’s not always about price. Pricing has evolved and many firms have yet to adapt to more modern thinking. Clients today want value. They want to feel like they are paying for something that will achieve the outcome they desire even though that may not always be possible.

Know and assess the client. Do they have the ability to pay the likely costs incurred with their case? Think about how robustly client risks are assessed, as this has a direct bearing on the ability of the business to release capital lock up and avoid bad and doubtful debts.

Work in progress (WIP) is a business asset, a balance sheet item and a litmus test of what billing is likely to be in the short and medium term. Managing WIP in the billing cycle is often seen as unimportant. It isn't.

Converting WIP into billed and ultimately cash is critical and how it is managed has a direct impact on billing and cash flow, from simple matters to more lengthy cases. It’s important to identify what can be billed, what can’t and what has to be written off. The latter, if not managed carefully, has the potential to destroy balance sheet or asset value of the business.

Getting pricing right, engaging in regular communication to the client, managingtime spent on a fixed fee matter to avoid excessive write off, and ensuring WIP is billed often and quickly are all best behaviours in managing this stage of the cycle. Interim billing on protracted matters with a regular update to the client on cost/progress is also recommended. This avoids payment shock : a large bill arriving after many months of what is often a traumatic time for the client.

The matter billed is the third element of the cycle and should be relatively straightforward, if stage two around WIP management has been robust and diligent. It becomes slightly muddy if bills are rendered at the wrong time or prior to a matter reaching a conclusion.

In fact, billing, which is the method most firms use to determine a fee earner’s performance or worth, is potentially open to abuse. But is that recognised? And how big an issue is it? This only really comes to light when it comes to payment.

Billed or paid?

I have seen fee earners with outstanding billing performance yet very poor debtor recovery rates, which begs the question of what is a better measure: fees billed or bills paid?

One of my first questions when I start working with a firm on performance management is to review fee-earner billing levels. When I am told X billed over £300k last year, my response would be “fantastic”, but I would question what his aged-debtor list looks like.

Billing is not a month-end sport and should not be left to squeeze as much on the clock as possible. Consider the impact this has on your clients, not to mention the accounts team. Staged or staggered billing points throughout the month helps workflows through the firm and improves and flattens cash flow. So don’t leave it to the last minute.

Robust cash collection and debtor management is the final stage on our billing cycle.

Each of the four elements of the
cycle are dependent on each other
and the importance cannot be underestimated when looking at how much capital is locked up, either in WIP
or outstanding bills.

Robust debt collection and managing clients who owe money is somehow a difficult concept for many solicitors. Despite the fact that they largely argue for a living,most lawyers don’t seem comfortable in asking clients to pay them.

Cash is king

Converting bills into cash collected is the sharp end of the transaction and it’s what makes businesses successful. Cash will always be king whatever the business,
and the law is no exception.

Regular reviews of the aged-debtor book are a must. Monitor how much capital is being locked up through non-payment and having to be replaced by use of overdraft or working capital funding. Consider the additional cost of essentially being a bank for clients, and think about how many firms charge interest on overdue debts outside payment terms.

The billing cycle needs to be at the forefront of every law firm. Consider
how well staff, especially fee earners, fully understand its processes and how these impact income, balance sheet growth, profit and investment.

Improving financial performance is a relentless and continual review of people and processes. It’s a culture shift for many, and if it isn’t already embedded in the business, it’s likely to be a bumpy ride.

All too often the elephant in the room at partner and board meetings is financial performance or, rather, underperformance. If left unaddressed, it will destroy value, create a reputational risk and foster resentment among peers.

Manage the billing cycle and you will see the improvements it will make to financial performance. 

POCKET NOTES Matter generation: create the right client experience from the outset. It can take months to win a client but seconds to lose one so the first impression of the firm and the individual will be critical. Unlock the potential within and consider how well various practice areas work together to create a one stop shop for clients as opposed to a one transaction and goodbye strategy. Work in progress: right price, right communication, efficiently managed and regularly reviewed. If there is WIP in excess of 90 days, ask why. Bill what can be billed quickly, assess cost, time value as a whole and do not carry excessive WIP that cannot be converted into costs billed. Billing: don’t leave it to the last few days of each month; if it can be billed then bill it. Ensure that the client is aware of the extent of the bill, understands the payment terms and has the means to pay within the terms agreed. Every month, regularly review the aged-debtor lists and take action on aged debts outside of any agreed terms. Cash collected: cash is king. Stages one, two or three count for nothing in the cycle if bills don’t get paid, so it’s vital that there are clear terms for payment, consequences in the event of non-payment, and that the process is adhered to a ‘no friends’ exceptions rule. Don’t be afraid to charge penalty interest on overdue debts. It’s incredible how quickly bills get paid once this is discussed.

 

Tony Brown runs AGB Legal, a consultancy dedicated to improving law firm performance. He is a former CEO with a multi-disciplined regional law firm that gained one of the first 50 ABS licences

www.agblegal.co.uk