Partners are often responsive because their draw is dependent on what they accumulate, says Jonathan San Solo, director at business advisory and accounting services provider Citrin Cooperman.
“They’re going to beg, borrow and steal to get as much cash in the door as they can,” San Solo says. “We see that in pretty much all the law firms we work with — and those range from $10 million in revenue to $500 million into the Am Law 100. It’s certainly a common practice we recommend against.”
An end-of-the-year push for payment can strain attorneys’ time, he says, resulting in invoicing mistakes. Clients may feel agreeing to pay by December 31 gives them the bargaining power to negotiate a 10 to 20% discount, costing the firm money.
Other tensions could also arise, according to Brooke Lively, founder of law firm consultancy Scaling Law and fractional CFO service provider CathCap. Lively suggests law firms instead institute processes to ensure they receive consistent payment year-round.
“There is not a client on Earth who wants to get hit with a big bill at Christmas,” she says. “Any privately held company, there is an owner [saying], ‘Man, that’s a big bill from an attorney; that can cut into what I can spend on my family.’ That doesn’t do anything good for your relationship with them.”
Supporting Seamless Payment
To align expectations, numerous law firms outline specific billing payment terms in their client engagement letters, according to Rocco Marotti, partner and leader of accounting firm CohnReznick’s law firm practice.
“Sending an invoice on November 30th and expecting it to be paid 30 days later is, in today’s economic environment, very hard for clients to swallow,” Marotti says.
Some firms, to maximize their realization rate, have invested in finance and accounting talent and enterprise resource planning (ERP) systems that enable procedures such as batch billing, according to San Solo.
“Systems now can generate bills effortlessly,” he says. “It’s not just one [administrator] doing all the billing for the entire firm. On a set day every month, bills are created and pushed out to clients, as opposed to all different times of the month.”
Wire transfers, law firm banking software cash processing capabilities and credit card processing, San Solo says, can further facilitate payment.
On a set day every month, bills are created and pushed out to clients, as opposed to all different times of the month.
Clients should provide both credit card and bank account information so firms have a backup; the fee agreement might say the firm is authorized to charge clients’ preferred payment method if they haven’t disputed their bill within 10 days of receiving it, according to Lively.
“Our clients send invoices on the first [of the month],” Lively says. “They charge their clients’ credit cards on the tenth. All the money is in the bank on the twelfth.”
Averting Unexpected Losses
Large firms with robust practice management software can use it to easily cull metrics — such as how many days items are outstanding and whether fees or expenses are involved — for weekly or biweekly client payment tracking. Some smaller firms, Marotti says, utilize tools such as QuickBooks and print their accounts receivable ledger once a month for the managing partner to review.
If sending invoices and monitoring payment status is a time-consuming struggle for firm members, obtaining upfront retainers might help.
