A law firm – like any business – requires many separate processes to work well together to create success. At the foundation of the entire firm is the legal work. You have to provide services to clients to earn money and keep clients coming in the door.
But in order to even provide legal work and keep the law firm afloat you need something else: Cash.
So of all the processes and components in a working law firm, one piece that lawyers and support staff alike should be committed to solving is collecting the cash you’ve earned.
But studies show Accounts Receivable (AR) is a challenge for many law firms.
Law firms are reporting clients are consistently past due. Past due clients then lead to wasted time in chasing after money and trying to keep track of who has and has not paid. And even when tracking is there, nobody on the staff wants to have those hard conversations about money.
Of the many processes in a law firm, AR is one that has potentially the most frustration but the most potential. If a process is keeping money out of your firm plus causing tremendous headache, it’s probably worth finding a better way.
As Jared Correia says at the Lawyerist, For most (law firms), accounts receivable are a money pit. Lawyers often don’t know how much they’re owed, or when it’s due. If there is a system in place, it functions to move unpaid billings forward, which, when piled up, become increasingly less likely ever to be paid.
Law firms need to think differently about accounts receivable and collections. Sure, nobody likes collections. But what if there was a way to get paid quickly, effortlessly and predictably?
The following is what an ideal AR process looks like and the three pillars to executing it.
1. Make it Easy to Get Paid
Keeping this extremely simple, a perfect system for AR involves getting paid, quickly. Waiting on cash has major negative impacts on a law firm. The best time to get paid is right away when the work is fresh in everyone’s mind.
In order to get the money quickly, you need to make it easy for the client. By eliminating paper checks and providing electronic options for payment you are giving clients a simple easy way to get money to you.
This is a win-win because not only are you getting money faster, you are also providing a better experience for your clients who are used to making electronic payments.
By eliminating paper and moving to an electronic AR process, you are also able to keep strong visibility in your money due to come in. If you aren’t able to get paid right away, it’s essential to know who owes you and give quick reminders, because the longer an invoice goes past due, the harder it’s going to be to collect.
When you have visibility you can close the gaps, get the cash in get receipts out and spend less time thinking about AR.
2. Stay Compliant in your AR Process
While getting paid is the most important piece of AR, there is a right and a wrong way to do it. With the emergence of technology also comes an entire litany of rules to think about.
Your payment processing needs to be PCI compliant and provide the necessary security for someone to trust you with their credit card.
There are also significant implications to accepting trust account payments. The easiest way to think about it is when you receive a retainer from a client for work you have not performed yet – the money is not yours.
So the money goes into an IOLTA account, and is only transferred to operating when it’s been earned.
So your payment processing needs to have a way to send trust payments directly to trust accounts. If trust money goes into operating, you are at a major risk for a violation that could lead to disbarment.
3. Save Time with an Efficient AR Process
If you can dramatically reduce AR and bring that money into your law firm, you’re making a huge step forward for the health of the business of your firm. But if it requires significant hours of your time and your staff’s time, you’re not really gaining ground.
The ideal AR process is one where you are able to focus on the legal work and serving clients well, while payments are handled on autopilot.
The more you can automate tasks related to collections, the more you can put cashflow back into the business, and spend your time on high level tasks.
At Headnote we are striving to build the perfect AR process for law firms. With our platform you can automate AR tasks, collect payments securely and spend minimal time getting into the weeds.
If your law firm is wasting time with AR or failing to collect everything you should, we invite you to schedule a quick demo and we can walk through how Headnote serves law firms to provide the ideal AR process.