How Law Firms Can Get Paid Faster and Stop Acting Like Their Clients Banker
We sympathize with our clients during challenging times, so as “great” service providers we often let our clients pay us when they can or we collect in drips and drabs to help their cash flow.
Unfortunately, with these clients, our services are more likely to be needed with urgency and urgent work often comes at a higher cost to the firm.
The fact is, if we were in a conference breakout session and asked the room of partners or firm administrators to raise their hand if a client had ever asked them for a payment plan, I guarantee every hand would raise. This of course isn’t about every client we have, but it happens often enough to drive the average accounts receivable for the industry beyond 60 days when all other industries (including the industries your clients are in) enjoy an average of 45 days. Basically, on paper, your clients are getting a 15-day float at the firm’s expense.
Now let me ask you this: Say your client came to you and said, “I have a handful of customers that just never pay me on time. I hear every excuse under the sun and it’s costing me time, money, and energy to get these customers to pay their outstanding balances!”
What would your advice to that client be? Would you tell them to just put up with it? Would you advise them that as long as their larger clients pay on time, it doesn’t matter? OR … would you advise them to place proper value on their own work and inform their bad-apple clients that things need to change?
I’m sure you see where I’m going with this. What’s good for the goose is good for the gander! So, why don’t CPA firms address this very real challenge in their own businesses?
Over the years, I’ve spoken with thousands of firm partners and many were sick of the status quo and admitted what’s really happening:
- Fear of losing clients: “Partners are too scared to stand up to our clients. We accrue interest on overdue bills, but we write it off 99 percent of the time.”
- Lack of communication: “Usually the partners just start working without discussing fees, and the clients are surprised by how much the bill is and they can’t afford to pay us right away.”
- Complacency: “The partners don’t really like change, so this is just how we do things.”
What’s a firm to do? As there are tools making it easier for preparing and delivering tax returns, there are new products that make it easier to get paid. For example:
- Underutilized firm management and billing software features. Often firms aren’t utilizing all the features available to them through their existing practice management solutions. For example, many practice management solutions allow firms to email invoices, statements, and reminders to clients. Sending regular reminders to clients with outstanding invoices is a proven way to get paid faster! If security is a concern, use an integrated document manager allowing you to upload invoices, statements, and reminders to a secure portal making it easy for clients to access their information immediately.
- Online payments. When it’s time for clients to pay, make the process as quick and simple as possible. Add a link on invoices pointing to your firm’s payment portal, which can be set up in mere days. Generally, payment portals accept credit cards, some accept ACH, but only one provides a unique third option detailed below. Utilizing an online payment portal will improve your A/R process by reducing administrative time and the days it takes to get paid as clients are less likely to procrastinate when you make it easy.
- Fee financing. Fee Financing has just started to take off in the United States with accounting firms but has been popular for years in other countries such as the United Kingdom and Australia. Fee Financing is simply a loan provided to your clients so fees are paid to you immediately, while clients pay off the balance over monthly installments (think Medical Finance or Insurance Premium Funding). This solution ensures the firm doesn’t need to act as a bank for clients and provides clients with the value-add of additional time to pay large invoices and balances. Fee financing provides an edge by cutting A/R in half while attracting new clients who may be price-conscious or cash flow-sensitive (start-ups, seasonal businesses, etc.). Firms love the accelerated cash flow. Fee Financing provides at no cost to them and clients love the greater payment flexibility without the friction on their relationship.
If cash is the lifeblood of any business, why are firms ignoring this component of their operations? Cash is the best way to fund growth and firm improvement, including the attraction and retention of more staff. Improving billing takes a little effort, but the rewards can be significant.