Bad economic times tend to be compared to the proverbial rainy day, but when business gets slow I’m reminded more of the old expression to “make hay while the sun shines.” When things are slow around the office you have the perfect opportunity to patch up that leaky roof and generally put things in order so you’ll be ready to make the most of whatever comes your way as the economy begins to improve. And it always does. So, with that thought in mind, here are a few tips, condensed from a column that David Bilinsky and I wrote a while back for Law Practice Magazine, to improve your cash flow.
1. Clean up your accounts receivable.
When times are good and bills are more often paid than not, lawyers tend to let their accounts receivable operate on auto pilot. Someone in the firm must be in charge of monitoring and collecting accounts receivable, and if he or she is a lawyer, he or she must be compensated for doing this important job rather than be penalized for letting billable hours slip. It doesn’t matter how much work you push into the pipeline if money isn’t coming out the other end.
Contact each client with a past-due balance, politely determine why the account has not been paid, and attempt to work out either a payment schedule or a write-down to immediately liquidate the account. Even if the firm has to take fifty cents on the dollar, or less for a seriously past due account, you’ll still be better off getting something right now rather than the possibility of a little more – or nothing – later. It’s also better not to leave uncollectible accounts on the books. If you clean up the books you’ll improve your financial statements and be better able to evaluate your true financial position.
2. Develop new intake procedures.
The most important step you can take right now to collect your legal fees when they are due is to screen your cases more carefully and not take on clients who can’t afford your fees or matters that are not likely to pan out. This probably seems obvious but a lot of lawyers tend to forget this when times get rough.
Think again about the types of cases you will accept and the minimum requirements those matters must meet before you will agree to take them. If you need to let your standards slip a little right now, do so. But make sure that you know where the outside edges of these new parameters are and that everyone else in the firm is onboard. The cases you take right now will generate the future cash flow that will lead you out of hard times, provided you get it right from this point forward – picking the right matters and spending your time giving great client service.
3. Draft new fee agreements.
The Alabama Rules of Professional Conduct require only agreements for contingent fees to be in writing, but it’s in your best interest to memorialize all fee agreements in either a short engagement letter or standardized fee agreement for the type of matter involved.
Written fee agreements protect you in several ways. First, the agreement is an opportunity to make sure that the client has a clear understanding of what the matter will cost and when you expect payment. Second, you can clearly set forth what work is covered and what work is not. For example, if you will require a separate fee for an appeal, specifically say so. Finally, if you end up in a fee dispute with the client and he or she files a grievance against you, you’ll be protected. Standardized non-engagement and dis-engagement letters will also protect you when the client doesn’t ever bring in the initial fee deposit or otherwise fails to live up to his obligations and it is in your best interest to withdraw.
4. Develop a “road map” for your clients.
As we become familiar with the areas of the law in which we specialize, we sometimes tend to forget that a divorce or personal injury case may be completely uncharted, and very scary, territory for the client. Develop a written chronology or frequently asked question sheet to guide your clients through the process. Not only will these help you create a sense of security for the client and give them a feeling that they’ve gotten something tangible for their initial fee deposit, but they’ll help prevent unnecessary phone calls that waste your time and your client’s money.
The same is true of mapping our what the client can expect in dealing with you and your staff. Provide the client with information about your office hours and the hours during which you will accept and return phone calls, and introduce staff members and explain when it will be necessary to communicate with staff. This will help you to shape their expectations and get a handle on client-lawyer communications.
5. Take a no-nonsense approach.
This is the string that ties all of the other tips together. You want to develop a reputation among your clients as a lawyer who expects to be paid. Set out your fee expectations in writing, communicate frequently with your client regarding the status of the matter, monitor your accounts receivable regularly, intervene immediately if you’re not paid on time, and cut the client loose immediately if you cannot come to an amicable resolution concerning payment of outstanding fees. These steps will help you keep your head above water – no matter how deep it may get.