Want to Get Paid Faster? 7 Steps to Fix Your Law Firm Collections Process

It may seem easier to just let things slide … but ask yourself: Would you work for free?
The post Want to Get Paid Faster? 7 Steps to Fix Your Law Firm Collections Process appeared first on Articles, Tips and Tech for Law Firms and Lawyers.

If you’re tired of playing the waiting game with unpaid invoices, take these steps to improve your law firm collections process.

Imagine this: You’re running a small law firm, working tirelessly to serve your clients. Your financials show a healthy revenue stream — on paper — but lurking in your accounts is a ticking time bomb. Your clients owe you $250,000, and most of it has been sitting unpaid for over 120 days.

That’s not just a number; it’s a massive chunk of your annual revenue tied up in limbo. Suddenly, your firm’s financial health doesn’t feel so stable, does it?

If this sounds familiar, you’re not alone — this is a true story from one of our coaching clients. Many small law firms face similar situations, with overdue accounts piling up and cash flow tightening. If you’re tired of playing the waiting game with accounts receivable, it’s time to take control.

Start by calculating your collection rate (total amount collected divided by total amount billed x 100). For a more accurate rate, look at a longer time period. We recommend you look at the last 12 months.

LawPay suggests you aim for a collection rate of 95%. Clio reports that the average collection rate is 91%. If your collection rate is less than that, and you’ve got AR over 60 days past due, it’s time to review your collections process.

Here are seven steps to ensure a collections process that gets you paid — on time, every time.

1. Be Proactive

Set your payment processes up right from the start so you minimize your AR and the amount of effort you have to expend collecting what you’re owed.

Your engagement letter and your client onboarding package should include clear payment terms including the interest rate you’re going to charge for all invoices more than 30 days past due, ways that clients can pay, and the fact that you will stop work after a set period of time if invoices remain unpaid.

Bill regularly across the life of a matter rather than sending out one big invoice at the end. Smaller, more frequent payments are easier for many clients and will level out your cash flow over time.

2. Use Retainers and Flat Fees Strategically

Whenever possible, get the money up front! As you start to track your AR more closely, you will likely see patterns in the types of clients and types of matters where payment is an issue. When you recognize payment risks, you can take steps to avoid them. Review your retainer agreements and fee arrangements and decide if you should:

• Increase your retainers in situations where you know there is a collections risk.
• Require an evergreen retainer that automatically replenishes when funds drop to a certain level.
• Set flat fees for as much work as you can, and require payment in advance.

3. Stay on Top of Your AR

If you’re just starting to deal with your AR, run a report today and identify all overdue accounts. Categorize them based on the length of delinquency (e.g., 30, 60, 90+ days past due), so you can prioritize follow-ups.

Then, make it part of your process to run an AR report every month. Move all AR that is more than 30 days past due into your collections process. Monitoring AR regularly will ensure you don’t end up like our client who’s carrying that $250,000 in AR. It will also help you identify patterns, such as clients who consistently pay late, so you can adjust your approach or payment terms accordingly.

Bonus tip: If you’ve told your clients you will charge interest on overdue invoices (and you should be charging interest!) make sure you actually add the interest to all accounts. Other businesses routinely charge interest, but many of our law firm clients report that they feel “guilty” about doing so. Don’t. You are running a business, not a charity.

4. Send Regular Reminders

Your collections process should include regular reminders to all clients, starting before the due date. Most practice management and billing platforms will automate your reminders, minimizing your time and allowing you to set up a schedule for reminders and follow-ups at regular intervals. For example, send a reminder one week before the due date, another on the due date, and follow up one week later if payment is late.

5. Call

If the first follow-up email doesn’t produce results, your next step should be a telephone call. Continue a regular schedule of email reminders and weekly telephone calls for all ARs over 45 days past due.

Bonus tip: If collections calls are not in your Power Zone, delegate them to someone else. By delegating collections calls to assistants and arming them with polite but firm scripts to follow, you won’t be distracted by sad stories or offers of additional work. Many of our clients find that when they make these calls themselves, they get sucked into giving free legal advice … but no one will be asking your assistant or clerk for advice!

6. Offer Alternative Payment Methods

Clients are more likely to pay on time if payment is easy. Offering multiple payment methods — credit cards, e-transfers, ACH transfers, online payment portals — removes barriers and speeds up the process. Payment processors that allow you to collect regular subscription payments can be used to create scheduled payment plans that will charge a fixed amount every month until the debt is paid. You may even want to pitch scheduled payments from the beginning as a way for clients to spread their payments out. Just ensure that your plans and payment options comply with trust accounting rules and client confidentiality.

7. Take Action to Recover Your Money

If calls and reminders do not produce results after 90 to 120 days, it’s time to ramp up. For larger amounts, consider referring the matter to a collections agency. Choose a reputable company and ensure that the amount you’re trying to collect is worth the effort. Collection agencies may charge as much as 50%, so it may be more cost-effective for you to go to small claims court for smaller amounts.

The Typical Collections Process Includes These Steps

1. Run an AR report monthly.
2. Send automatic reminders to all clients whose payments are 30 days past due.
3. Begin applying interest to outstanding balances.
4. Call all clients whose payments are 45 days past due.
5. Negotiate a payment plan and/or automatically schedule payments, if required.
6. Stop work on ongoing matters, if permitted, until payment is made.
7. Monitor payments under payment plans.
8. After 120 days, refer to a collections agency or small claims court.

Collecting money owed to you can take time and effort. It may seem easier to just let things slide … but ask yourself: Would you work for free? If you’re not prioritizing your AR and actively collecting on your invoices, that’s exactly what you’re doing.

More Process Improvement Tips for Your Law Practice

• Dread the Annual Planning Process? 5 Ways to Make It Easier and More Fun
• Conflict Checks: 5 Tips to Tune Up Your Process
• Got a Process for Your Processes? Create Law Firm SOPs in 5 Easy Steps
• 5 Tips to Make Time Entry Less Painful for Lawyers
• Law Firm Intake: 3 Tips to Save Time and Convert More Clients
• New Client Onboarding: 5 Tips to Win Over New Clients
• Time to Build Your Team: 5 Steps to Improve Your Hiring Process
• From Hire to Higher: 6 Ways to Improve Employee Onboarding

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Karen Dunn Skinner and David Skinner help lawyers and legal professionals build more efficient, productive and profitable practices. They’re the co-founders of Gimbal Lean Practice Management Advisors and lawyers with over 20 years of experience each in Canada and Europe. Together, they’re the exclusive Global Advisors on Legal Process Improvement to the International Institute of Legal Project Management. They write and speak regularly, facilitate legal process improvement projects across North America, and have taught Gimbal’s LeanLegal^® approach to thousands of legal professionals.

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