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Top 10 Law Firm Collections Challenges and How to Solve Them

How to Develop an Effective Law Firm Collections Strategy

In a Legal Talk Network podcast focused on law firm invoicing and collections, moderator Christopher T. Anderson remarked that upwards of 20% of legal bills are past due.  What is it that’s contributing to this ongoing law firm collections challenge?

Some data we both collected and presented at a LexisNexis® Juris® User Group meeting may provide useful insight into the causes of past due legal bills.  It may also provide some ideas for forming a strategy to reverse this trend.

It’s worth noting, the Juris product is a robust legal specific billing, accounting and financial management software – and the user group often consists of industry veterans like Gail Thomas who previously offered these tips and techniques for law firm billing software on this blog.

Please note – that this data was derived from what amounts to a focus group, and customer feedback, rather than survey data (though we’re planning a survey on this topic soon).  Even so, a handful of industry experts, weighing in based on their experience, are insightful.

providing discounts to past due clients is rewarding the behavior

So what did this group say were the top 10 contributing factors to law firm collection problems?

1. Slow to act. Too slow to take action on past due accounts – and denial the problem even exists in some cases.

2. Fear of client attrition. Concern or fear for losing a client (as a result of asking them to pay their bill).  As pricing strategist Toby Brown pointed out at an ABA TECHSHOW presentation, many attorneys simply are not comfortable having conversations about fees.

3. Communications channels. Slow speed of communication (think U.S. Mail vs email or electronic billing).

4. Overconfidence. Overreliance on process, procedures and software – no system is bulletproof.

5. Flip side of negotiation. Too quick to negotiate or accept alternative payments (Mr. Anderson for example, has commented that providing discounts to past due clients is rewarding the behavior).

6. Firing clients. Not knowing when to “cut the cord” to a chronically past due client.

7. Data and analytics. A lack of reporting analysis – and the inability to identify trends and indications of past due clients.

8. Documentation. Failure to track the key steps and activities that comprise a collection process.

9. Responsibility. Accountability must extend beyond just the accounting staff.

10. Adhering to policy. Implementing a policy or procedure and sticking to it.

Other contributing factors this group cited but did not list in the 10 ten included:

a) the assignment of a collections role – that collections “is no one’s job,”

b) a lack of clear policies

c) procedures are often set by individual partners or billing attorneys, which may lead to variation, as opposed to establishing a firm-level policy.

How to Develop a Law Firm Collections Strategy

Once a firm becomes cognizant of its collection challenges, the next step is to determine what to do about it. A six step process – the outcome of which is the image presented above – was recommended by one of the conference presenters.

1. Define the scope of the problem.   This means collecting and analyzing data about client and billing activities so a firm is aware of what they are dealing with – to “know what you have.”

2. Conduct an internal review.  Even if a partner believes they understand what the issues are, it’s worthwhile to interview law firm staff to see if your understanding matches the rest of the law firm’s employee understanding.  In this step, gaps are usually identified between what should be happening and what is actually happening.

3. Perform root cause analysis.  This step involves digging into the details of past due accounts – communicating with clients to understand why they haven’t paid for legal services rendered.  Is the issue financial hardship? A disputed charge? Lack of detail on time entries?

4.  Identify law firm revenue leaks.  Here the process is to understand the law firm’s role in the billing practice – are there write downs, write offs or billing adjustments?  What do these numbers look like in aggregate by client, staff and the responsible billing attorneys?

5. Assess resource requirements.   What resources will correcting the problem require?  More staff?  Different talent? Technology for data tracking, analysis and reporting?

6. Communicate the findings. After a thorough review, document both quantities and qualitative findings with graphics and supporting tables that identify:

  • Aggregate collection problem
  • Future at-risk client accounts
  • Other revenue opportunities
  • A proposed process workflow
  • How the collections process effectiveness will be measured

* * *

What would you add based on your experiences?  Is there anything you’d recommend doing differently?

If you enjoyed this post, you might also like:
Discounting Legal Fees Sends the Wrong Message 

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About Frank Strong

Frank Strong
Frank Strong is the communications director with the LexisNexis software division located on NC State’s Centennial Campus in Raleigh. In this capacity he leads communications efforts in support of software products for law practice and law department management and also litigation tools – across large law, small law and corporate counsel segments. With more than 15 years of experience in the high-tech sector, Strong previously served as director of public relations for Vocus, which developed marketing, PR and media monitoring software. He has held multiple roles both in-house with corporations, ranging from startups to global organizations, and has also endured the rigors of billable hours, having completed gigs at PR firms including the top 10 global firm Hill & Knowlton. A veteran of two year-long deployments, Strong has concurrently served in uniform in reserve components of the military for more than 20 years, initially as an enlisted Marine and currently as an infantry officer in the Army National Guard. Strong holds a BA in Film and TV production from Worcester State University, an M.A. in Public Communication from American University, and an M.B.A. from Marymount University.


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