Spring Cleaning the Balance Sheet
Spring is here, leaves may be appearing on the trees but there are still real doubts about the health of the UK economy. As many firms approach their traditional spring year end it is probably right to tidy up the balance sheet to present a more positive picture to partners and to providers of finance.
This tidying up is achieved by converting as much WIP and debt into cash before the year end. It should have been done earlier but if we adopt good practice now perhaps there will be less need for this panic in future years. So what can be done to accelerate cash flow?
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There are three stages at which solicitors could do more as follows:
1. More money on account
When clients go shopping other than at a law firm they are usually happy to pay as they go and for larger projects understand that it is not unreasonable for some money to be paid in advance. So why are solicitors so bashful about asking for money up front? For new clients, try telling the client that the firm requires an amount equal to the first month’s fees to be paid in advance. By blaming it on the firm, the solicitor is saying that they would like to help more but that they are bound by fairly normal business rules. For long standing clients, wait until they are desperate for help and then offer that help in return for some money on account. Once a client has paid upfront once it is easier the next time and actually, becomes the expectation.
Make sure that the engagement letter allows the money on account to be carried forward throughout the matter. Make it clear that interim bills will need settling by the client and will not be settled by the money held on account.
2. Earlier billing
Look at standard engagement letters and make sure that the terms allow monthly billing. If you are already billing everything every month, which is unlikely, then consider weekly or fortnightly billing to keep the client more up to date. The first step might be to update the client each week on costs and still bill monthly before then moving to weekly billing.
In addition, make sure that you bill at the right date in the month to tie in with when the client settles bills each month.
3. Faster settlement of bills
Just because the bill has been posted, this does not mean that the client has received it, opened it accepted it or processed it for payment. Good solicitors will talk to a client about a bill before sending it, phone the client 48 hours later to make sure it is received and to understand when it will be paid, and then, follow up immediately it becomes overdue. If this is done in the right way the client will see it as positive and as a sign of a well run and commercial firm.
If bills are emailed to clients instead of being posted they cannot get lost in the post and they arrive faster. If a bill needs to be forwarded on to someone else for approval then this can be done very quickly by email rather than with an invoice being put in yet another envelope and posted on to another person. Emailing, as opposed to posting bills, seems to reduce debtor days for most solicitors considerably.
The firms that manage their cash flow well and that have money in the bank are generally more confident, particularly when negotiating the next fee with the next client.