Many lawyers admit to being uncomfortable about chasing up unpaid bills, but firms are losing out. John Sidwell explains how you can improve cash flaw by reviewing existing processes




Having worked in the legal profession for more than 25 years, I am still amazed by many solicitors’ attitude to cash collection, with a significant number believing that the process only starts when the bill is delivered to the client.



Though they possess many skills, a large number of solicitors will admit to being uncomfortable about chasing unpaid bills. They are likely to view the function as something to be performed by administration staff without any input from them at all.



By understanding some basic principles, solicitors can become far more effective in managing cash collection. This will improve cash flow into the business, as well as reducing potential discomfort and stress to the individual.



Here are seven practical pointers to managing the cash collection process that will hopefully remove some of the misconceptions held by solicitors.



Client engagement

It is essential that, at the very start of a new matter, solicitors discuss and agree with the client all the relevant charge rates and payment terms. These should be confirmed in the engagement letter, which will ensure that both parties have agreement from the outset.



A common failure is that the solicitor handles the engagement procedure poorly and the parties proceed with differing expectations, which only serves to store up problems for later.



The client’s perspective

Clients are not offended at being chased for unpaid bills as long as the approach is made tactfully. Solicitors must understand that the clients will be used to being contacted by suppliers about invoices, so why should the legal services supplier be any different?



Too often the solicitor suspects that a bill is overdue because the client does not want to pay it. In reality, most clients are willing to pay their bills, though it is accepted that some will use the omission in chasing to delay payment of the bill.



While clients generally expect to be chased for payment of overdue bills, solicitors tend not to chase payments to avoid damaging relationships or losing the client. In practice most clients will confirm that the key reason they are likely to change solicitors is not because they chased a bill, but because they failed in the delivery of the legal service.



Raise the bill quickly

Solicitors will frequently complete a matter and then wait for several days, sometimes weeks or months, before raising a bill to the client. It is not surprising, therefore, that the client takes the view that if his solicitor cannot make the effort to raise the bill, then why should he rush to pay?



Raise the bill quickly – research shows that there is a direct correlation between the time taken to deliver a bill after completing the matter and the time it takes the client to pay.



When a bill is not paid

Rather than the client simply not wanting to pay the bill, a high percentage of bills can remain unpaid for a variety of reasons, many of which are outside the client’s control. For example, it is possible that the bill gets lost in the post. In the case of large corporate clients, there might not be a reference quoted on the bill or accompanying letter, which prevents the bill reaching the person responsible for authorising payment.



A simple telephone call to the client a couple of weeks after the bill is delivered can ensure that the bill has arrived at its correct destination. This will remove many obstacles to getting the bill paid. It may also identify more serious issues that might prevent the subsequent payment of the bill.



Prompt chasing

Start politely chasing as soon as the bill becomes due for payment. If the bill is unpaid for more than 30 days beyond your credit terms, it is a good indication of collection problems. Clients are smart and they will reason that if you do not chase your bills promptly, then they can wait to pay them.



Where bills are more than 60 days old, some clients will seek to negotiate a discount by taking advantage of the solicitor’s fear of not getting paid at all.



Do not wait for the client to call

Some clients are quick to call if they have a problem with their account, but many prefer to avoid contact. It is human nature.



Research has identified a number of reasons for clients not calling. For example, clients are often uncomfortable talking about money, or they are unable to pay the bill and are embarrassed to admit it, or they simply do not understand the bill and again do not like to admit it.



Avoid using the mail

As well as being slow, communicating by letter is far less effective than the telephone. Using the telephone allows a discussion to take place with the client about unpaid bills.



A brief tactful conversation on the telephone will ensure that the client understands your need for payment and will allow you to identify any problems or concerns the client may have.



Conclusion

The purpose of credit control in a law firm is to facilitate a smooth and speedy transaction process from client engagement to delivery of bill to receipt of payment. Keeping the chasing cycle to an absolute minimum reduces the cost of ‘lock-up’ in the business.



Firms that incorporate the above pointers into their cash collection procedures should see an improvement, not only in the reduced levels of lock-up, but also in the overall relationship with their clients.



John Sidwell is director of finance and administration at Leeds law firm Lupton Fawcett