Accounts receivable refers to the money which law firms need to collect from their clients for the services which they have provided them. It is one of the significant financial processes which lays the foundation of income for any business. If accounting for law firms is not managed efficiently or ignored in some way, it paves the way for considerable losses for the law firms.
The reason being other expenditures in the form of liabilities like insurance costs, employee payments, taxes, office supplies, etc., overtake the income generated by accounts receivable. In 2018, it was observed in the case of law firms that on an average, the realization rate of 87% and the collection rate of 85% were less than the expected.
Top 5 accounts receivable mistakes committed by law firms
1. Limited payment options
One of the biggest mistakes which the law firm owners commit while managing their accounts receivable is the fact they provide their clients with limited payment options. Relying on old payments methods of collecting cash and cheques restricts them from making timely payments.
2. Feeling scared of ruining client relationships
Most of the law firm owners are of the view that if they keep on reminding their clients of timely payments, they may lose out on them. They do not want to make their clients uncomfortable by demanding money too soon and feel like they need to give ample amount of time to them to make payments.
3. Relying on paper usage alone
In order to manage their accounts receivable, a majority of the law firms rely on the usage of paper; be it for maintaining billing statements or sending out timely payment reminders to the clients. This approach limits the potential of getting the invoices delivered on time and is also prone to misplacement of the statements.
4. Relying on general data reports
When law firms rely on generating data reports related to accounts receivable, they simply get an overview of the financial status. They are not able to dig deep into the specifications which provide them with the accurate payment errors, the time for debt, and whether or not the possible steps have been taken for collecting payments or not.
5. Ignoring previous receivables
The prime aim of law firms is to acquire new clients and provide their present clients with an unmatched experience. However, while doing so, most law firms ignore the previous receivables and put in the minimum effort and time in sending payment reminders to the clients.
Tips to efficiently manage the accounts receivable process
- Accept the other payment options as well
In order to make sure that you are getting paid on time, you should provide payment flexibility to the clients. Make sure you accept payments in the form of credit cards and debit cards, along with providing them with the online payment portal options like PayPal, Google Wallet, and more.
- Assess client payment ability in advance
It is important to assess the payment ability of the client in advance to avoid any delays in accounts receivable. For this, it is important to set a standard price of your case and not negotiate at all. If the client is asking for negotiations, it is a clear indication that he is facing a shortage of funds and is unlikely to make timely payments.
- Follow up promptly and more importantly, courteously
A follow up is definitely needed when you look forward to having timely payments. Yes, it is quite a possibility that the clients may forget the payment deadline, but it is you who has to remind them in advance. However, it is imperative that your concerned effort should be prompt and courteous in nature. Promptness will let you have payments in advance while courtesy will help you in maintaining long-term relationships with clients.
- Establish payment policies
It is evident to have payment policies for your law firm as it gives clients a clear idea of the values on which your law firm operates. The policies should clearly state the collection procedures and the consequences of not paying on time. Some of the major features of your law firm payment policy should be:-
- Payment methods
- Appeals for billing
- Payment initiation methods
- Due dates after invoice generation
- Past-due notifications and penalties
- Flexibilities
- And more…
- Offer early payment discounts
This is the best way to get paid on time and also maintain long-term relationships with the clients. By offering them an early payment discount, you are actually motivating them to pay early. Clients know that sooner or later, they have to make the payments and when they are offered discounts for the same, they do not delay the payments as they also get to save a considerable amount of money.
- Offer unmatched client satisfaction
It is a known fact that when the client is happy with the services provided to him, he will have no issues when it comes to making timely payments. However, if your law firm is unable to provide him with the desired satisfaction, you may just be preparing yourself for payment delays. So, make sure you deal with your clients politely, execute their tasks on time, be transparent regarding your law firm practices, and more. All these things lead to client satisfaction and eventually, timely payments.
- Send invoices electronically
Just as we discussed above that sending invoices in the paper format is not as effective as sending out invoices electronically due to the very fact that an e-mailed invoice takes a second to reach the clients. This makes it imperative for your law firm to start sending out invoices by e-mail and also include a link for click-to-pay. This is a convenient option not only for you but for your clients as well, leading to a decrease in the payment delays.
- Consider seeking outsourcing help
Managing the accounts receivable of your business demands a lot of energy and time. It is recommended for the law firms to focus on business growth and clients and leave the accounting headache to the experts. Hiring an outsourcing company for managing accounts receivable is a viable option as it has an expert team to handle your entire accounting and back-office operations effortlessly and efficiently, and speed up the accounts receivable process for you.
Accounts receivable has a lot of significance when it comes to contributing to the financial condition of a law firm. Law firms need to understand this and adopt a strategy which helps them in streamlining their accounts receivable process. Previous invoice and collection methods should be replaced with the electronic approach in order to deal with clients in an appropriate and timely manner.
Falling short on time and technical expertise should be dealt with carefully, along with considering help from any external outsourcing accounting company.
Cogneesol is one of the leading outsourcing companies that provide accounts receivable services to law firms at affordable costs. Outsourcing to Cogneesol can bring efficiency to your AR process with no hassles of hiring a staff. Contact now, at +1 646-688-2821 or email us at info@cogneesol.com.
Cogneesol is one of the leading outsourcing companies that provide accounts receivable services to law firms at affordable costs. Outsourcing to Cogneesol can bring efficiency to your AR process with no hassles of hiring a staff. Contact now, at +1 646-688-2821 or email us at info@cogneesol.com.
