Six ways law firms can improve their billings and cash collection
The COVID-19 crisis has brought cash collection front and center for law firms as they brace for its economic repercussions. This has affected law firms in different ways depending on their client base. For example, firms with many travel and leisure or real estate clients may be negatively impacted more than those with clients in other industries. There is a recurring theme here that echoes into the collections niche for law firms. If your firm’s clients are from industries that have been hit hard by the pandemic, then collections may be a specific challenge that needs special attention at the relationship manager level.
At the beginning of the year we published our 2019-2020 Trends and Opportunities in Law Firm Outsourcing Survey Results in partnership with Sandpiper Partners, where only 22% of respondents saw reducing their debtor days (as termed among UK law firms) or Days Sales Outstanding (DSO, as termed among US law firms) as a major challenge.
Then during the pandemic, the Williams Lea/Sandpiper Instant Survey released in June reported that 68% of respondent law firms saw collections as a “mission critical” area of focus in the next six months. There is no doubt that the pandemic has driven a swift reaction across law firms to manage cash and protect their financial health.
What do law firms need to do to speed up their cash collections, reduce rejections and debtor days/DSO? Based on our experience helping law firms improve their billing processes, we’ve identified six key focus areas:
Centralize your team
We often find that law firms have disparate billing functions within their firms, using multiple decentralized individuals or teams where communication can be disjointed. Those tend to be the firms that struggle to control DSO/Debtor days. Firms with centralized billing process have significantly reduced debtor days/DSO and days to bill. A centralized team can work closely with partners and secretaries to provide up-to-date information regarding why bills are rejecting or short hanging and can amend them instantly. Identifying and executing best practices for specific clients, practice groups and matters improves in a centralized model.
Ensure the teams skill sets match evolving needs
The skills required to support billing and cash collections have changed significantly over time. When it comes to e-billing, there are over 40 different software systems used by clients and billing analysts must be adept at managing multiple e-billing systems. Often, long tenured staff don’t have the range of experience needed to juggle the varied requirements of client systems.
It’s important to ensure that the team’s skills are aligned with the law firm’s clients’ requirements and steps of their e-billing systems and process. Without this firms will experience continued high rejection rates, delayed payments, and a negative impact on profitability.
Know your internal stakeholders
A good billing team needs to be able to identify who is billing on behalf of the partners. Is it a secretary? Is it a billing specialist? Sometimes it’s both and sometimes it’s a matter of dealing with the partner directly. Working closely and engaging with them on an ongoing basis is important to proactively inform them of, and highlight changes in, outside counsel guidelines – which can happen frequently.
Continuously communicate any guidelines changes
Outside counsel guidelines are constantly changing. Even though law firms and their clients agree on the guidelines, the client can, and often update guidelines at short notice. These changes need to be sought, captured, communicated internally, responded to and answered before the bill is sent to the partner for review.
Have an accurate narrative and rate checking process in place
Approving rates and reviewing narratives is crucial in a successful billing process. Many bills relating to legal matters may, be up to 50-60 pages per month, requiring significant administrative time dedicated to proofreading narratives. Thorough narrative edit proofreading processes, using dedicated analysts whose sole purpose is to review every single narrative and audit them against the ever changing outside counsel guidelines leads to a dramatic reduction in short payments and rejections.
Measure your billing results with key metrics
Measuring performance and capturing metrics is essential to an effective billing process. Focusing on client rejection rates, debtor/DSO, days to bill and rate of payment rejections help identify the reasons behind rejections and highlight areas to improve. Measuring performance by billing associate and team is another important metric for productivity and utilization rationale; particularly if the mix of billing shifts to eBilling faster than the team’s skills adjust.
Hiring freezes, redundancies, salary cuts and lower partner distributions have intensified firms’ focus on improving financial discipline and strengthening their balance sheets. There’s no two ways about it – law firms that create a streamlined and effective billing team with the right people and the right process in the mix, and encourage a greater awareness of the material impact of payment delays, will be the law firms that will gain financial stability in this environment and beyond. Even after the crisis passes, capital adequacy requirements will remain and law firm leaders will have to look for ways to speed up their receivables rate.
For more insights, download our instant survey report, The Impact of the COVID-19 Crisis on Law Firm Support Operations.