Large enterprises typically have entire departments dedicated to maintaining positive cash flow. They employ predictable, set billing cycles, procedures that address accounts receivables, and where appropriate, safeguards to ensure that adequate deposits are on hand to secure pending purchases or services to be delivered.
Small businesses and professional practices generally do not have the resources or the know-how to maintain such discrete departments or to otherwise implement such efficiencies.
Nonetheless, with a bit of planning, organization, and structure, businesses and professional practices of every size can adopt procedures that can generate significant improvement in ongoing cash flow performance.
Here are some thoughts on how to improve cash flow in law practices, many of which may easily be applied to any business or service:
- There are five pillars to maintaining positive cash flow: 1) ensuring adequate retainer deposits are on hand; 2) “doing the work” effectively; 3) accurate, prompt time docketing; 4) regular billing cycles; and 5) scheduled follow-ups on accounts receivables.
- Every member of your team has a role to play in improving cash flow by maximizing performance in each of these areas. Identify each person’s role. Include it in his or her job description. Create accountabilities, monitor and address this vital area at performance review meetings.
- Bill often and bill regularly. Clients can’t pay bills unless they receive them. They also appreciate knowing where they stand, and frequent billing helps avoid unpleasant financial surprises. Pick a date each month that will be your billing date, and if it’s the 30th, make sure bills are done on the 30th.
- Accurate billing requires accurate, up-to-date docketing. The easiest way to get behind in your billing is to get behind in your docketing. Therefore, whether you do your own time recording or have assistance from administrative staff in doing so, ensure that your dockets are up-to-date, each day.
- Ensure that your calendar for “yesterday” is checked, each day, to verify that you haven’t missed recording any phone calls, meetings or other docketable events.
- Make it easy for your clients to pay their bills. That means setting up systems to accept credit card payments, email money transfers, and even online payments. If your firm is lacking any of these facilities, set up a meeting with your bank and learn about your options and associated fees. You will be amazed at the difference when you no longer have to wait for cheques that mysteriously remain “in the mail.”
- It’s still all about effective client service. Develop systems to “make things happen” in your practice. Don’t let files sit. Develop processes that help you complete each stage of your clients’ work as quickly as possible.
- Ensure that there is complete “buy-in” from all members of your team to this approach, and that each member of your team has an understanding of how his or her contributions can make a genuine difference in your efforts to have the kinds of happy clients that make it easy to improve cash flow.
- If you have paid a disbursement for a client, do a “disbursements-only” invoice immediately once the payment has been made.
- Just as invoicing should ideally occur on a specified date each month, so should follow-ups on accounts receivables. Make the 15th your A-R day. When monies are owed, make telephone contact with your clients, and directly ask for payment via credit card, which can be made right then and there via telephone.
- Get adequate retainers when you start a matter, and religiously require retainer replenishment when retainer funds are exhausted. Ensure your retainer agreement specifies this requirement and details when you will be asking your clients for additional retainer deposits.
- Beyond that, be aware of your schedule in the month ahead. Pick a date each month to review whether you have adequate retainers on hand for the events scheduled, and make written requests for replenishment where you do not.
- Don’t bury your head in the sand when you have a problem account. Your retainer agreement should permit you to terminate service in such circumstances. This should not need to happen, however, except in the most extreme circumstances. Before you get to that stage, particularly in legitimate, demonstrated cases of financial hardship, explore whether payment plan options are workable, or whether satisfactory alternate arrangements can be made.
- Where you are acting for an out-of-province or out-of-country client, do not perform services without adequate retainers in advance. Inform your clients from the outset of this requirement, and don’t make exceptions. Collections outside your jurisdiction are an uphill and expensive battle.
Above all, maintain good communication with your clients.
While financial issues can be delicate to discuss, the more direct, candid and approachable you remain, the greater likelihood you have of success in all aspects of your professional dealings, including the financial ones.
Not every example of slow payment results from a client’s financial hardship. If there is an issue with payment, take the time to speak with your client about any service-related concerns that may be at the root of any financial impasse that has emerged.
To state the obvious, happy clients are far more likely to pay their bills promptly than unhappy ones. Listen well, and address any concerns that are raised.
You may be pleasantly surprised at the difference.