Year End Collections: Tips for Getting Paid Before Year-end

Collection Box Fund Raising Drive Donation Support Money HelpOctober 2016 (revised from original post) Peggy Gruenke | Originally published in Attorney at Work.

The year end is right around the corner, along with the holiday season. So, what do you really want for a holiday gift? How about getting paid for the work you did during the year and focus on year-end collections.

The holidays can be extra hectic for lawyers with the scramble to get money from clients before year-end and tax planning with your accoutant. Most law firms operate on a calendar year and are run on a cash basis, meaning work isn’t counted as revenue until clients pay. If you are a partner or even an associate, your compensation may be tied to the amount of money your firm collects on the work you billed. If you are a solo, you know all too well your compensation is directly tied to how much you collect on invoices.

Also during these last few months of the year, there’s typically a slowdown in the number of new cases for many practice areas — divorce, bankruptcy, estate planning, real estate — as people begin to prepare for the holidays and put certain personal and business matters on hold.

The result? A collections sprint as the year closes. Law firms deal with it every year — a large percent of revenue is collected in the last three months of the year. Could better collection procedures be put in place to avoid this year-end ritual? Of course! But let’s focus on tips to help you get more money in now.

The Collections Plan: Start With Over-Ripe Accounts

Now is the time to look at past-due accounts and figure out where you are leaving money on the table. The tool you will need to assist you is your “aged accounts receivable” report. I suspect this might generate one of the following reactions from you:

  • Confusion, as in “Crap, do I even have this kind of report?” (Add “buy accounting and practice management software” to your holiday shopping list!)
  • Panic when you see how very few past-due amounts await collection, and how little cash you have on hand. (Be happy the clients you have actually paid you. Next year, get more clients.)
  • Frustration when you realize how much time collecting past-due money is going to take.
  • More frustration because you haven’t set up the ability to accept credit cards for client payments. (Eliminate this frustration now and setup credit cards: Here is the link to LawPay.)
  • Disappointment that you let past-due accounts get to this point.
  • Relief that you have money to collect!

Putting emotion aside, here are a few things you can start on — this week — to boost your year-end revenue number. Continue reading

A Clio Workflow for Collecting on Past Due Accounts

Past Due and ClioWant to make sure the collections work on past due accounts gets delegated and completed?

Well, here is a way to do it – the Clio Way.

At a client meeting the other day, the discussion of past due accounts came up. How can we get paid faster on past due accounts and keep our collection realization rate higher? Two great questions for law firm owners to be thinking about and then find a way to automate and delegate.

Sending out collection letters and tracking this activity is a task that probably makes it to the monthly to-do-list but often times slips to the end of the list. Before you know it, it’s 30 days later and those past due accounts are now 60 days past due affecting your collection realization rates even more.

Let’s face it, it is a dreadful task. First, the effort of identifying the past due accounts and then writing the letters, mailing them, and creating a process to make sure the follow-up steps are completed. It you are lucky, maybe one letter is all they needed to remind them to pay. Most likely, the letter alone is not going to motivate a dead-beat client to pay the past due invoice. It will be the follow-up phone calls and subsequent letters that are sent that may get them to pay. That’s why you need a workflow in place.

Another reason this collection process is painful is because it forces you to face the fact that maybe your client selection process wasn’t so great, that you should have asked for and received a larger retainer, or that you should have stopped working before getting in so deep. Either way, what’s done is done and lessons learned can be applied moving forward.

Let’s get started: Setting up the process in Clio

  1. Using the Clio document template feature, convert your collection letters into Clio templates. Design 3 letters named:
    • Phase 1 Collections (gentle reminder),
    • Phase 2 Collections (a little harder nudge)
    • Phase 3 Collections (pay now or off to the collections agency you go)

  1. 2. Define your Task List using the new Task List feature in Clio.
    • Task 1 – Send Phase 1 letter
    • Task 2 – Call if no payment from letter 1
    • Task 3 – Send Phase 2 letter
    • Task 4 – Call if no payment from 2nd letter
    • Etc..


Now, using your new process

First, your firm should have a written collection policy in place that takes into account two functions: how to keep track of clients who are behind on their payments and how to contact clients when they are late paying their bills. The policy will include this workflow and designate who within the firm is responsible for each step.

Here is a sample workflow.

  1. Create a task for yourself to run the Clio Accounts Receivable report every Friday afternoon. Per you firm collection policy, you will have decided when a Phase 1 Collection Letter gets sent and if a certain amount past due triggers the collection letter process. I suggest sending one as soon as the account is ver 30 days. Export the report to Excel so you can easily sort it by due date and see amount due.
  2. Once the new past due accounts are identified, go to the Matter and assign the Collections Task List to the matter. This will automatically create a series of tasks for the matter, assigned to the person you designated when you built the task list.
  3. Now that the tasks are created, you will have to go to each task and assign the due date. (I suspect the ClioLab team is busy designing improvements to the task list feature to improve this step). When you created the task list, you set certain defaults, like who the task is assigned to and how reminders should be sent, which can be overridden.
  4. Below is a screen shot of the new collection workflow, the tasks set with the correct due dates scheduled for the periodic follow-up (which are defined in your collection policy).

Putting the process in action

The firm member who you assigned the tasks to will see these tasks on their task list. BTW, did you know you could set your Clio tasks to sync with Gmail Tasks?

Per your collection manual instructions, the person assigned to complete the collection tasks will upload the document templates, send off the letters, mark the task as complete and then monitor for payments. (This person will need to be set up in Clio to have access to the reports). If payments are made, subsequent tasks can be deleted since they will not be needed.

Suggestion: When marking tasks as complete, add a note about the payment made or conversation with client.

Additional features you can add to the workflow

If in your collection letter, you allow the client the opportunity to go on a payment plan, then add these as tasks to Clio to remind you to track the payments.

If you have any questions about how to create this workflow, please feel free to contact me. I’d be happy to help you out.

Peggy Gruenke | @PeggyGruenke | On LinkedIn

Tip #2: IOLTA/Credit Cards – New IRS Section 6050W & How it Affects Attorneys

IOLTAContinuing my posts on best practices for IOLTA accounts/transactions, I wanted to share this information with you.  This information comes via the ABA Commission on IOLTA.

“Beginning January 2013, new IRS requirements regarding the reporting of credit card transactions will go into effect and may have the potential to negatively impact IOLTA accounts and lead to ethical violations by lawyers. Here are the key points about you will want to know about if you accept credit cards:

  1. Pursuant to the Housing Assistance Tax Act of 2008, credit card processing companies are required to verify and match each merchant’s federal tax identification number and her legal name with those found on file with the IRS. An EXACT match is required.
  2. For the purposes of this requirement, lawyers who accept credit card payments are considered “merchants.
  3. If there is NOT an exact match between the information provided to the credit card processing company and the information on file with the IRS, there are serious consequences:
    1. Beginning January 2013, the IRS will impose a 28% withholding penalty on all credit card transactions, including those that the lawyer directs to her IOLTA account.
    2. If client funds that should be in the IOLTA account are withheld due to the lawyer’s failure to act and thus are not available to the client on demand, ethical issues are raised.
    3. The credit card processing company should have received information from the IRS if a mismatch occurred and already notified the lawyer of the problem. However, it is not known if all processing companies have provided such notice.”

What action should you take to avoid an ethical violation in 2013:

  • Contact your credit card processor to verify that your legal name on your merchant account matches the legal name you use to file your tax returns;
  • Correct mismatches if informed of one.

For more infomration:  https://www.lawpay.com/news/irs60502.pdf

Where’s the Money – Managing the Expectation to Get Paid

By Peggy Gruenke, Owner – LawBizCOO

A lawyer’s job is more than offering sound advice or making a persuasive argument. An important role for every lawyer seeking to improve their level of profitability is to manage expectations from intake through getting paid at the conclusion:

        1. Expectations about service;
        2. Expectations about how long it will take;
        3. Expectations about results;
        4. Expectations about cost and getting paid.

#4 is an active process that really is going on behind the scenes during the entire engagement. In my previous blogs, I talked about getting paid on cases using retainers and hourly billing and the importance of communication in these processes.  LawBizCOO 

Today, let’s talk about the clients who are habitual late payers and ask for discounted bills once the bill is beyond 90+ days. One reason you may be in this position is due to the flow of communication being driven by the client rather than you, the lawyer. By not firmly implementing your collection policy throughout the engagement, you have caused your own collection problems. A firm-wide written collection policy will set the stage for getting paid. Including this information in your fee agreement is the way to address the getting paid for your work part of the engagement. (Include link here)

So many times I see a client’s account creeping up to 60 days past due and the attorney assures me they are “good for it”, they will pay. Or “they are a good friend or a friend of a friend who will refer me more business”. The attorney continues to work on the case. Then the next month it’s 90 past due and same responses from the attorney. Now we’re six months into the engagement with no payment. You have clearly sent the message to the client that it’s OK not to pay you for the legal work you are doing on their behalf. Keep in mind, clients respect working with lawyers who have a good business sense and firmly adhere to the guidelines set in the initial client meeting. And as a small business owner, getting paid is an integral part of your business.

Clients who get no pressure to pay their late bills, generally will not pay them. Then when the attorney finally does decide he wants to get paid for the services he provided, the getting paid process becomes a time consuming effort that:

  • Leads to confrontation with the client;
  • Opens  the door for the client to question this work;
  • Is ultimately less profitable because in order to keep the client happy, you discount the bills.

Not setting and managing expectations has created an environment where the client has effectively put themselves in control of your collection policy. Take the time early in the engagement to set the stage to make this matter a profitable one.

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Where’s the Money – Keep a Regular Billing Cycle to Keep the Money Coming In

By Peggy Gruenke, COO Godbey & Associates

From a previous post, not only is an informed client a happier client – they also tend to pay on time and keeping on the theme of building great client relationships to build a profitable practice – if a client gets a bill each month and pays each bill every month, you have yourself a good client relationship.

I my previous post, I described 3 types of clients in relation to getting paid: 1) Clients on retainers; 2) hourly billed clients; and 3) clients who are habitual late payers. Today I am talking about type 2 clients. These clients seem to be consistently paying as long as the invoices are getting mailed on a regular monthly cycle and there are no large chunks of previously unbilled fees showing up on an invoice.  Clients don’t like these surprises and they will perceive this as a breakdown in communication.

In your initial client meeting, in addition to discussing the hourly billing method, you should be including a discussion about the frequency of invoices, when they can expect to receive their monthly bill and payment terms.  Set the expectation. Spell it out in your fee agreement, and don’t cause your own collection problems by failing to explain your billing and payment policies at the beginning of the engagement. Edward Poll published an article about getting paid that is worth reading: http://apps.americanbar.org/lpm/lpt/articles/fin09061.shtml

Continue reading

Where’s the Money – Another Perspective on the Importance of Communication

By Peggy Gruenke

The other day I was working on billing, accounts receivable and collections and I noticed a pattern which shed some light on our cash flow and receivables. I was able to identify 3 types of clients and how they pay their invoices.

Type 1 – The client, who paid an original retainer which has now been depleted and never replenished. Reviewing the bills of these clients, they were starting to accumulate past due balances. I had a feeling that this was happening because they somehow expected that was all they would have to pay.

Type 2 – A client who is on hourly billing without a retainer. For the most part they seemed to be paying consistently as long as the invoices were getting mailed out monthly, without big surprises like large amounts of previously unbilled time now showing up on an invoice.

Type 3 – Clients who we allowed to become late payers. Who’s in charge here? Continue reading