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

Is 2015 going to be a profitable year? Key Metrics to Track

January 2015 | Peggy Gruenke | Clio and Law Practice Management Consultant

Business Plans for Solos

Key Metrics to Review for Profitability

Now let’s look at different key metrics you may want to review and have in place for 2015. Understanding which key metrics you should be tracking and measuring is critical to remaining profitable as a solo and small firm attorney.

Using the below chart as a reference, here are six key metrics you should track for 2015. If you think six is too many to identify and track, then pick three. If you have never setup a way to track and review these key metrics, this spreadsheet will help you get started.

  1. Track the number of new matters you are getting by type: flat fee, hourly, contingent and pro bono
  2. Track number of hours you are billing on hourly cases and flat fee cases
  3. Your average hourly rate on billed matters
  4. How much you collected each month (revenue from cash flow worksheet)
  5. Your collection realization rate: what % of billed revenue did you collect
  6. Money not coming in: How much money are you leaving on the table every month

Money In Money Out - Preparing for 2015 Image Key Metrics

  1. New matter tracking. How many new matters did you set up each month and what has been the trend? Did the pipeline stay full for continued cash flow? If you have good law practice management software, this information will be right at your fingertips by running reports.

One thing you want to look at is the balance between your types of cases. Too many contingent cases will create very uneven collections since these cases have a long life. They also have expenses related to them. Hourly cases should be generating a nice flow of income as long as you are billing regularly. If you do a number of flat fee cases, it’s important to make sure you are not only profitable but you are profitable at a decent hourly billing rate. Flat fees also mean you may have to manage the flow of this money between your trust account and your operating account, creating invoices and paying yourself at certain milestones. Pro bono cases should be one of you yearly goals as part of your business development plan.

Tip: If you do a lot of contingent cases and find your monthly cash flow having too many valleys, open up a firm savings account and deposit a portion of your next contingent fee in this account. Move it over to your checking account as needed to cover your monthly “nut.” Continue reading

Is 2015 going to be a profitable year? Part One

January 2015 | Peggy Gruenke | Clio and Law Practice Management Consultant

Business Plans for Solos

Law firms are profitable businesses

Let’s set the stage with a very positive image: Law firm business models are very profitable models. According to a Fortune magazine article, in 2014law firms ranked second as a profitable business model with an average profit margin on 17.8%. So, yes, you can make money running a solo law firm! That doesn’t mean it’s easy to do but with the right tools in place at least you will now if you are being profitable.

So it’s January and you will be sitting down to reconcile your bank accounts for December’s activity and looking at your year revenue and expenses. This is an exercise you do (should be doing) every month. As long as there’s money in the checking account, life must be good – right? Maybe, but it begs the question, “Was your business profitable in 2014 and can it be doing better?”

January is a good time to step back and review the financial health of your solo or small firm business. While there are many areas to look at as you prepare for 2015, this article will discuss two areas:

  1. Reports you should have in place and reviewing at the end of the year and monthly to help you better understand the financials of your firm.
  2. Key metrics should you be reviewing to reveal weaknesses in your business. Or identify strengths and give yourself a pat on the back.

Preparing for 2015: Reports for reviewing Money In, Money Out

Money Out: Review your budget tracking worksheet which has been tracking expenses by month: actual vs. budget. This report provides a birds’ eye view of how you spent money in 2014 and compares it to your budget. For 2015, it will be your data for creating your 2015 budget.

The key thing to look at on this report:

  • Where did you overspend? Maybe the extra expenditures are justified.
  • What accounts never had expenses applied to them? This would be for 2 reasons:
    • Maybe you created expense categories but never used them. If so, remove these accounts so the report is less cluttered and easier to read
    • Maybe you have expenses allocated to the wrong accounts. You will want to fix this so you have a true picture of actual expenses.

Added bonus: If you are not currently using accounting software, this worksheet can be setup to reflect the proper way to organize your chart of accounts for that accounting system. The chart of accounts is simply a way to categorize firm expenses and income.

Money In Money Out - Preparing for 2015 Image #1 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

A Sampling of My Favorite Products from 2013 ABA TechShow

Here is a summary of my favorite vendors and products from ABA TechShow 2013. I hope next year I can get a few Cincinnati attorneys to attend with me. Mark your calendars – March 27th – 29th. It would be such a pleasure showing you around the TechShow. While reading through my list of Top Picks, have an open mind and be willing to spend a little to realize the potential you have to make your practice more efficient. And more efficiency leads to happier clients and more revenue.

Three days of the ABA TechShow just may not be quite enough when there are so many great presentations, authors to meet and products to experience first-hand. But I did my best to make it around to most of the 100 vendors in the exhibit area. I wanted to visit and test drive products that I thought would add value to a solo/small firm practice. So here are my top picks. If there are any products you want to try, let me know. I have access to discounts for some of the products.

WordRake – I have tried this product and it is one of the best Word add-in products for editing I have seen. WordRake helps you write better by instantly editing Microsoft Word documents and suggesting changes you can accept or reject to create clear and concise documents by eliminated useless words and phrases.  It’s an editor that identifies extra language to remove for brevity and clarity. With WordRake legal editor, you’ll edit your legal documents quickly, professionally, and all within Microsoft Word! Once you step back and realize the amount of time you spend composing documents, this product is just a no-brainer. $99 for one year. You can download a 3-day trial, which is what I did. You’ll be hooked. Just do it…

logo_legal_transcriptionE-Typist, Inc. – This is a small company right here in Ohio. I liked the simplicity of this product – you dictate, transfer you audio files, E-Typist transcribes, proofreads and sends them back to you – for as little as 1¢ per word. Really, you have nothing to lose and a lot to gain. There are 4 options for submitting your audio file – Just do it…

  1. Dial in your dictation on a toll-free line OR
  2. Upload files from your digital voice recorder or PC to a secure server OR
  3. Email your voice files OR
  4. Dictate on your iPhone, Smartphone or Blackberry and send your files  (you will need to download an app – $14.99). Dictate directly into your iPhone, utilizing the Dictamus app or DictaDroid for Androids. Then save your dictation and “share” it. You can record up to 90 minutes of dictation. The apps have all the recording features of a digital voice recorder – and won’t use your cell phone minutes.

orange-clock-black-rimChrometa – Even with the trend towards flat fees and other alternative billing arrangements, the billable hour is not dead yet. I started using this product day I got home. I love it. It tracks everything I do on my computer – every email written, every document I produce and every phone call I make from my mobile device. The web interface is easy to use and it has not affected anything else running on my PC. You can sync your time entries right into Clio, Rocket Matter or export to an Excel file or .iff file for QuickBooks.  It’s a beautifully seamless product for capturing your time, applying time to the correct matter and producing more accurate invoices. Since you are capturing more time, you just might make more money. And it’s priced right – $19/mn. Give it a try. It really is simple. Just do it…

abillity-TM-logo_236x77_RGB_72dpiAnother simple product, focused on one thing – capturing time spent on phone calls. A few minutes here or a half-hour there adds up quickly, and before you know it, you’ve lost billable hours and left sizable revenue on the table.  With this product you can capture time not only on your mobile phone but also on your office phone (if you have a VoIP system). You can record or type a quick memo about the call, as it happens, for quicker reconciliation and more descriptive billing records. All call records are accessed via a web portal and can be exported to a .csv file for integration with your billing system. I tried it and saw first-hand how simple and quick this application worked. It is currently in beta mode. If you would like to participate as a beta user, let me know.  Just do it…

SmokeballFinally, a simple and affordable document automation application that integrates seamlessly with Outlook and Word. And it has a cool name. This tool sits within Microsoft Word to assist you in generating forms and letters for your matters. But the really amazing part is it comes with thousands of Court Forms at no extra charge. They maintain the forms making sure they are always up-to-date and they are stored as Word documents so you can easily modify them. Smokeball stores the details of all clients and matters as you work, so it is automatically building your database for future access. For $29/mn you get a document automation system that includes automation of letters and forms, document management and version control, and email management with Outlook plus 1000s of court forms. At this time, not all states are available. But they are committed to adding court forms as requested and the tool is simple enough for you to convert any current Word document into a form. Just do it…

logikcull128E-discovery products were a the largest product category represented in the exhibit hall. One of the newcomers in this growing arena is Logikcull.  Here is a nice article by Brett Burney about this great e-discovery software. No gigabyte fees – you are charged by month for the amount of documents you need to upload. It’s a very robust product, well designed to work on mobile devices, recognizing that legal professionals also use mobile phones and tablets to get work done. Go mobile with your e-discovery, when you upload your documents into Logikcull, they get converted into web-viewable formats so you can access them without the constraints of original software. You can try it for free. If you do, let me know how you like it. Just do it…

Hope you find the time to check out these products and see how you can use them in your practice.

And finally, keeping with the theme, I’ll end this post with one of my favorite motivational speeches – “Just Do It”, a speech by Art Williams . http://www.youtube.com/watch?v=Y86o1snrC-I

Peggy Gruenke, LawBizCOO

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IOLTA Tip #3: Properly Maintaining IOLTA Accounting Records

 

checkbookEvery lawyer who holds money for clients must have a system in place for maintaining and properly recording all transactions related to these funds. There are many resources available to read and review. In this article, I offer a few tips to make sure you have proper accounting procedures in place for handling client funds held in your IOLTA account.

 

Here are a few basic facts before discussing accounting procedures:

 

  • The “IOLTA” acronym stands for “Interest on Lawyers’ Trust Accounts”;
  • The basic nature of an IOLTA account is that it is, in essence, an escrow account, for the deposit of unearned client funds. The interest earned on these accounts generates revenue for the state’s legal aid fund.

 

  • Lawyers are required to send itemized bills to clients at the time the lawyer withdraws funds from a trust account to pay themselves for services. These itemized bills should show:
    • the services provided with a description and dollar amount;
    • the amount withdrawn from the client’s trust account to pay the bill;
    • the amount of funds the lawyer continues to hold in the client’s trust account after withdrawal for payment of the invoice.
  • Lawyers should not make withdrawals from trust accounts by ATM or checks payable to “Cash” and are required to use pre-numbered checks.

 

For the trust accounting, you also need:

 

1)    The trust bank account balance to match the trust liability account balance.

 

2)    A ledger for each client’s trust balance, the total of which equals the trust bank account balance.

 

3)    A detailed ledger, for each client, showing the ins and outs of the trust monies.

 

When it comes to your trust accounting, there’s one requirement that affects lawyers and other legal professionals and doesn’t exist in most other professions. It’s called the 3-way reconciliation report. The Rules of Professional Conduct require lawyers to demonstrate that their financial records accurately reflect all of the transactions in which a client has given them monies “in Trust.”  The “three-way” reconciliation accomplishes this by comparing the total of the individual client ledgers and the bank charges with the balance in the check register. Both amounts should be the same. http://goentrust.com/what-is-a-3-way-reconciliation/

 

How  a 3-way reconciliation works:

 

  1. The first part of the reconciliation is the Checkbook Register.
  2. The second piece is the Bank Statement
  3. The third piece is the IOLTA Balance Register (or Trial Balance). This is a report of all client trust transactions, deposits and withdraws, showing a final balance for each client.

 

To complete the 3-way match you first reconcile the Checkbook Register to the Bank Statement.  The Bank Statement must match the Checkbook Register after taking into account any withdrawals or deposits that have not yet cleared the bank.  Most people are familiar with this process as it is the same as balancing your personal checkbook.

 

Once that is complete, you need to make sure the Checkbook Register matches the total on the IOLTA Balance Register.

 

The first step shows you have recorded in your checkbook all of the transactions that cleared the bank.  The second step shows you have recorded all of the transactions which affect the client’s IOLTA balance.

 

There are plenty of IOLTA resources out there. It’s a matter of accessing those resources. The best thing that you can do with respect to IOLTA accounting is to access the available information, and to learn as much as you can. Then, create a system for managing your IOLTA accounting, and follow, in addition to the ethical rules, your own internal procedures, which should include monthly three-way reconciliation.

 

Peggy Gruenke, Chief Operating Officer and Business Development. More articles available on my blog LawBizCOO.

A Cyclist’s Perspective on Fee Agreements

As a cyclist, I truly understand the importance of a well-balanced wheel for ensuring a successful ride.  After completing my recent ride, I thought about the analogy between the smooth bike ride and a successful client engagement. The difference between my smooth rides and not-so-smooth rides can be the condition of the wheels – one loose or out of balance spoke can lead to a bumpy ride or even a ride ending crash. In comparison, the difference between a successful, profitable client engagement and one that is bumpy or ends in a crash can come down to having a well written and executed fee agreement. A fee agreement is a contract which outlines the terms of your business relationship.

There are many resources out there to help you design a fee agreement contract. Having reviewed and helped design a few, I believe incorporating these 8 key elements or spokes into your fee agreement will help you on your way to having a successful and profitable client engagement. As illustrated below, each spoke contributes to the success of the client/attorney engagement.

8 Key Spokes = Fee Agreement Elements:

 fee agreements

1.  Who is the client and what legal services are you providing. Are you representing the company or the individuals in the company? For a probate matter, there can be multiple parties. In this first section, be clear about who you are representing and for what.

2.  You’ve conducted a conflict check and documented the results based on your own internal procedures.  But how will you handle the situation of a conflict arising during representation? You have a duty to notify existing clients of a potential conflict. Spell it out here so the client understands. Great article: Conflict Checking Systems from A to Z by my friend Jim Calloway. Continue reading

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