Make Sure the Check Is in the Mail
Having a little trouble with accounts receivable? Here are proven ways to keep things on track.
Cover All Bases with a Clear Engagement Letter
If you don’t want unpaid bills to accumulate, set standards early on in your client relationships. It’s assumed that you require clients to sign a letter of agreement upon engaging your services. (You’d be out of your mind if you didn’t, right?) But does your engagement letter do what you want it to do? Check this list of basic components.
- Billing rates. Do you clearly state how the firm will compute and bill for fees? Specify who will be working on a matter and provide respective billing rates? If matters require varying levels of expertise, provide a range of billing rates. And always include some flexibility to change billing rates, on either an annual or periodic basis.
- Out-of-pocket expenses. Do you explain how out-of-pocket expenses (disbursements) will be funded? Include language that explains how expenses will be billed or reimbursed? If clients will be expected to pay directly for third-party expenses, address this in your engagement letter. Always be clear!
- Payment. Do you state your preferred method of payment, the schedule of payments and collection procedures? Explaining these details up front allows you to present the payment process in a positive light and helps avoid the need to “toughen up” as you move along.
Five Tips for Getting Paid On Time
If you take care to spell out your ground rules up front—and secure signatures on engagement letters—clients will find it much harder to dispute your bills. But it doesn’t end there. Follow these steps for every matter to make sure you get paid the money you are owed.
- Enter your time daily. If you don’t keep contemporaneous time records, you can lose as much as 40 percent of your potential billable inventory. Make every effort to capture all billable time. Otherwise, you are giving away your services for free.
- Bill as promptly as you can. Let a lot of time go by and your client will no longer remember how valuable your services were.
- Assign collection calls to one person. Delegate this task to someone who understands the billing process and has ready access to copies of unpaid bills.
- Use a computer-based calendar tool to track and document all conversations with clients. Whether you use a simple electronic calendar or a sophisticated CRM system, this practice will greatly increase effectiveness in collecting overdue receivables.
- Build on relationships with clients. Every document, letter or statement you send to a client is an opportunity to build your relationship. Avoid using canned form letters. Personalize client communications by jotting handwritten notations on any letters you send. This goes a long way toward building client relationships—and that goes a long way toward prompt payment.
Frederick J. Esposito, Jr., CLM, is the Director of Administration for Meyer, Suozzi, English & Klein, PC, a regional law firm based in Garden City, NY. Fred has more than 20 years of law and accounting firm experience. He writes and speaks extensively on a wide range of legal management topics, including billing, collections, financial and profitability models, risk management, human resource development, project management for attorneys and alternative fee arrangements.
Before redrafting your engagement letter, take a look at Steve Taylor’s “Five Tips for Writing Right.”