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How Modern Law Firms Can Reduce Accounts Receivable

By Mayowa Oyebadejo

If you’re stuck with high law firm AR, a change of strategy could be past due.

There’s no question that many law firms struggle to whittle away at their accounts receivable (AR), the outstanding amount that has been invoiced and not paid. While it’s always the goal to ensure invoices are collected in a timely fashion, lawyers still face unique challenges when closing out their books at the end of the month. Traditional law firm operations — processing paper invoices, sending and collecting paper checks, and handling billing data manually — can at best cause bottlenecks and at worst, result in delayed cash flow.

These lengthy and outdated invoicing processes are not only prone to human or system errors but also increase the average days outstanding for invoices. Although it may seem difficult to significantly reduce AR for law firms, it is certainly achievable with the right internal payment processes and strategies. If you’re stuck with high AR and often chase clients on a missed payment, this may be a calling for you to change your operational strategy.

Why Does AR Pile Up?

AR pile-ups can be caused by several reasons and vary among law firms, though the majority of the blame can be placed on the time and manual work demands of outdated invoicing processes. If you’re inputting billing and invoicing data by hand, you may have come across a similar situation as this:

Month-to-month you may be looking into your finances and noticing that the days outstanding on some of your largest client invoices are becoming larger. You sift through your paperwork, trying to compare documents and follow the invoicing paper trail. You search through the mail for a missing check then you give your client a call, but there’s no answer. Days go by, and you haven’t heard a word. Legal work continues, and that missing money stays missing. It’s a vicious cycle that can quickly overwhelm anyone.   

Tips to Avoid Outstanding AR

While there’s no universal rule on how you should manage your billing process, there are a few strategies that would help you solve these problems and reduce accounts receivable.

Establish clear policy during intake meetings

To streamline collections in your practice, you need to set the tone at the start of your intake meetings. Manage expectations by establishing a clear policy during client intake and request payment information upfront.  

Send invoices electronically

When you have clients’ billing information stored securely, you can send invoices electronically and quickly to avoid physical invoices getting lost in the mail. The easiest way to lower AR is to provide convenience for clients. With billing information in hand, you can auto-bill whenever it’s necessary. To eliminate the chance of clients redlining an invoice, you should send an electronic invoice the moment work is complete to allow clients to see the breakdown of your service while it is still fresh in their memory.

Allow payments via credit card, eCheck, or ACH

More than 59% of lawyers report regularly dealing with late payments. To avoid dealing with another late payment, consider implementing modern and digitized payment methods. Today’s clients expect and prefer a modern way of paying their bills. By implementing these new methods of payment, not only will you collect payment faster and lower your AR, but you can also boost your client’s satisfaction by providing a seamless payment experience.

It’s not hard to lower AR when you automate the billing process within your legal practice management system.

Use invoice templates and batch-send invoices 

Using invoice templates for common cases can greatly reduce manual work and increase staff efficiency.  In general, you can instantly create a customized invoice for each client from your saved invoice templates, making the process more efficient. In addition, you can also consider batch-sending invoices to your clients to save time.

Automate payment reminders

Another strategy to lower AR is to set up payment reminder emails or notifications for your clients. Life happens, from time to time a client may accidentally forget to pay an invoice. To combat this forgetfulness, use a reliable legal practice management system to help you set up automated reminder sequences to ensure your clients are always informed.

Provide multiple avenues to get paid

On top of offering more modern payment methods, providing more channels for your clients to pay you is equally important. This could include creating a unique custom link and placing it on invoices, email signatures, websites, and even any client portals that you may use. When your client can easily access the link, payments can be sent even quicker.

Lowering AR is Not as Hard as You Think

For the legal industry, using online payments can seem a bit “out of the box” but it’s rapidly becoming standard operating procedure. In 2022, late or unpaid payments should not be the reason for lawyers to stress or even risk losing revenue. Lowering AR won’t happen overnight, but with the right programs and strategies in place, it’s certainly attainable.

Online payments can help you streamline your payment process, increase your cash flow immediately, improve client satisfaction, and yes — eventually attain lower AR.

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Mayowa Mayowa Oyebadejo

Mayowa Oyebadejo is the Head of Marketing at Paradigm, which offers a suite of practice management solutions to help lawyers manage, automate and grow their firm. With a background in management consulting and an MBA from the Kellogg School of Management, he possesses a unique understanding of the business side of law firms and works tirelessly to pass this knowledge on to lawyers across the country. He views his work at Paradigm as simply helping attorneys master the balance of serving their clients and effectively operating their business. You can connect with him on LinkedIn.

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