Tackling Law Firm Collections: Biggest Problems

A Collections Survey asked law firms their No. 1 challenge for getting paid. Tips for tackling law firm collections problems.

Key Takeaways

1. Having a Good Collections Process: A good collections process is vital for law firms to have a steady flow of cash and be financially healthy. Without proper debt collection practices law firms can be financially unstable and operational problems.
2. Law Firm Collections Issues: Law firms have specific issues with debt collection including unclear fee agreements, poor invoicing and insufficient follow up. These can lead to delayed or missed payments and damage to the firm’s reputation and financial stability.
3. Which Collection Method to Use: Law firms can choose to collect in-house or outsource to collection agencies. Both have their pros and cons – cost vs expertise and control vs time saving.

Unless you’re independently wealthy and philanthropic enough to practice pro bono law 100 percent of the time, you want to get paid for the legal services you provide. Some clients, however, are less than forthcoming with payment for a variety of reasons. Some may not have the money to pay, or they may have money but it’s not earmarked for paying you. Other clients have the funds but won’t release them because of complaints about client service, performance or outcome. And some are so disorganized that they can’t seem to pay their bills on time, or at all — at least, that’s what they tell you, along with “the dog ate my homework.” Whatever the reasons behind payment delays, collections problems are often a frustrating and confounding part of running a law firm. But if you don’t do collections well, you could be out of business. A collection attorney can help mitigate collections problems and ensure timely payments.

Law Firm Collections

What are Law Firm Collections?

Law firm collections are the process of collecting unpaid debts from clients who have not paid their bills on time. This can be debts from individuals, businesses or other organizations that have used the law firm’s services. Collections are key to a steady cash flow so the firm can continue to provide top notch legal services to clients. Without a good collections process a law firm may struggle to meet its financial obligations and put its operations and reputation at risk.

Law Firm Collections Challenges

Law firms face several challenges when it comes to debt collection which can complicate the accounts receivable process. These challenges are:

• Difficulty in Communicating with Clients: Some clients will avoid contact so you can’t discuss payment.
• Unclear Fee Agreements: Ambiguity in fee agreements can lead to disputes and delays in payment.
• Inadequate Invoicing and Billing: Poor invoicing can cause confusion and missed payments.
• Insufficient Follow-Up and Collections: Without follow-up overdue accounts can quickly add up.
• Limited Resources and Knowledge: Many law firms don’t have the specialist resources and knowledge to collect debt.

These can lead to delayed or missed payments and impact the firm’s financial stability and reputation. You need to address these issues now to maintain a cash flow and the firm’s long term survival.

Collections Survey Results: No. 1 Challenge?

Curious about how law firms were dealing with the collections conundrum, Orion Law Management conducted a study of its clients focused specifically on collections. The 2019 Orion Collections Survey assessed law firms’ greatest challenges and also asked respondents to share their best practices for getting paid.

A collection law firm can provide specialized services to address the collections challenges identified in the survey.

The survey gathered results from all levels of law firm professionals, from C-level executives to firm administrators to billing and collections specialists and analysts. We asked “What is the No. 1 challenge your law firm has with collections?” and gave them four possible responses including:

1. Timing — how long do you wait until asking for the money?
2. Tone — how do you contact the client to get payment but avoid offending them in the process?
3. Policy — setting a universal payment and collections policy that will apply to all clients.
4. Enforcement — how do you handle approaching clients about late payments once they become overdue?

Of these four possible responses, “policy” was the most vexing collections challenge for law firms, with 57 percent of respondents choosing it as their greatest challenge. Second place went to enforcement at 29 percent, followed by tone at 14 percent. Zero respondents chose timing — showing that law firms struggle more with how to convey, and deliver on, their collections message rather than when to send those messages.

Best Practices for Improving Debt Collection

The Collections Process Is Both an Art and a Science

The collections process requires a mixture of rigor and diplomacy that varies for each client. The objective is for the firm to get paid while also treating the client with professionalism and respect. The point of billing provides the client a moment to evaluate the value the firm is bringing and to then acknowledge that value by parting with money. When initial collection efforts fail, collection litigation can be an effective tool in recovering debts.

Law firm accounting and billing departments are responsible for collections, and it sometimes involves the firm administrator or C-level executives for the most delicate or complicated assignments. Below, several Orion Collections Survey respondents share helpful best practice tips for improving collections.

Set That Policy!

Survey results show that policy is the most difficult of all collections-related issues for law firms. Even though it’s far from easy, it’s worth investing the time and resources to establish a uniform policy. Commercial collections require specific policies to address the unique challenges of collecting debts from businesses. Katherine Williams, Business Manager at Fowler, Hein, Cheatwood & Williams, says that in addition to setting policy for accounts receivable, firms must “be universal regarding your payment requests both in email content and expectations, and keep GREAT NOTES.”

Get Collection Attorney Buy-In

When following up on unpaid bills, Ray Lightell, Chief Operating Officer of Galloway, Johnson, Tompkins, Burr, & Smith, says: “Make sure you get buy-in from the responsible attorney and get successful results by being persistent and professional when dealing with the clients. Generally, success breeds buy-in from other skeptical attorneys who think they are the only ones capable of dealing with the client. Unlike debt collection companies, which operate under strict regulations, law firms can offer a more tailored and dedicated service for creditors.”

Stay on Top of Collections with Frequent Reports

It is all too easy to lose track of collection status when new projects are constantly flowing in throughout the day. However, having an ongoing handle on collections is helpful for both the billing department and lawyers. Debt collectors play a crucial role in obtaining payments quickly and efficiently, ensuring that businesses maintain a steady cash flow. Lewis & Roberts PLLC Billing Specialist Lisa Holmes suggests: “Run reports often to keep on top of collections. The Aged AR report is great. We also print and distribute this report, by attorney, once a month so that they can also keep collections in mind.”

A Gentle Reminder at the Right Time

Left unchecked, collections can get out of control with clients having several outstanding invoices. This puts you in the awkward position of having to ask for larger amounts of money as invoice totals accumulate. Addressing past due accounts promptly can prevent financial losses and improve cash flow. For better results, steadily and tactfully remind clients of past due bills via phone or email before the amount spirals too high.

Gina Erbe, Billing and Collection Supervisor at McCormick Barstow LLP, says: “I try to stay on top of my AR by making sure I follow up on prior invoice balances when I am processing the current invoice. This reduces past due balances and keeps the AR from getting out of hand. A quick email or phone call to the client or a reminder statement gets generated at 30 days and prompts them to pay sooner than later. We also send the reminder statements out on all previous balances and stamp them ‘past due.’ This has prompted the payments to come in and the clients to call in with credit card payments. We also distribute the Aged AR report to the attorneys once a month, so they can follow up with their clients as well.”

Phone Calls Stand Out

With emails and texting prevailing for today’s business communication, the telephone is used less often. However, phone calls can be a productive approach to collection. “I start with persistent emails followed up by phone calls,” says Diane Stead, Administrator at Chimpoulis & Hunter, P.A. “Phone calls get people’s attention.” If these initial efforts do not result in payment, further legal action can be taken to escalate the situation.

Show Trust and Respect, Inside and Out

Tone is an often-overlooked aspect of customer service, but 14 percent of survey respondents called it their No. 1 collections challenge. Using a respectful tone when talking and also remembering to listen can improve connections between billing professionals and lawyers inside the firm, as well as between firm representatives and clients.

Darlene Maronge, Collections Analyst at Galloway, Johnson, Tompkins, Burr & Smith, says: “First, I try to get the trust with the attorneys, so they can practice law and be removed from collection process with their clients. When I have to contact a client for payment, I speak to them the way I would want someone to speak to me, especially trying to collect payments. I always listen to the client. To me, it is important to be respectful and be responsive as soon as possible regarding issues with invoices. I also keep the attorney updated with any issues that they might have to address.”

Asking for money is tough, especially when you’re trying to preserve a client relationship. The Orion Collections Survey shows that law firms have struggles with collections at the strategic, policy and tactical levels. Fortunately, there are ways to overcome the collections conundrum by explaining billing policies clearly, communicating effectively, and enforcing policies unilaterally. Technology can be a secret weapon in helping track and follow up on collections with greater consistency as well. When the collections process is a finely tuned instrument, money arrives when it’s supposed to and the whole firm benefits.

Choosing the Right Collection Method

Collection Agencies vs. Collections In-House

When it comes to collecting debts law firms have two options: use a collection agency or do collections in-house. Each has its pros and cons.

Pros and Cons of Using a Collection Agency

Pros:

• Expertise and Knowledge: Collection agencies are debt collectors, they have the experience and proven strategies to collect past due accounts.
• Time Saving: Outsourcing collections allows law firms to focus on their core legal work, save time and resources.
• Legal Compliance: Collection agencies know debt collection laws and regulations, less risk of legal issues.

Cons:

• Cost: Agencies charge a percentage of the collected amount, can be expensive for law firms.
• Loss of Control: Outsourcing means giving up some control of the collections process which can impact client relationships.
• Generic Approach: Agencies may use a one size fits all approach that doesn’t align with the personalized service a law firm can offer.

In-House Collections

Pros:

• Control: Law firms have full control of the collections process, can communicate personally with clients.
• Cost Effective: Doing collections in-house can be more cost effective, no agency fees.
• Client Relationships: Direct communication with clients can help maintain and build relationships.

Cons:

Risk of Errors: Without proper training and systems in-house collections can lead to mistakes and legal issues. enforcing policies unilaterally. Technology can be a secret weapon in helping track and follow up on collections with greater consistency as well. When the collections process is a finely tuned instrument, money arrives when it’s supposed to and the whole firm benefits.

Resource Intensive: Managing collections takes up significant time and resources, takes away from legal work.

Lack of Expertise: Law firms may not have the specialized skills and knowledge that a dedicated collection agency has.

Related:

• “Getting the Fee You Deserve” by Bob Denney
• “Streamlined Billing: Five Best Ways to Make Sure You Get Paid” by Nicole Black
• “Prioritize Proficiency in Real-Time, Contemporaneous Timekeeping” by Kevin Harris

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