How law firms can increase cash flow in uncertain times
With law firms’ profitability under constant pressure, law firms are increasingly concerned about their cash flow and how their clients are paid. According to a survey by Ari Kaplan Advisors and LSQ, nearly 60% of law firms say getting paid is moderately difficult. As law firms seek to improve the cash flow cycle and streamline the payment process for clients, many are turning to their accounts receivable departments to help strengthen their law firm’s finances.
In the United States, law firm A / R departments are using technology and data to improve processes, streamline payments, and provide more flexibility to adapt to industry trends and changes. For example, the same survey found that 90% of respondents said they accept credit card payments from their customers. The convenience of accepting credit cards has been instrumental in improving cash flow in the current climate.
As such, it’s more important than ever for A / R departments to leverage technology and digital platforms to better control how the company maximizes revenue. By understanding the current environment, pinpointing the right metrics, and making sure the right tools are in place, A / R departments can play a critical role in the financial success of their businesses.
Get paid when everyone works from home
When law firms and corporations were suddenly forced to work from home at the beginning of the pandemic, the move to a virtual / digital workforce impacted everything including billing and payment processing.
In addition, employees and lawyers were immediately faced with completely new hardware, software and internet security challenges. Those in the A / R department who were used to having all the information they needed on hand – or at least in nearby filing cabinets – often had to rewrite the information flow and processes from home.
Just as law firms have faced these problems, so have their clients. The usual A / R approaches to billing payments, like picking up the phone to call a customer directly, became much more difficult. Many of these relationships and processes had to be redefined and redesigned.
Identify critical metrics from A / R and accounting processes
Now that the A / R departments have adapted to these new routines, it is the perfect time for them to explore existing software and processes and look for ways to optimize them. There is a wealth of information in the A / R and accounting systems that companies can use to evaluate anything from the profitability of the matter to the cost of customer development and satisfaction.
Technology plays a key role here, especially if the company has law-specific, automated systems that can produce reliable reports that enable financial management and analysis. With world-class software and processes, the A / R department can gain insight into the performance and payment practices of the law firm’s lawyers, suppliers and customers. In addition to tracking attorney usage rates, collection realization rates, work-in-progress billing, and other information, the right accounting systems can produce analytics that show how attorneys are spending their time and whether that time is being used most profitably on the clients who are most important.
The A / R department should also deal with other critical metrics, such as: These include customer payment history, A / R age, and average days outstanding for accounts receivable, and identify where resources are needed and cash flow can be improved.
Best practices for analyzing billing data and tracking KPIs
Once the A / R department has the software and processes in place, it is time to identify the best approaches to using this information and develop and improve strategies that will support the company’s goals and growth.
This includes adapting reports to the different needs and billing requirements of customers, e. B. Alternative charging regulations and hourly billing preferences. The company should also identify and track critical KPIs (e.g., A / R over 30 days, realization rates, depreciation and amortization) to address them quickly.
Easy digital payments for customers
The next step is to think about what customers need. While many law firms and corporations are cautiously beginning to investigate the return to the office, many aspects of work from home culture and the virtual environment will continue to exist in the future. Setting up electronic invoices with simple payment options is one way to improve payment processes and improve customer relationships. This includes enabling digital payments if companies don’t already offer this option.
With digital payment platforms, customers no longer have to manually write out credit card information and send invoices or take the time to call someone in A / R with that information. In a busy office environment, the risk of communication gaps that lead to incorrectly applied payments is avoided. With a digital platform, customers can register online to pay their bills quickly and easily.
Mitigate risk and strengthen security
The last thing a law firm wants is a security breach that exposes customer credit card information to hackers. Such a violation could permanently damage law firm relationships and reputations, and could have serious financial repercussions.
When law firms open the door to digital payment options, they also need to put in place world-class data security measures. Law firms, like other credit card accepting companies, must adhere to Payment Card Industry Data Security Standards (PCI). These describe strict standards for how companies can accept credit cards and store data.
According to the PCI Security Standards Council, PCI includes a three-step process of assessment, correction, and reporting. “PCI compliance is an ongoing process,” said the organization, a global forum that brings together payment industry stakeholders to develop and drive the adoption of data security standards and resources for secure payments around the world.
These risks can also be mitigated by using a third-party payment platform that already complies with these PCI standards. These third party vendors can also offer reliable reporting capabilities that make payment processing and accurate A / R application easier and more efficient.
The challenges of getting paid aren’t new. However, the processing of invoices presents new challenges today as economic uncertainty persists. With the right tools, data, and approaches, A / R departments can help improve payment rates, meet business goals, and increase customer satisfaction.