November / December 2003  Volume 29, Issue 8
ABA Law Pracice Management Magazine, November/December 2003 Issue
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Trends Report: As AR Heat Up, Fire Sales Cool ’Em Down
Bob Denney
Historically, increases in accounts receivable usually meant increased business. Today, however, AR in many firms are growing for another reason: Clients are taking longer to pay. In these firms, total AR have increased from the acceptable average of three months maximum to four, five or more months because of increases in the over-60 and over-90 day categories. Sooner or later, this causes a drop in collections, even if billable hours have increased—an unpleasant trend, to say the least.

There are two standard approaches to controlling and collecting AR: (1) through checking at the intake and (2) through constant follow-up. In some cases, though, the old AR still continue to increase. Because experience has shown that, on average, only 50 percent of the receivables over 180 days old will ever be collected, a new trend has been gaining momentum—“fire sales.”

Here’s how to avoid a fire sale—or how to hold one when all else fails.

At the intake. Before you accept new clients, be sure they can pay for the work you will be doing. Credit checks are an indicator. A better way, however, is to give the prospective client a projection of what the total fees will be and require a retainer. One of the areas most prone to slow pay, or even no pay, is divorce. That’s why experienced family law practitioners require retainers, not only at the intake but also regularly throughout the case.

By follow-up. It’s hard to believe, but many firms still do not have established procedures to follow up on their AR. Firms that do control their AR generally take the following action steps, which you should consider, too:

  • Keep the lawyer out of the picture as long as possible. Use someone else—the administrator or controller, accounts receivable clerk or other member of the support staff—to write the letters and make the phone calls.
  • Begin the follow-up at 30 days by sending a second copy of the invoice.
  • At 45 days, send another copy of the invoice, stamped “past due,” with a gracious but firm letter asking the client to make payment within the next two weeks. Copy the responsible-billing lawyer on the letter.
  • If no payment is received by 60 to 75 days, have the staff person call the client to ask if there are any problems and to obtain the client’s commitment to a payment schedule. If the client has questions about the invoice, inform the billing lawyer, who should now call the client. Absent questions, have the staffer discuss a payment schedule with the client—and confirm it in writing after the call, copying the billing lawyer on the letter.

Fire sale time. If, despite repeated follow-up and perhaps stopping work on any open matters, the client has either not paid in full or not committed to a payment schedule, consider holding a fire sale. Offer to settle the account at some lesser amount—75 percent or even 50 percent—if the client pays that amount immediately. Some firms have a staff person handle this—with management approval, of course. In other firms, the responsible-billing lawyer makes the offer.

Fire sales are not desirable but, nonetheless, a growing number of firms are holding them. Why? Even half a loaf is better than no loaf at all.


Bob Denney ( bob@robertdenney.com) is President of Robert Denney Associates, Inc., providing strategic management and marketing consulting to law firms. He can be reached at (610) 964-1938.