Conduct a Stakeholder Meeting
The first step in establishing or evaluating your billing and collections practices is to confer with all of the stakeholders in the firm who are or will be involved in the billing and collections process to evaluate the firm’s existing policies or create new ones.
It will be difficult (if not impossible) to maintain consistency with these policies if all of those at the top are not in agreement about the policies in the first place. If management doesn’t believe in them, they may not comply themselves or enforce the policies with those they supervise. Depending on your firm’s individual circumstances, this might include not only partners, but also the firm’s chief operating officer, chief financial officer or billing manager. Even if you’re a solo, it is worth investing the time to undertake this exercise.
Any review of billing and collections policies should begin with actual data, so all stakeholders should be given financial reports that can help inform the discussion. Some reports to consider include:
- Work in process (WIP) aging.
- Accounts receivable aging.
- Realization reports (fees worked/billed/collected).
Billing and Collections Policies Discussion Points
There are several major areas that should be covered in the firm’s billing and collections policy. Keep in mind that the firm may first need to determine if different policies should be adopted for different kinds of work, practice areas or clients. Some areas to explore include:
- Setting and calculating fees.
- Billing and invoicing mechanisms.
- Payment acceptance.
- Timing and due dates.
- Discounts, penalties and payment plans.
- Accounts receivable procedures.
Additional procedures that are beyond the scope of this article include billing requirements for attorneys and other professional staff within the firm, methods of time and billing entry, and more.
First, the firm must decide on rates and how fees will be calculated. Will the firm charge by the hour, on a contingency basis, by monthly retainer, use fixed or flat fees, or some combination? Do different types of billing arrangements require different billing procedures? Will the firm require some sort of upfront payment or retainer? If so, what are the rules for when those fees are considered earned? What account should fees be deposited in?
Next, the policy should address the way bills and invoices are created and delivered to clients. For example, will they be delivered by email, or will clients be notified through a secure client portal? Similarly, what kinds of payments will the firm accept and how should payments be made (check, credit card, online, payment portal)?
Firms should explore how often clients will be billed. Will invoices be generated at the same time for all clients such as the first of every month, or will bills be generated based on specific triggers in each matter such as at the beginning of each stage? When will clients be expected to pay—at the time the engagement agreement is signed, within 15 days of receiving the invoice, etc.?
The billing and collections policy should address whether the firm will offer discounts, such as for early or on-time payment, or penalties or interest for late payments, in what amount and under what circumstances. A clearly articulated accounts receivable procedure might also speak to questions such as:
- Should clients receive a reminder notification after the invoice is sent but before payment is due?
- How will delinquent accounts be identified?
- When and how (email, text, telephone call, etc.) will the firm follow up with clients who have failed to pay on time?
- Who will conduct the follow-up?
- How will the firm keep track of these contacts with clients?
- When should a delinquent account be escalated to a different level or be sent to collections?
- Will the firm stop work if a client fails to pay?
Identify the circumstances that might justify an exception to the firm’s standard policies, as well as who is authorized to make such an exception and the procedure for obtaining approval for an exception, as well as the steps to be taken once the exception has been made. If the firm has an ability to run exception reports that would show how often exceptions are being made, those reports can help determine whether the firm’s current policies make sense or whether changes to the standard policy should be made.
Once the billing and collections policies have been established, the stakeholders should discuss how the firm will communicate the policies to employees and what training will be offered, as well as how the firm intends to enforce them.
If the firm already has billing and collections policies in place, it can be helpful to identify bottlenecks that impede timely receipt of fees. For example, are the lawyers in the firm slow to enter their billing into your billing system? Are they slow to return draft bills for finalization? Are clients slow to pay? Are there delays in processing payments received? Is follow-up on past due bills done only after payments are 30 days past due?
Once those delays or bottlenecks have been identified, changes can be made to address the problem, whether the change involves making it easier for lawyers to document their billable activities, changing payment terms, streamlining payment processing or creating a better follow-up system.
Document Billing and Collections Policies
Documenting billing and collections policies and procedures can increase compliance and facilitate training of new employees. Portions of the written policies can also be used to help clients understand the firm’s billing and collections procedures.
Documenting your billing and collections procedures doesn’t have to be limited to text-only documents or spreadsheets stored somewhere on your firm’s server. Documenting your policies and procedures in different media might be more effective. For example, the firm could create a slide presentation with visuals that can be used when onboarding new employees or add FAQs to its website or client portal explaining how to make payments. Record video tutorials both for staff and clients. For example, you could record video:
- Showing employees how to enter their billing properly within your software system.
- Demonstrating how lawyers can run their own WIP reports.
- Guiding clients through your payment process so they can see what an invoice looks like, how to reach your payment portal, etc.
Use Technology Wisely
Even at a time when firms are looking to minimize their expenses, an investment in some key software is well worth it for firms of all sizes. Maintaining a good contact database (as opposed to keeping client information in Word or Excel), time and billing software, accounting software, electronic payment processing and case management solutions makes for a much more efficient billing and collections operation, and will allow the firm to automate much of the process.
Choose tools that integrate well with one another or that combine several of these functions into one platform. Many of these tools can be accessed over the internet and have their own apps that you can install on your computer, tablet or smartphone. Be sure to keep whatever tools your firm uses—and the data they contain—up to date and to provide training to any employee who will be using them.
Implementing billing and collections policies can improve the collectability of accounts receivable, provide a framework for discussions with clients about fees and billing practices, and deliver valuable information about your firm’s financial health.