With law firm profitability constantly under pressure, firms are increasingly concerned about their cash flow and getting paid by their clients. According to a survey from Ari Kaplan Advisors and LSQ, nearly 60% of law firms say getting paid is moderately challenging. As law firms look to improve the cash flow cycle and streamline the client payment process, many are turning to their accounts receivable (A/R) departments to bolster their firms’ finances.
Across the U.S., law firm A/R departments are turning to technology and data to improve processes, streamline payments, and provide greater flexibility to adjust to industry trends and changes. For example, that same survey found that 90% of the survey participants reported accepting credit card payments from their clients. The expediency of accepting credit cards has been instrumental in improving cash flow in the current climate.
Therefore, it’s more important than ever for A/R departments to use technology and digital platforms to better manage how the firm maximizes revenue. By understanding the current environment, identifying the right metrics, and ensuring that they have the right tools in place, A/R departments can play a critical role in the financial success of their firms.
Getting Paid When Everyone Works from Home
When law firms and businesses were forced to abruptly pivot to working from home at the start of the pandemic, the shift to a virtual/digital workforce impacted everything, including billing and payment processing.
In addition, staff and attorneys immediately found themselves facing entirely new challenges with hardware, software, and internet security. Those in the A/R department who were accustomed to having all the information they needed at their fingertips—or at least within nearby filing cabinets—often had to recreate information flow and processes from home.
As law firms were facing these issues, so were their clients. The A/R department’s usual approaches to invoice payments, such as picking up the phone to call a client directly, became much more difficult. Many of these relationships and processes had to be reimagined and redesigned.
Identifying Critical Metrics from A/R and Accounting Processes
Now that A/R departments have adapted to these new routines, it’s a perfect time for them to explore the software and processes they have in place and look for ways to optimize them. There is a wealth of information within A/R and accounting systems that can help firms evaluate everything from matter profitability to the cost of client development and satisfaction.
Technology plays a key role here, especially if the firm has legal-specific, automated systems that can produce robust reports that allow for financial management and analysis. With best-in-class software and processes, the A/R department can glean insights into the performance and payment practices of the firm’s attorneys, vendors, and clients. Along with tracking attorneys’ utilization rates, collection realization rates, work-in-process billing and other information, the right accounting systems can produce analytics that demonstrate how attorneys are spending their time, and whether that time is being used in the most profitable way, on the clients that matter most.
The A/R department should also look to other critical metrics, such as the history of client payments, aged A/R, and average days outstanding for receivables, and to identify where resources are needed and cash flow can be improved.
Best Practices to Analyze Billing Data and Track KPIs
Once the A/R department has the software and processes in place, it is time to determine the best approaches to utilize that information and create and enhance strategies that support the firm’s goals and growth.
That includes customizing reports around clients’ different needs and billing requirements, such as alternative fee arrangements and hourly billing preferences. The firm should also identify and track critical KPIs (such as A/R over 30 days, realization rates, write-offs, and write-downs) to address those swiftly.
Making Digital Payments Easy for Clients
The next step is to consider what clients need. While many law firms and businesses are cautiously beginning to explore returning to the office, many aspects of work from home culture and the virtual environment will last into the future. Instituting electronic invoices with easy payment options is one way to improve payment processes and improve client relations. That includes allowing for digital payments if firms don’t already offer that option.
With digital payment platforms, clients no longer need to manually write out credit card information and mail off invoices or take time out of their day to phone someone in A/R with those details. And in a busy office environment, it eliminates the risk of communication gaps resulting in misapplied payments. With a digital platform, clients can log in online to quickly and conveniently pay their invoices.
Mitigating Risk and Strengthening Security
However, the last thing any law firm wants is a security breach that could expose client credit card data to hackers. Such a breach could permanently damage law firm relationships and reputations, as well as have severe financial repercussions.
When law firms open the door to digital payment options, they must also institute best-in-class data security measures. Law firms, like other businesses that accept credit cards, must comply with the Payment Card Industry Data Security Standards, or PCI. These outline strict standards around how firms can accept credit cards and store data.
According to the PCI Security Standards Council, PCI involves a three-step process of assessing, remediating, and reporting. “PCI compliance is a continuous process,” according to the organization, a global forum that brings together payment industry stakeholders to develop and drive adoption of data security standards and resources for safe payments worldwide.
These risks can also be mitigated by using a third-party payment platform that already meets these PCI standards. These third parties can also offer robust reporting capabilities that make payment processing and accurate A/R application simpler and more efficient.
Conclusion
The challenges of getting paid are not new ones. But today, processing invoices presents new challenges as economic uncertainty continues. With the right tools, data, and approaches, A/R departments can be instrumental in helping improve payment rates, achieve the firm’s goals, and boost client satisfaction.
