I am sure you will agree that cashflows are the lifeblood of a law firm and in fact any other professional services firm. Given the Covid-19 pandemic, in 2021, staying on top of billings collection and cashflows are the top priorities for law firms.
It turns out, one can increase billings collection rates and cashflows by 25-35% through a technology solution, which integrates well with practice management systems used by law firms.
We have tackled How to increase revenues via client payment plans? in a separate article. Here, we will focus on how law firms can and do improve their collection rates and cashflows through technology, whilst increasing revenues, reducing admin time spent on ‘chasing payments’ at the same time.
A recent Thompson Reuters survey of Top 100 Law Firms found that tightening credit controls and reducing payment days are the top 2021 priorities for virtually all finance leaders of Top 100 law firms. Improving billings collection goes to the core of how law firms can tighten credit controls and reduce payment days.
The above survey results do not come as a surprise. Recent history tells us that when the times get tough, legal and professional services firms suffer disproportionally with late payments relative to firms in other sectors. A study published by CityAM found that in 2019, 70% of invoices were paid late by clients of legal and professional services firms (vs 50% for retailers for example), and up from 30% from the previous year.
We believe that one of the key reasons that historically law firms and professional services firms have suffered more in terms of collection rates relative to other sectors, is given their relative delay in embracing available technology and payments solutions. The e-commerce retailers for example, have embraced innovative payment collection methods, accounts receivable technologies and Buy Now Pay Later (“BNPL”) partners such as Afterpay, Affirm or Klarna to increase their revenues and collection rates, whereas until recently, in relative terms, the legal and professional services sector has lagged behind in the technology adoption.
“When the next leg of the lockdown is over, we anticipate that technology will be the focus of law firms in a way that it hasn’t been since the late 1990s when the internet, extranets, and email really burst on the scene.”
“In our view, law firms’ openness and ability to quickly embrace new technology will create clear winners and losers. Technology is going to be a key feature of the year ahead and that those who fall behind in adopting it might struggle.” (Source: Thompson Reuters Survey of Top 100 Law firms).
Against this backdrop, what are the practical steps that a law firm can take to increase its collection rates through the use of simple technology?
In order to increase collection rates, tighten credit controls and reduce payment days, law firms need to look for a technology solution tailored to them that provides the following elements:
· Automation: automation of sending out bills and accounts receivable process, including automated notifications and reminders to clients, in a way that works seamlessly with the existing practice management software.
· Personalisation: understanding the persona of the client of the law firm, and sending highly tailored automated reminders in language (e.g. English or Spanish) that the clients feel mostly comfortable with.
· Communication: optimising the communication channels with the law firm clients in most effective methods (e.g. through automated SMS and email reminders, delivered in a balanced and highly personalised way).
· Alternative payment options: enabling the law firm’s clients to be able to pay the bills through variety of payment alternatives, ranging from bank / ACH transfer, direct / ACH debit, credit / debit cards, and not just wires.
· Enabling payment plans: law firms get more revenues via providing very simple payment plans to their clients, for example by setting up ‘fixed fee’ quotes and enabling their clients to pay in 3–6 monthly payments (instalments). In our experience, this is hugely powerful for immigration or family law firms and it quickly becomes a clear competitive advantage for winning new clients.
· Smart reconciliation: ability to reconcile the vast majority of the bills back to the payments received, without the need of manual intervention.
Let’s start with some of the more obvious benefits that law firms see within very short space of time. On average, law firms using software like payink.com achieve:
· Increased collection rates by 25-35% and corresponding increase in cashflows through a highly tailored technology solution.
· Admin time saved by 45% by not ‘chasing’ unpaid invoices and doing manual accounts receivable tasks.
· Reduced payment processing costs by 33% through optimisation of payment providers.
In addition to the above, there are some less obvious, but very important additional benefits, such as:
· Increased revenues by 10-15% — through offering simple payment plans, law firms can gain competitive advantage and win new clients that need their services but have some short term affordability challenges.
· Increased client satisfaction by 30% — through carefully drafted and personalised notifications and reminders, one can increase collection rates, whilst improving client satisfaction and net promoter scores.
The short answer is yes. There are several genetic software-led solutions available in the market, and also a specialised ones like payink.com that are tailored to law firms and other professional services firms.
The payink.com solution takes about one day to be implemented and integrates very well with practice management system of the law firms such as Clio and their payments processors, such as Stripe or Square.
If you are professional within a law firm and would like to get further thoughts on how you can improve collection rates though the use of technology, please reach out to the payink.com team.
About the author
Branislav Trajkovski is Director and investor at payink.com, a financial technology company aimed at increasing collection rates for law firms, accounting firms, clubs and other SMEs.
After starting his career with PwC London, Branislav moved into investment banking, investments and subsequently in financial technology companies. Branislav is a senior professional with operational and board level experience gained in financial technology companies such as Dlocal.com and Direkta24.com, which grew from humble start-ups to unicorns.
His experience comprises operations, compliance, finance (Chartered Accountant), corporate development / M&A and capital allocation.