Managing Your Practice in Challenging Economic Times

In good times, work is plentiful and even poorly managed law firms can thrive. However, the current economic downturn presents a new set of challenges. For your firm to be successful, you need to be more focused than ever on managing the business side of your law practice.

Economic hardships are also being faced by your clients and prospects with potentially adverse effects on your practice. New business may be harder to generate; clients may demand less legal services or have trouble paying your bills.

Tough times can be a catalyst for positive change in your practice; an opportunity to review your business procedures and figure out what works and what does not.

By using Amicus Attorney and Amicus Accounting, you can have an arsenal of tools and reports at your disposal to help you minimize the negative effects brought on by the tough business climate.

This article deals specifically, with features you can use to help you better manage your Accounts Receivable and Collections efforts, to ensure good cash inflow for your firm.

Cash Flow – the lifeblood of your practice
In most law firms, client payments are the primary source of cash inflow. You depend on these payments to pay your bills, pay your staff, pay yourself and invest in capital goods that increase firm productivity.

A tough business climate may adversely affect your clients capacity to pay their bills. This can affect your firm in different ways including:

• Clients may take longer to pay your bills
• Clients may scrutinize their bills more closely and dispute charges on bills which or requires you to write down some of the charges
• Clients may not pay your bills at all and you will have to write off the entire account receivable

What can you do?
Let’s begin by looking at the Billing and Collection process which is divided into three stages. Stage 1 Time/Fee tracking; is the process of tracking your work (hour, fees and description) for the purposes of getting it on a bill. Stage 2 Billing; is billing your cases (includes gathering your Work in Progress for reviewing, editing, finalizing, printing and sending out to clients). Stage 3.Collections; involves the collection of payments which may include phone calls, subsequent bills, reminder notices and trips to the bank to deposit checks.

Each stage typically begins when the previous one is complete. Managing each stage in a more timely and effective manner is the key to reducing the time from “tracking work” to “getting paid”.

Let’s review what tools we can use to reduce the time it takes to complete each stage.

Stage 1 - Tracking Time: You can’t bill time/fees that have not been tracked
Amicus Attorney makes it easy to track your work as it is performed. Anyone can convert appointments, phone calls and notes to time entries ready for billing, but if your staff is delayed in tracking their work you can not begin the billing process. And, the longer you wait to track your time the less likely you are to remember it and the less accurate the details will be. So tracking your time as soon as the work is completed is key to increasing your billable hours. What policies or procedures do you have to ensure that time is entered on a timely basis?

Amicus Attorney’s Dailies module can alert you to days for which you have no time recorded and posted to accounting. Furthermore, you are also notified of any activity that has been entered for which no time entry has been created. Use this tool to help ensure that you are entering and posting your time on a regular basis. The Timesheets Module’s Monthly view also provides at a glance a graphical presentation of your time entered for the month. Use this view to determine what days you may have to enter and post time for.

Amicus Accounting’s Lawyer Activity Summary also provides a daily view for the month of time entered complete with hours and fee value totals. Use these tools on a regular basis to review the time entered into the system to ensure you can begin billing your clients as soon as possible.

• Tools and Reports to use:
  • Amicus Attorney o Dailies > Today’s Practice Reminders > Time Section o Time Sheets > Monthly View
  • Amicus Accounting o Billing > Lawyer Activity Summary

Stage 2 - Billing
Billing can often take an inordinate amount of time as the firm waits for time to get posted into the system, bills need to be reviewed, edited, finalized and printed. Amicus Accounting contains matter and system level controls that can streamline this process which will help ensure your bills go out more quickly and accurately.

1. Mass Bill - Many firms bill files individually but if you bill certain files on a regular basis, consider using the “Bill Multiple Client Option”. You can bill matters by client, by selected matters, Responsible/Assigned Lawyer, File Type or customizable Billing cycle. Mass billing is quicker than billing files on an individual basis and helps streamline your billing process.
2. Use the “Create Bills for Past Due Accounts” option in the Create Bills>Set Bill Options Screen. This ensures that clients with an existing Accounts Receivable balance but no new charges are reminded of their outstanding charges. You can also charge interest if you wish and include a memo on the bill with payment instructions to help your collection efforts.
3. Determine who is eligible for Billing - Use the Matter level billing settings to simplify the Draft Bill review and edit process. If the file is to be billed at case completion, select the “Exclude from Bill Multiple Clients” option in the Client Matter Details>Billing screen. This option ensures that the file is excluded from mass billing and less time will be spent in the bill review process.
4. Identify clients with Retainer Balances that can be used to pay bills. Clients with a Retainer balance and Work in Progress present a unique opportunity to instantly create revenue without having to wait for payment. The key is to identify clients with both a Retainer balance and Work in Progress that is ready to be billed. To print a report of clients with WIP and Trust Retainer balances run the “WIP Exception Report” from the Billing Module and select the “Files with Regular Trust only”. The report will list files where there is WIP that can be billed and a Trust Retainer balance. Simply create a bill for this matter (ensuring you have “Auto Transfer Trust to Pay Bill” selected in Clients>Client Matter Details>Billing selected) and the bill you create will be instantly paid by the amount of the retainer balance.
5. Amicus Attorney provides a means to warn you when you have reached a selected hourly threshold on a file. This feature is great if you want to bill a case on an interim basis or for files that have may questionable capacity to pay their bills. When you reach a certain predetermined amount of hours on the file a flag will appear in your Dailies. This can be a signal to either bill the client or ask for a retainer before continuing to work on the case. If there is concern about collecting from the client you can move on to working on files for which you will be paid.

• Tools and Reports to use:
  • Amicus Attorney
    • Files>Admin General>Warn Responsible Lawyer if Total Time (or Time Since) exceed X hours
  • Amicus Accounting
    • Billing>Create Bills>Bill Multiple Clients
    • Billing>Create Bills>Set Bill Options>Create Bills for Past Due Accounts
    • Billing Reports>WIP Exception Report “Files with Regular Trust Only”

Stage 3 - Collections
The longer accounts receivable go unpaid the less likely you are to collect. Many firms take this into account when writing off receivables at year end. The lesson is to take steps to ensure that receivables are collected in a timely fashion. Now is a good time to review your collection procedures or to create some if you do not have them already in place.

Accounts Receivable need to be analyzed on a regular basis not only at a client level but also by responsible lawyer and practice area. When you analyze across different variables patterns start to emerge that can help you plan for the future. Perhaps a certain practice area is prone to lower collection realization than others. Information like this can help you decide how you wish to expand your practice, hiring decisions and what kind of clients to take on. For the purpose of this article we will simply review what steps you can take for the current period.

1. Analyze Accounts Receivables on a daily basis. Often staff will only review and deal with accounts receivable after it has reached a critical point where the chance of collection is less likely. If you review Receivables on a regular basis you can nip these potential collection problems in the bud. Run an AR Aging or AR Exception Report to determine client bills that are outstanding. You may choose to concentrate on accounts that are over 120 days or clients with balances that have a better chance of being collected. These reports are invaluable and can be used in various ways:
   • Use the client list and have one of your staff call the clients to try and secure payment or at least understand why the account is overdue and take steps to collect or address any issues that is causing the account to not be paid. Be sure to track your collection efforts diligently on the client file. There is nothing worse than calling a client for an overdue bill when they have already spoken with someone in your firm and arranged a payment.
   • You can use the list to create reminder statements (described below)
   • Use the report to identify opportunities where a client has an outstanding balance and Trust funds to pay their bill (described below)
   • The reports may also indicate a requirement to write off some old accounts that have simply become stagnant. This allows the firm to get a more accurate picture of their outstanding accounts and for firms running on accrual accounting it reduces revenue on your books that will probably never be collected.
2. Run Reminder statements (Billing>AR Reminder Statements) for clients with overdue balances. If you wish you can add interest to the bills and create custom messages to foster payments. You can control all facets of reminder statements including: interest rate (if any), grace period and message to include on the statement.
3. Identify clients with Trust Retainer balances which can be used to pay bills. Run either the AR Aging or AR Exception report to highlight clients with outstanding balances and Trust retainers. Then simply run Trust>Trust Transfer to A/R to pay the bills.
4. Write off old outstanding accounts. Non payment is a factor for most businesses.
5. Use the opportunity to engage with your client. Perhaps they have a legitimate reason why their bills are not being paid in a timely manner. You might be able to work out a payment plan or you may decide to reduce the charges on the bill. Regardless, you clients will appreciate the empathy you demonstrate when you engage them in this fashion. They like to know that you understand their position.

• Tools and Reports to use:
  • Amicus Attorney
    • Notes– track collection efforts
  • - Amicus Accounting
    • Billing Reports>AR Aging Report o Billing Reports>AR Exception Report
    • Billing >AR Reminder Statement

A Word about avoiding Delinquent Accounts
There are things you can do before you take on a client that can also help reduce the risk of non payment to your firm including:

• Try and determine your client’s ability to pay. Do a credit check on your client if possible and don’t hesitate to refuse a new case if you are concerned with the client’ ability to pay.
• Include billing rates and quote for services in your engagement letter. The better informed a client is about what to expect, the more likely they are to pay your bills. This will also reduce the chance of the client disputing charges on their bill which increases the time it takes for them to pay as well as the chance that you will not collect the full amount of the account.
• Ask for Retainers (Trust or General) for clients where you are concerned about their ability to pay. At the very least collect a retainer for any costs you may have to advance for the client. This is more important for selected cases that may carry on for long periods such as litigation/criminal.

Conclusion
A thorough review of your time, billing and collections procedures will not only help you survive these tough economic times but also help you thrive when things get better. All you need to do is apply a little discipline and standard operating procedures and you can be on your way to being more successful in managing the business side of your practice.

George Alves
Product Manager
Amicus Accounting