Law Firm Business Strategies: 4 Keys to Breaking the 7-Figure Barrier (Part 4 of 4)
Here is the 4th key to breaking the 7-figure barrier for your law firm:
Key #4: Pay attention to your firm’s finances.
A 2014 LexisNexis survey of 309 U.S.- based law firms – 75 percent of which were firms with less than 10 attorneys – reports that 39 percent of a typical practice’s client accounts are past due. And of these past due accounts, only half are likely to be paid. That’s a lot of cash flow down the toilet. Seventy-three percent of small firms in that survey said they have past due accounts and 53 percent of firms have client accounts that are past due. So why aren’t lawyers getting paid?
The number one reason cited by lawyers in the survey (82.5 percent) was “client financial hardship.” Here are the other reasons in order of prevalence:
Client challenged value of charges.
Bill was for services performed too far in the past.
Client disputed services.
Bill format unclear to client.
In the “Other” category were these reasons for past due bills: invoices sent irregularly; poor tracking of fees and services; bills sent too infrequently and bill larger than client expected; inconsistent billing; corporate client with slow internal bureaucracy; and not a priority for client to pay.
It’s really hard to believe that four out of 10 clients are financial hardship cases. However, if these survey results are accurate, then law firms have a huge disconnect in one or more of these critical functions:
Marketing: You are clearly marketing to and attracting the wrong type of client.
Sales: You are not managing client expectations or educating them on the value of your services or your retainer fee is not high enough to weed these types of clients out on the front end.
BusinessProcesses: You have a broken billing model (i.e., hourly billing) or you do not have the proper systems in place to handle your billing and collections.
In the survey, attorneys admitted to something we all know is true (and is a lot more believable than client financial hardship): lawyers hate asking clients for money. They find it embarrassing, distasteful, even greedy, but I don’t know any lawyers who find money itself embarrassing, distasteful or greedy! The problem is if you don’t expect to be paid, your receivables will probably reflect that. If you pursue your work on your client’s behalf with passion, you should pursue payment for that work with the same passion.
So you likely need to (1) change your attitude; (2) put better systems in place; and/or (3) task this out to someone who is not afraid to bulldog clients about their bills. Your survival depends on it!