Law firm CFOs today have many priorities to meet in a role that has become more demanding and varied than ever, but one of the most fundamental and continuously challenging is how to get paid faster. If cash isn’t flowing into the business in a timely manner, financial stability could be put at risk.
Though maintaining prompt and steady inflows of payments is critical, it is also potentially fraught with impediments. There are many reasons why your firm’s work-to-cash conversion timeframes could be being elongated. But on the plus side, there are also several tactics you can take to improve the situation.
Here, we look at five ways CFOs can shorten the time it takes to be paid for work your firm has done — and minimize the chances of invoices being written off altogether:
1. Facilitate time entry
Find ways to make it easier for lawyers to log all the time they spend working on a client’s matter accurately — in the correct way the first time round and from wherever they are working (whether remotely or in the office). Having systems in place to standardize and facilitate time entry makes it less likely that valuable time spent on a task will get missed off the bill, and should also reduce the risk of incorrect entries that could delay invoices being sent out — or even in the worst case scenario, being sent out wrong. It could also help to unlock WIPs: making it easier to demonstrate that work is no longer in progress but has been completed so that you can invoice for it.
2. Streamline the billing process
Having time entry right, the next step is to take greater control of — and streamline — the billing process. Since lawyers are busy and need to focus on billable work, it makes sense to reduce the number of manual touch points they need to be involved in that can slow things down along the way; for instance, around pre-bill verification, so that bills can be submitted faster. Having automated alerts embedded into processes that flag it up and provide a deadline can help spur people into activity. Where an automated billing system is overseen by the finance team, the need for fee earner input can be significantly reduced or even eliminated altogether.
3. Ease invoice complexity
Dealing with rejected invoices caused by a failure to adhere to clients’ billing guidelines can take up a huge amount of resources. On top of the inefficiency, there’s an even more pressing concern: that the contested invoice might end up being written off altogether. Therefore, the more firms can do to ensure that invoices comply with the relevant guidelines at the outset — even at the point of time entry — will both save time and prevent revenue being lost after all the work is done. Creating friction-free payment procedures will also be appreciated by clients, too.
This can be a complex task, given that each client has their own specific requirements. So you need to have a suitable system in place to manage all these different details, and embed them into your infrastructure to make sure you get paid on time, every time, with no queries, delays or write-offs.
4. Focus on visibility
It’s essential to have visibility over billing progress and payment status so you can identify where blockages typically occur. Are frequent delays noticeable at one specific point in the internal billing process and if so, why? Are some teams or individuals holding up bill submissions? Which clients are slow payers? Can staff (including lawyers as well as the finance team) easily see when payments are overdue and by how long? And are these issues being flagged up automatically or is manual checking and re-checking required? Without this transparency, there’s a risk that issues will remain undetected for longer.
5. Target blockages
According to the Law Society, the average number of “lock-up days” (comprising both WIP and debtor days) at UK firms is currently 140 days — or well over four and a half months. Reducing this could clearly have a dramatic impact on improving a firm’s cash flow position and free up significant amounts of working capital. Timeliness of payments also has a bearing on the question: should law firms should use cash or accrual accounting? (In terms of whether revenue is recorded before or after the monies have come in.)
Therefore, having all the information listed above readily available in real time means problems can be picked up early so strategies can be put in place to tackle them. You will be better placed to decide what support or systems are required to help move things along internally, what action can be taken to accelerate payments, who should follow up with slow-paying clients and when, and how they should be alerted to the need to do so.
How do large law firms manage their cash flow?
Questions around how to shorten ‘time to cash’ and banish non-recoverable debt remain a persistent preoccupation for CFOs — impacting not just cash flow and working capital availability, but partner equity levels and the firm’s ability to hit KPIs as well.
The answer lies in leveraging data and having suitable digital tools in place to streamline, standardize and automate as much of the payment process as possible – from time entry to bill preparation, invoice submission to tracking, and with automatic alerts and reminders included. With smart technologies such as 3E, the leading practice and financial management solution, CFOs can turn a threat into an opportunity to get paid faster, smooth out cashflow, and strengthen their firm’s financial foundations.
Read our white paper, “The data-driven CFO: The evolving role of financial leadership in the legal sector” to learn more.