Nine Signs Your Firm May Be Its Own Worst
Collections Enemy
Lessons from a Survey of Legal Professionals
Bad News, Worse News and New Hope for Small Firms
Struggling with Collections
First the bad news: Many law firms, especially small ones, struggle with getting paid.
According to an online survey of law firm professionals conducted by LexisNexis®, more than 7 out of 10 respondents
struggled with overdue client invoices “sometimes,” “most of the time” or even “always.” What’s more, at any one time,
almost a third of those same respondents are awaiting payment on overdue invoices for anywhere from 20 to 50
percent of their clients.
The informal survey, conducted from July 23 through August 1, 2014, was distributed to the readership of a third-party
publication dedicated to helping attorneys build better practices.
What’s surprising isn’t so much the struggle with getting paid. That seems to be a regrettable, but accepted fact of life for
many law firms, especially independent and small-firm attorneys. The surprise is that so many firms appear to be doing
so many different things to sabotage their own collections, as we’ll explore further in the following pages.
There is a good news side of the equation, though, and it’s a bombshell. We’ll reveal that later, but needless to say, it has
the potential to forever change the way a lot of firms think about client collections, and possibly even act as a gamechanger for the way you conduct business.
Before we get to that, though, let’s track through those nine signs your firm may be its own worst collections enemy.
SIGN 1: Automatically discounting or writing off work BEFORE sending the bill
There’s an old truism in pricing, and never more so than in pricing services: Your customers will only value your product
as much as you do.
So what does it say about the value of legal work that more than 70% of survey respondents “often” or “sometimes”
discount invoices BEFORE the client ever sees the first bill?
Figure 1
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Law practice management consultant Ann Guinn, who is based in Kent, Washington, has seen the bill-discounting
problem all too often from small-firm attorneys who come to her seeking advice about their underearning problems.
Once she takes the time to better understand their practices, she finds many of them guilty of just such a habit.
Does it make sense? Certainly not from her point of view.
According to Ms. Guinn, “If you make a habit of continually discounting and writing off legal services, it’s only a matter of
time before your clients start discounting your capabilities.
“I even had one client who meticulously recorded every task worked on every workday and showed down to the minute
all those details on his invoices,” she said. “Then he discounted every single line item by 30%. He didn’t discount the total
bill, he discounted every time entry. No matter how large or insignificant the task, every single one was marked down.
“When I asked him why he did this, his answer broke my heart. He said, ‘I guess I just don’t see the value in my work.’
“The thing is, he never gave his clients a chance to place their own value on his work. He jumped in and, in effect, said,
‘This is the cost of the time I worked for you, but my end product wasn’t worth that money.’ That really left his clients with
no alternative but to agree with him: He wasn’t worth it.”
According to the survey, which allowed multiple responses for all that applied, law firm professionals named a variety of
reasons for their upfront discounting:
Figure 2
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SIGN 2: Not following up adequately on overdue bills
Almost half (45.6%) of law firm professionals in the survey said they considered it “unlikely” or “very unlikely” that they’d
ever collect payment from a client 90 days or more past due.
Figure 3
In point of fact, says law firm consultant Ann Guinn, that attitude often turns into a self-fulfilling prophecy. Some
attorneys and their firms are loathe to send even a polite dunning letter to overdue clients, never mind actually picking up
the phone to try to resolve the bill, or even ask if the client was somehow dissatisfied with the firm’s legal services or their
bill.
For many legal clients who don’t feel their case was given the attention it deserved, or who felt slighted by even a small
incident during its resolution, withholding payment may be seen as one final opportunity to get the attorney to take
notice.
Even if it’s a little humbling, calling about an overdue payment can be a good chance for an attorney to find out exactly
what is on the client’s mind and discover ways to improve their own interaction style and processes going forward, not to
mention improving their odds of getting paid.
“If you don’t ask, you’ll never know,” says Ann Guinn. “And if you don’t know, you’ll likely keep making the same mistakes
again and again.”
According to Ms. Guinn, though, the tendency to let collections slide is only one part of the communication struggles her
clients often face in getting bills paid.
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SIGN 3: Not discussing payment expectations up front
Ms. Guinn recommends that estimate and payment discussions be an integral part of the very first client meeting.
“Sadly,” she says, “far too many attorneys treat the very idea of money and compensation as if it’s beneath them as
attorneys.
“That’s particularly disappointing because most clients actually want to discuss money upfront so they can get some
idea of what their legal services might cost, and when payments will be expected from them.
“At the very least, attorneys should use carefully crafted fee agreements that lay out the firm’s billing policies, including
their expectation of prompt and full payment, and the repercussions for unpaid or delinquent payments.”
Ms. Guinn also advises her attorney clients to make sure they have some contact with every active client at least once a
week. “The more you communicate with your clients all along, the more likely you are to get paid at the end.”
Her work with underearning attorneys puts Ms. Guinn in contact with many lawyers who seem resigned to the fact that
some percentage of their client invoices will never be paid at all, in effect giving up on collecting before they even try to
resolve difficulties, further exacerbating the situation.
“I really stress to the attorneys I work with that their billing realization – that is, the percentage of billed money that is
ultimately collected – should always be at 90 percent or higher,” Ms. Guinn said. “Anything less, and you’re simply leaving
too much money on the table.
“The worst part is that many attorney’s families end up paying the price for all those unpaid bills,” she said. “I try to
convince every attorney not to put some misplaced sense of pride about collecting legitimately earned money ahead of
the needs of their own families.
“Once they stop to think about it that way, the hardest part of my job working with underearning attorneys is usually
done. From there, it’s all about spelling out the details of the next steps.”
SIGN 4: Not requiring a substantial retainer up front
“A wise mentor once told me… ‘If they can’t pay you when they need you the
most, they aren’t going to pay you when they no longer need you.’”
It’s hard to find a better case for requiring retainers than the quote above that we received from one of our law firm billing
survey respondents.
Even assuming you do ask for a retainer, though, many attorneys seem unsure about just how much upfront money they
should require.
Ann Guinn’s standard answer to her clients is that retainers should be large enough to cover at least the first two months
of your estimated time and expenses.
If the prospective client balks at the resulting number, consider the quote from above, then take the time to reconsider
whether it’s in your firm’s best interests to take him or her on as a client at all.
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SIGN 5: Automatically assuming that client financial struggles are the reason for unpaid bills
More than 80% of respondents to the LexisNexis billing survey name client financial struggles as the primary reason that
law firm invoices are allowed to fall past due. And that certainly can be the case.
The concern is when firms automatically assume that unpaid invoices are the client’s problem without looking seriously
at how their own billing habits and processes may be getting in the way of collections.
Take a look at the rest of the survey respondent answers to the question:
Figure 4
While it’s obviously more popular to lay the blame for late payments squarely on the doorstep of firm clients, writing off
collection problems entirely on others’ shortcomings doesn’t do anything to help firms move forward on fixing their own
billing problems.
It only keeps them stuck in thinking they’re powerless to improve their realization numbers, which can be a very bad
mistake.
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SIGN 6: Taking too long to send bills
Let’s go back to one response in particular to that last question about why clients allow a legal bill to become past due. A
surprising 15.2 percent of respondents indicated that their bills sometimes fall past due because the bill was for services
rendered too far in the past (see Figure 4).
For LexisNexis Professional Solutions Manager Joel Eaton, that particular response is as disheartening as it is predictable.
As an expert in back-office processes and productivity – and the profitability that results (or doesn’t) – he sees the
problem far too often in his law firm consulting role: firms that wait far too long after matter resolution to send out bills,
some as long as three months or more.
And he says it affects collections velocity, as well as realization
numbers.
Mr. Eaton studies the unbreakable tie between billing and collections
velocity and thinks one of the worst signals you can give your clients
is not sending the final invoice out within days of matter resolution.
Why does it matter? Because legal clients, like most of us, have
short memories.
“Clients often come to attorneys with stress overwhelming their
thoughts,” Mr. Eaton said. “Even engaging the attorney relieves some
of that anxiety, and that’s the time to get a retainer.
15.2 % of respondents
indicated that their bills
sometimes fall past due
because the bill was for
services rendered too far
in the past. (see figure 4)
“Once the matter is resolved, though, the relief can be enormous. The sweet spot for getting a bill paid quickly and
without question is no doubt while that relief and gratitude is still fresh in their minds. I personally don’t like to see firms
wait more than 5 days after resolution to send the invoice. In many cases, billing speed equals collections velocity.”
And the back-office efficiency that allows for sending bills quickly is the driver of much of Mr. Eaton’s work with law
firms: “If the firm has all their billing processes down pat, with everyone’s billable time and expenses recovered
contemporaneously as we so often stress, getting a final bill out quickly shouldn’t be a problem.”
Contrast that scenario with one where the legal bill arrives as much as three months later.
At that point, not only has the client gone through the process of getting back to a more normal life with other stresses
that long ago replaced the legal one; it’s much more difficult to remember all the phone calls, meetings and attorney
work that went into resolving the matter.
The probability of having the client pay the bill right away is greatly reduced, even drastically so. What’s more, the
chances of the client questioning individual line items is probably multiplied many times over because all those legal
complications simply aren’t top-of-mind anymore.
All because the law firm didn’t have their billing ducks in a row to begin with.
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SIGN 7: Discounting late invoices to bring them into good standing
Unpaid client bills lead to stress. Stress leads to panic. Panic leads to that light-bulb moment: Maybe if we show some
goodwill by discounting the bill, the client will return the favor by paying it.
It’s all very natural and VERY destructive, both to your credibility with the client in arrears and to any relationships you
have with clients who do pay their bills on time.
Getting back to the LexisNexis survey question about why firms adjust bills or write off work: 29.1% of respondents
answered “to bring a bad client into good standing,” (see Figure 4).
While there is some chance discounts will get your firm paid, those discounts reward the worst possible behavior – not
paying bills – not to mention emboldening the client to hold payment hostage even longer in hope of obtaining further
discounts. And needless to say, if you plan on doing future work for that client, it will also create the expectation of more
and deeper discounts on those matters.
What’s more, such practices only serve to penalize your good clients. Imagine the signal good clients would take away
from knowing you offer discounts for NOT paying on time: Good clients who pay their bills as requested often end up
paying more than bad clients who withhold payment.
29.1% of law firms adjust
bills or write off work to bring
clients into good standing.
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SIGN 8: Poor billing processes
LexisNexis Manager Joel Eaton has seen time and again the problems that arise when law firms don’t follow standard
billing practices: Bills sent months after matter resolution, e-billing rejections resulting from disallowed billing codes,
unbilled billable hours and expenses, even entire invoices that never go out, among other difficulties.
Yet with all his experience, he’s not surprised by the responses to the question:
Do you or your firm have a standard billing process?
In fact, fewer than half of respondents – 42.7 percent – actually have a standard billing process that’s documented.
A slightly higher number, 43.4 percent, claim to have a standard billing process that’s not documented, while 13.9 percent
have no standard billing process at all.
Figure 5
In many ways, Mr. Eaton thinks the lack of billing processes can be attributed to law firm owners and managers whose
focus is almost entirely on practicing law.
“No doubt practicing law is the first priority from day one. But if any law practice is to continue helping clients in the long
term, it has to stay on solid financial footing,” he said. “Establishing and documenting the standard billing processes
necessary for that may not be top-of-mind for solo or small-firm attorneys trying to get clients in the door, but
conversely, that’s actually the easiest time to establish processes and standard practices, even if they’re adjusted later
on.
“Once a firm hits that first major growth spurt and new employees are coming in right and left, that’s the time when our
job as process advisors becomes even more intense.
“As firms grow, we have to look beyond simple process consulting into whether the firm’s financial software can
adequately handle the increased workload without extra complications for back-office staff. Even beyond whether
the software can handle fully integrated timekeeping, billing, accounting and trust accounting is whether it has the
automated reporting and in-depth analytics that can help the firm discover how to improve profitability.”
Which brings us to Sign 9.
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SIGN 9: Not analyzing the firm’s own billing data
There’s a great deal of important financial information law firms can gain from their own billing data: which types of
clients are typically in good standing, which are habitually late, even data about which attorneys and practice groups
make the greatest contribution to firm profitability.
The problem is how few law firms, especially small ones, actually analyze that data to learn what it has to tell them.
In fact, the LexisNexis survey found that fewer than one out of five survey respondents (17.5%) said their firm analyzed
billing data to identify differences between clients in good standing and those that are habitually late paying their bills.
That leaves more than 8 out of 10 firms that either replied “no,” they don’t analyze their billing data (72.2%) or that they
were “unsure” (10.4%) about their firm’s use of data analytics.
Poor use of client billing data not only leaves firms relying entirely on “gut feelings” to change their billing realization rate;
it makes the job of determining which types of clients make the best targets for future new business endeavors even
more difficult.
Figure 6
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THE BOMBSHELL: Law firms that “never” offer discounts claim the lowest
percentage of past-due clients
It may go against every instinct small-firm lawyers have when they’re trying to build their clientele, but it’s a
time-proven reality that Kent, Washington-based small-firm consultant Ann Guinn continually preaches to
her underearning clients: “Your clients will only value your work as much as you do.”
The results of the law firm billing survey appear to solidly back up Ms. Guinn’s message: Of all the respondents
who said they “never” discount bills, 81 percent claim the lowest percentage of past-due clients (fewer than
10%).
Compare that with the same survey results from respondents who “often” discount bills: Only about a third
(31.3%) are fortunate enough to have such a low percentage of their clients typically past due.
Figure 7
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As clearly as the numbers spell it out though, Ms. Guinn still believes there may be a time when discounts are
in order.
“If you have a good client who contacts you with what he or she feels is a legitimate reason for feeling overbilled, the discounting discussion is certainly worth having,” Ms. Guinn says. “If you feel the client may be right,
offer what you feel is fair, then make sure you spend enough time with pre-bills in the future to try to keep
those overbilling discussions at bay.”
“If you disagree, there’s no reason to make a big issue of your side of the story. My recommendation would
be to ask sincerely if the client has a number in mind that would be more acceptable. If it seems to be in
the neighborhood of reasonable, keep in mind that it’s a good client and agree to the lesser number. If it’s
unreasonably low, you can always make a counteroffer. The important thing is to listen to your client and find
out what’s really behind the complaint.
“Sometimes it has nothing to do with the money. Maybe you weren’t a good communicator during
representation, or you weren’t smiling and friendly when you met with the client, or you didn’t seem to
remember what the case was about when you spoke on the phone. It’s critical that you figure out why your
client is unhappy with the bill, so you can head off problems of a similar nature in the future.
“Chances are, you’ll gain far more from the goodwill gesture and future work that comes in as a result than you
will have lost from accepting a lesser payment.”
In most cases, though, especially for new clients, “discounting only leads to the expectation of deeper
discounting, which further leads to more clients coming to your door expecting the discounts they’ve heard
about from others.”
Especially considering the survey results, that’s not a good way to start a client relationship. But it certainly
may be a good reason to end one.
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Nine Signs Your Law Firm May Be Its Own Worst Collections Enemy
1
Automatically discounting or writing off work BEFORE sending the bill
2
Not following up adequately on overdue bills
3
Not discussing payment expectations up front
4
Not requiring a substantial retainer up front
5
Automatically assuming that client financial struggles are the reason
for unpaid bills
6
Taking too long to send bills
7
Discounting invoices to bring them into good standing
8
Poor billing processes
9
Not analyzing the firm’s own billing data
Page 13
Survey Demographics and Methodology
This study aimed to understand challenges and opportunities facing small law firms during the process of billing and
invoicing. The survey was conducted online from July 23, 2014 to August 1, 2014 and distributed to the readership of a
third-party media publication dedicated to helping lawyers build better practices. Respondents were required to identify
as a practicing attorney or a legal professional supporting a U.S.-based law firm. Three hundred and nine (N=309)
attorneys or legal professionals from more than 16 practice areas, with broad representation from 47 different states
and Washington, D.C., participated in the survey. Respondents were provided an incentive – a chance to be entered in a
random drawing for one of 13 prizes – to complete the survey.
Demographics at-a-glance:
Primarily respondents from small law. 95% of respondents reported working at firms with 10 or fewer attorneys;
75% of respondents identified as working at firms with 1-2 attorneys.
Most respondents identified as practicing attorneys. 89% of respondents identified as a practicing attorney.
Paralegal (5%) and marketing or business development (1%) were the next largest categories.
A wide array of practice areas were represented. A small plurality (17.5%) of respondents identified themselves as
being from family law practices. The next most popular areas represented were general law (12%), litigation (11%),
criminal defense (8%), and corporate and securities law (7%).
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ADDITIONAL RESOURCES
“Seven Secrets for Climbing Out of the Underearning Rut: Lessons from Two+ Decades Helping Attorneys Maximize
Their Earnings,” Ann Guinn
“Driving Profitability Forward: How to Get the Money-Making Gears Moving in the Right Direction,” Loretta Ruppert,
Michael Wasco and Tyler Chapman
“A Practice Owner’s Hierarchy of Tasks: 12 Things to Stop Doing to Start Driving More Revenue,” Christopher T. Anderson,
Esq.
“The Small-Firm Guidebook to Accounting Systems: Finding the Fit That’s Just Right for You,” Steve Fetters, MBA and
Christopher T. Anderson, Esq.
Page 15
Why LexisNexis®
At LexisNexis, we are committed to helping you spend more time practicing law and less time worrying about the
business of law. Running a successful firm means making the best use of your time and resources while reducing risks.
LexisNexis helps you increase productivity and gain peace of mind with award-winning tools and expert support that
enable you to efficiently manage your firm and your finances, so you can spend more time practicing law. To learn more,
visit LexisNexis.com/LawPractice.
PCLaw® software is an all-in-one matter and financial management program for small to midsize law firms. Batch Email
Billing in PCLaw helps firms speed collections velocity by making it easy to create and send 10, 50, even 100 or more bills
in minutes, all from one screen. The faster the bills go out, the faster your firm can get paid.
Juris® software is a legal-specific billing, accounting and financial management program that not only helps firms take
control of their everyday billing and accounting needs; it can actually help increase profitability by giving practice owners
and partners the in-depth insights they need to measure and improve firm operations.
LexisNexis Firm Manager® web-based software is an easy, secure practice management program for solo attorneys
and small law firms that enables you to be the lawyer you dreamed of being. Firm Manager combines matter and financial
management capabilities in a secure, easy-to-use cloud-based program that updates automatically, without upgrade
fees.
Time Matters® software is an award-winning practice management program that maintains and connects all your client,
case and document data in one instantly searchable database.
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