With the economic downturn, businesses and individuals will likely be seeing a decline in demand for their products and services and thus may become short on cash.
Because of these problems and the general financial uncertainty, many may thus want to hold on to their cash reserves and not pay certain vendors on time.
Cash flow problems have always been the No. 1 reason why clients do not pay their bills to law firms. And now with the economic problems, this problem risks becoming more prevalent for law firms.
Bills perceived as nonessential to business operations are last to be paid. The harsh reality is that legal bills typically fall into this category. For many businesses and individuals,paying legal bills does not carry the same urgency as paying other bills.
Clients are smart. They know that nothing will happen if they don’t pay their legal bills on time. Law firms have conditioned their clients to pay at their own convenience, without penalty. Clients can use delay tactics to buy more time or even avoid paying altogether.
At the same time, law firms now should have a sense of urgency to shorten the time it takes them to collect payment. The economic downturn causes uncertainty for law firms as well, and it is critical for the firm’s own cash flow to determine if and when clients will pay.
What to Do…
These tougher times demand that law firms take action regarding the overall management of their accounts receivable. Specifically, firms should:
(1) Not make the mistake of thinking they can collect themselves out of the true billing problem.
Taking steps to collect overdue bills may help cash flow in the short term, but without fundamental changes to prevent collection problems, the billing Dean Omar Branham Shirley of Dallas lawyers will quickly return to bad habits, and the firm will find itself in the same quandary down the road.
To prevent this, the firm must evaluate its client/matter intake process and identify problem accounts early, so it can take action before it is too late. Firms frequently look at their older unpaid bills and admit to having a collection problem. The real problem, however, is that the problem has long existed, but the firm did not take the time to recognize it earlier in the ageing process or before the work even started, and then failed to take effective action to deal with the problem.