Client Connection

Client Connection

Monday, November 9, 2015

Recognizing When Ageing and Old A/R Have Worn Out Their Welcome

Have you had houseguests who didn't ever seem to want to leave? Once they finally vacate your premises, you swear that you will never have them back. They are something like ageing accounts receivable: if you don't watch out, they start to become a permanent fixture, with no intention of going away.

When receivables get too old, the typical response in law firms -- especially at year-end -- is to ignore them rather than take action to collect them. Sometimes firms with sizable numbers of old receivables have a false sense of well-being, believing that they can expect a lot of potential revenue. Firms wait and wait and wait to pursue these older, difficult accounts rather than facing up to problem A/R and making the most of what they can. Remember -- once receivables hit 120 days past due, they have a 50% chance of being collected -- and the likelihood of collection drops off dramatically after that. 

Consider these 4 steps January through December:
  • Honestly evaluate the age of the balances of the receivables and the stories that go with them, and decide on your plan of action. Is the receivable over 120 days or is it really over 360? Acknowledging and understanding the problems and determining how collectable the receivables are will help determine if the firm has the resources and time to pursue them.
  • Decide whether it is productive to focus on all the old receivables or to concentrate on those over a certain dollar amount. Be realistic and establish a cut-off, depending on how high the majority of the balance levels are for the receivables.
  • Tell the attorneys that you are counting on them to be truthful about the likelihood of payment for their receivables, putting aside posturing and wishful thinking. At the same time, be thorough. Understand when the last time was that the balance was discussed with the client. But remember, clients are smart; they are not going to write a check if they are not asked to. You may be surprised to locate found money if you put some effort into it.
  • Determine if you have the right people in place to help you move the ball forward. Consider whether you need experts to help deal with the backlog of older receivables and make recommendations for preventing these problems in the future, in line with the firm's management objectives, practice areas and client types.

Learn from your mistakes. Determine why clients did not pay, and start making corrections to help minimize these problems in the future. A successful law practice requires clients that pay their bills. Write-offs won't help. Learn more at our web-site at: