Last-minute profitability
We are now in the last two weeks of 2009, which, for many law firms, means the last two weeks of the fiscal year.
It is not too late to make significant improvements in your firm’s profitability for 2009, even at this last minute.
Focus on collections. This money is already yours. Other than the cost of a telephone call, the added fee revenue is pure profit.
Here are four tips:
- Pay close attention to unpaid expense reimbursements. Even if the client is unable or unwilling to pay the fee, you can appeal to the client’s sense of fairness by asking the client at least to pay the expenses that you or your partners have already spent on the client’s behalf.
- Offer to settle accounts receivable that are more than 180 days old at a deep discount, provided that you receive payment by 31 December. Your probability of ever collecting these balances without compromise has already fallen below 50%. Moreover, a substantial percentage of your long-overdue balances are probably from relatively small accounts. You can possibly write off as much as 50% without a significant negative impact on overall profitability. Why not take what you can get this year, rather than carry forward an account that will probably never be paid in full?
- Offer an end-of-the-year rebate for all accounts receivable. For example, if the current fee balance is received by 31 December, you will apply a rebate equal to payment of 5% or 10% against the next invoice in 2010. Although this will reduce your revenue a little in 2010, it could make a significant difference by the end of this year.
- Pay special attention to clients that are having cash-flow problems or other financial difficulty. Ask them to make a significant partial payment by the end of the year and a commitment to a payment plan in 2010. In return, agree to write off a significant portion of the total balance — perhaps as high as 30% or 40% — if they complete the payment plan as agreed. You know (or, if you are doing your job properly, should know) which clients are in financial trouble. Most of them will respond positively and will also become more loyal to your firm.
These techniques work. Most clients see these as favors from you, not just last-minute bill collecting. They also can put a significant amount of additional profits into each partner’s pocket.
Norm Clark
Tags: clients, collections, fees, law firms, profitability, year-end