Walker Clark Worldview

This is the final posting in a series about the characteristics of successful quality assurance programs in law firms.

How does one measure the success of a quality assurance program? When Walker Clark advises a law firm, we tell the partners to look for these indicators:

• Improved productivity by fee earners — because they can spend more time on billable work and less time fixing mistakes and responding to client complaints
• Higher collections realization rates — because the firm now manages the major reasons for fee write-downs and write-offs
• Higher levels of client satisfaction – because the firm meets or exceeds client expectations and gets things done right the first time
• Competitive advantage – because the firm can demonstrate quality, rather than just mumble slogans about it

As the previous parts of this series suggest, serious quality management is a challenge for most law firms.  People have to discard bad habits.  They have to sharpen their thinking about the routine work that they do every day.  In some instances, lawyers need to change some of their long-held, fundamental ideas about what constitutes quality in a legal service.

Quality management often involves a set of discrete journeys that a law firm must make…

• From considering errors and mistakes as failures to be hidden — to viewing them as data-rich opportunities to reduce or eliminate them in the future
• From assigning blame — to finding solutions
• From viewing quality in legal services as something that only a lawyer can define — to understanding quality in terms of the client’s needs, expectations, and perceptions

Each of these requires a profound cultural change for most law firms. It is a necessary change, as well; because law firms that are unable to manage serious cultural change are doomed to declining competitive performance and, eventually, irrelevance in the fast-changing, highly competitive legal markets of the 2010s.

The “quality assurance” culture also requires a seriousness of purpose and an ongoing commitment to the procedures and methods. Partners must be highly visible in their support for, and compliance, with the quality assurance program. They must reinforce among junior members of the firm that quality assurance is everyone’s job and is important to the business success of the firm.

Like most worthwhile investments, quality assurance sometimes is not easy, especially because of the cultural changes that it sometimes requires. But that effort produces profound and positive results that are:

• Long-term and sustainable
• Beneficial to almost every aspect of law firm operations
• Measurable in terms of dramatic improvements to profitability and financial performance.

Norman Clark

In my discussions recently with Walker Clark clients who are midsize law firms, I have noticed two interesting priorities emerging in the business plans for 2010. These are not the only profitability tactics that law firms are thinking about for next year, nor are they necessarily the most important. However, it is possible that your law firm might be overlooking them.

1.  A client-supportive approach to collections

A large portion of our law firm clients are ending 2009 with the biggest accounts receivable in their history, as well as record high percentages that are more than 180 days old.  Rather than write off the fees — and also write of the clients who owe them — some firms are taking the initiative to offer to compromise the overdue fees by 50% or more, in return for a payment plan to settle the account by the end of 2010. They are also offering the overdue clients significant discounts as an accommodation to help the client survive hard times.

This makes good sense. It is not in a law firm’s interest to have clients go out of business. Instead of being yet another financial wave that threatens to capsize the client’s ship, law firms should become part of the client’s damage control team. Sure, the law firm will be giving up some possible revenue; but it is money that it probably never would have collected.  In return, the law firm is receiving priceless client loyalty in the future.

Support, not shame, is the more effective collection technique.

2.  Renewed interest in outsourcing

In 2010 many midsize law firms will be taking a hard look at the costs of functions that have traditionally been in-house, such as IT and network administration, marketing support, project management, and translations. They are beginning to discover that the total cost of some of these functions — especially those with significant lawyer involvement — has become unacceptably high, while delivering only marginal quality and value to the client. These firms are trying to discover the true costs of these functions, which often include items that do not appear in the financial reports, such as the value of fee earner time and the rework caused by inadequate quality assurance.

Outsourcing will not make good business sense in every case. Substantial improvements can sometimes also be made through process reengineering. However, I expect to see outsourcing of more internal operations and tasks as part of the cost management tactics of many small and midsize law firms, especially in markets where fee income has not recovered to pre-2008 levels.

Norman Clark

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:

1. 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.
2. 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?
3. 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.
4. 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