Walker Clark Worldview

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