6 Reasons Clients Don’t Pay On Time & Solutions

money

By Bruce Coombes

Creating and maintaining consistent cash flow in a law firm is an ongoing effort, from initial client engagement to following up with past-due accounts. Determining the why when your clients don’t pay on time can reveal where and how you need to improve your internal processes in order to improve cash flow. Generally, not paying on time arises from one or more of these six reasons:

No.1 The client has a genuine dispute.

If you start your follow-up process early, you have a better chance of resolving the dispute and getting paid. Use the dispute to review how you do things and implement change to avoid the same issues arising in the future.

No.2 They are just busy or overwhelmed.

Quite often, the reason for non-payment is that the client is just flat out busy or under-resourced. A timely reminder email or letter is usually all you need to get the account paid. On the bright side, this presents a great opportunity for you to provide some advisory support.

No.3 They are disorganized.

We can easily assume our client’s internal processes are efficient and in order. However, vendor invoices, including ours, can simply be put to the side and forgotten about when received in the mail. Email your invoices to the accounts manager as often as you can. If mailing them is a must, make sure to place the invoice on top of any other documents you include so it won’t be missed when the envelope is opened.

No.4 The client doesn’t have enough money to pay the account.

If you find this out early, you are in a better position to offer a payment arrangement. For larger jobs, breaking down the invoice into smaller amounts and billing progressively has the same effect as a payment arrangement, except that it begins earlier in the process (and means you get paid earlier).

No.5 The client is unconcerned.

Ask your clients, “Are you unconcerned because we took too long to do the work?” Focusing on job completion and job turnaround is your responsibility – paying on time is then the client’s obligation.

No.6 The client is dishonest.

Interviews, scoping, budgets, formal engagements and interim billing may alert you to this kind of client, but often it’s when the account hits 120 days that you start to suspect they had no intention of paying. Start the follow-up process early. When you feel you’ve exhausted your options, call in the experts.

MANAGING THE PROBLEM

STEP 1: Present the invoice as soon as the work is complete.

For most jobs, billing on completion will have a positive impact on cash flow because: The client can see that the invoice relates to the job presented, and the value can generally be reconciled to the job when both are presented at the same time.

Compare that to the scenario where an invoice arrives weeks after the job has been completed: because the perception of value delivered declines over time, the invoice will undoubtedly encounter greater scrutiny from the client.

For larger jobs, interim billing at predetermined points (generally time based) will impact client cash flow to a lesser degree while your firm benefits from receiving payments before the work is completed.

STEP 2: Provide clients payment options and simplicity.

It’s simple but true – make it easy for your clients to pay you and they’re more likely to pay.

Consider providing clients a central payment portal to use. Having all of their payment options in one place, and with many options only taking a few clicks, your clients will find less reason to procrastinate.

Provide your clients with the payment options they want. Consider including standard check payments, wire transfers and/or ACH, and payment by credit card.

STEP 3: Understand and follow the three basic rules of debtor management

Communicate clearly with your clients. An effective receivables management plan starts with the engagement process. Be clear and outline both your fees and payment expectations up front.

Have a regular follow-up process and start early. Have an administrator set time aside each week to connect with past-due accounts. Having an administrative person handle this will help maintain a positive relationship between the firm and client, as their main point of contact won’t need to have the uncomfortable discussion. Though the administrator will need to keep the accounts manager up-to-date on the status, and at times the account manager will need to become involved. The most effective time to start your follow up is the first day an account is past due. Send a simple email or letter for the first follow up — a gentle reminder is less confrontational than a phone call. Support the first email/letter with a second in seven days if the client has not paid or reached out. Pick up the phone only when first two attempts fail to deliver a satisfactory outcome.

Be prepared to work with seriously delinquent accounts. When a client gets significantly behind in paying you it’s time to give them a call. When making the call, try to ascertain the reason for non-payment. Proceed based on their situation. It might be time to re-evaluate whether or not they should be a client. Remember, not all clients are good clients. It’s OK to make room for the clients you really want.

CONCLUSION

Each stage of the job cycle contributes to the efficiency of your receivable collections. Agree on the work and the fee with the client, complete the work on time and correctly, and issue your invoices in a timely manner with a variety of payment options. Follow these steps and seriously delinquent accounts will become almost non-existent.


Bruce is an accountant who has worked extensively with law firms. He is currently CEO of QuickFee, provider of payment portal and fee financing solutions for law firms. Learn how fee financing can attract new clients and fund firm growth. You can reach Bruce at (844) 968-4387 or at http://web.quickfee.com/portal/?utm_content=aht.