5 Effective Ways Law Firms can Improve Cash Flow
Without a doubt, the legal sector is one of the most saturated markets in the modern online and offline business world. Needless to say, you can’t afford to make financial mistakes in this profession, or you will soon be out of business. However, between the numerous competitors who will stop at nothing to stay on top and the constant influx of new and recurring clients, keeping track of your financial situation while optimizing cash flow can seem like a daunting task.
Provided that you have introduced a project management tool into your processes, that you’re tracking your employees’ billable hours, and that you have set up a professional website, you can now start working on optimizing your cash flow strategy. Here are the five effective ways your law firm can improve its cash flow.
Get paid up front
If every other business can get paid up front, so can yours. It’s common for law firms to get paid up front for their services (the retainer fee) in order to fuel the company’s processes, and manage operational cash flow without risking losing operating capital midway through the process. The retainer is also there to cover all costs of the case as it develops, but there’s a problem – what happens when the client’s retainer runs out?
Sure, use retainers, but be sure to stay on top of your client’s available funds for the case, and be upfront about any costs pertaining to the case and your services. Most importantly, you have to bill your clients for every additional retainer before they run out of money. This way, you won’t have any expenses regarding collection costs and write-offs, and you will have received what you’re owed.
Allow all payment methods
Nowadays, all customers and clients are looking for convenience. It doesn’t really matter which industry you’re operating in; you need to provide your clientele with all of the latest benefits and features in order to make your business more appealing to work with in the long run – and that includes offering multiple payment methods as a law firm. Cash, credit cards, mobile payments, bank transfers, online payments and payment platforms, you name it, the client wants the freedom to use them at their discretion.
Fail to provide a seamless and simple payment experience, and chances are that your clients are going to venture off into the warm embrace of your competitors. However, if you allow your new and existing clients to pay for your services how they see fit, they will be able to develop a more trustworthy relationship with your brand and stay with you because of the convenience factor as well.
Optimize invoices and recurring payments
Speaking of the convenience factor, you need to make the payment process as convenient as possible for your company as well as your clients. Chasing down recurring payments month after month, sending out invoices to each and every customer and then sending follow-up emails only to have them pay late or delay payment indefinitely is a stressful chore, but more worryingly, it can needlessly jeopardize cash flow and drive your company into the ground.
This is why forward-looking law firms will frequently set up a direct debit system that automates the invoicing process and automatically bills clients on a monthly basis, or per the client’s preferred payment schedule. This is the best way to manage recurring payments seamlessly, and ensure constant cash flow without having to send out invoices or remind your clients that they still haven’t paid. Naturally, this will also help you retain a positive relationship with your clientele and preserve your brand’s image.
Follow up on pending invoices
When you do have to tend to the sometimes-unpleasant task of sending out invoices, the most important thing is to make sure your clients have received them, read through them, and that they understand the payment deadlines and conditions. If the client is not responding to your email, then it is up to you to send a follow-up and get in touch in order to discuss the invoice and check if there is anything you can do to speed up the payment process.
Regardless if you’re chasing down the last payment on your retainer, or if you’re billing a new client to begin work on their case, you need to gain access to that cash quickly in order to avoid delays in the case, and to fuel your internal processes.
Offer incentives for early and timely payments
Of course, every business, regardless of the industry, can incentivize its clients to pay their invoices on time, or even ahead of the due date. While nobody will want to do this on their own (because why should they), you can incentivize them to send the money your way by offering a small discount on your services, or any recurring services in the long run. This is a simple yet effective way to get clients to pay quickly, just make sure that it’s a percentage you can live without.
It’s not easy to maintain a positive cash flow as a law firm, especially if you’re operating in a saturated market. Use these tips to ensure you get paid on time, and that you overcome all of the common challenges of invoicing and cash flow management.