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Collections - Tools and Processes - Best Practices

Scope and Purpose

The purpose of the collection process is to provide the user with visibility of all the contributing elements of the worked to collected cycle, starting with the acceptance of the engagement.
As an integral component of the firm's exposure-management strategy, the scope of the worked to collected process includes multiple measures earmarked to protect the lawyer, his or her practice, and ultimately the firm from the erosion of its profits. Designed to accelerate collection efforts and solidify cash flow - critical contributors to firm profitability - these best practices are aimed at eliminating redundant data entry, limiting unexpected timing-based ineffective client communication flow, simplifying the receipt process and provide greater insight and management of the firm's total investment and credit-exposure in consideration of mitigating factors such as the use of engagement letters, the management of deferred payments and/or the use of trust retainer values.

Highlights

Work-in-Progress (WIP) and Accounts Receivable (AR) are important firm assets that in sum refer to the total investment that the law-firm has in its client. Although most law-firms offer their clients the ability to pay after receipt of the service deliverable, the latter is reflective of the extension of some type of credit from the moment the time is worked, or the disbursement incurred.
Decision makers depend on the execution of firm policies and procedures with respect to the timely capture of time and disbursements as well as the billing and collection process to effectively:

  • Prioritize collection efforts;

  • Manage the communication, and;

  • Take necessary steps when the risk is beyond acceptable levels.

In practical terms, this means that the decision maker must be able to rely on the effectiveness of the worked to collected process in context of desired collection outcomes and the competency of its participants to trust the "Collections" status and take necessary next steps.
Failure to set an effective structure for a collection process that considers the potential for exposure from the start, not only erodes its purpose, but limits the effectiveness of any collection endeavour leading to unwanted non-value-add business outcomes such the issuance of credit notes and/or the management of bad debt.

Best Practice

Leverage Client and Matter Level Roles:

The use of client and matter level roles to capture responsibility centers for the effective management of the worked to collected effort and resulting measures provides clarity and visibility to those required to act and/or remain informed on actions taken relevant to the collections effort.

  • Client Properties Role Assignment

  • Matter Properties Role Assignment

  • Performance Measures Based on Role

Use "Pricing" Personnel and/or Pricing Models:

Leveraging the firm's "pricing" experts and/or pricing schemes during the file intake workflow to set the pricing arrangement in context of agreed scope, increases profitability while reducing collection efforts and potential bad debt. The use of rate arrangements and rate category options, matter discounts and premium fields, the chargeability status of completed efforts, invoice instruction and billing guideline options as well as pre-priced paragraphs, matter budgets and fee cap fields all allow for the set-up and control of most pricing decisions.

  • Rate Categories – By rate title or by member as well as situational options.

  • Rate Arrangements – Standard rates and metrics per arrangement per rate-title

  • Client Properties: Billing frequency, due dates, portfolio and/or multiple matter invoice

  • Matter Properties: Fee limits, discounts, premiums, quoted values and budgets, pre-set and priced tasks (paragraphs). Options to support alternate fee arrangements.

  • Billing guidelines, invoice instructions pop-ups.

Leverage a Credit Policy:

Consistently leveraging a credit policy during the file intake process that includes credit checks, the set-up of limits with supporting business process rules and triggers as well as the use of retainers held in trust; is a cost-effective preventive control that mitigates subsequent collection efforts.

  • Client Properties: Credit assessment and documentation thereof. Use of client level credit limits.

  • Retainer in trust process

  • Engagement letter process - to support the pricing model and retainer in trust requests.

Use Discounts to Incentivise Receipt of Retainer Funds

Law-firm clients working with the dynamic invoice engine often use the second percentage of fee discount field to incentivise the collection of invoices during the invoice preparation process and eliminate further collection efforts. A percentage discount on fees is offered to clients that adhere to the firms' retainer funds policy to encourage the availability of retainer funds in trust. Retainer funds in trust can be readily available during the invoice preparation process, resulting in immediate invoice payment and eliminating the need for additional collection activities.

  • Retainer in trust process

  • Matter Properties: Use of pre-set discounts in context of retainer funds received.

  • Business Process Rules: WIP and AR limits to trigger the retainer in trust replenishment process.

Implement the Engagement Letter Process

The use of engagement letters to communicate pricing arrangements and credit policies in combination with supporting business process rules, provides transparency to the client and will limit unwanted time and third-party disbursement investments where warranted.

  • Matter Properties: Engagement letter process to support the pricing model and retainer in trust requests.

  • Business Process Rules: Email follow-up and eventual client status change to mitigate exposure when sign off by the client on engagement terms was not obtained.

Leverage the Billing Management Process

The use of the billing management tool to manage captured client billing requirements as well as the timely invoicing of work in progress assists in reducing the docket to collected timeline as well as mitigates the potential for missed billing requirements which often leads to uncollectable values.

  • Matter Properties: Due dates and billing frequency

  • Portfolio Billing: Consolidates invoiced matters by billing recipient.

  • Use of billing management tool to manage the workflow to conclusion of invoices.

Standardize Invoice Presentation Options

The use of the standardized invoice presentation options in consideration of client billing requirements provides consistency and clarity thus reducing the invoiced to collected timeline.

  • System, client and matter alternatives

  • Environment options for time and disbursement codes

  • Paragraph substitution


Email instead of Regular Mail

E-mail invoices and statement of accounts instead of sending them by post. Clients with overdue receivables often claim they have failed to receive an invoice or a statement of account if it is sent by regular post. The e-mail process ensures you have proof of the date and time sent as well as eliminates postage costs and the number of days between the send and received actions.

  • Matter Properties: Set-up of billing contact and Statement of Account contact (if different) with their email address;

  • Use the email invoice checkbox option in contact properties to show the intent to e-mail the invoice;

  • Use of statement of account email options instead of traditional print and mail.

Implement Due on Receipt Payment Terms

Implement shorter payment terms and include them in the invoice footer. With a paper process, sending invoices and payments by post was very common, therefore it was also very common for businesses to offer extended credit terms to their clients to allow for procedural and mail delays. With email options, extended acceptance of personal and corporate credit cards as well as internet payment portals, adopting a "payment due on receipt" strategy has become best practice.

  • System settings alternatives for footer content;

  • Inclusion of payment method options within the invoice's remittance slip and the statement of account.

Leverage your Best Contact to Trigger the Invoice Payment Process

It is often desirable to set the person responsible for the "Accounts Payable" function or the "Accounts Payable" role itself as the recipient of the statement of account. This person often acts as a checkpoint to the person that received the invoice and is in the best position to trigger the payment process within the organization.

  • When the client is not an individual or group of individuals, use "Accounts Payable" as the statement of account contact;

  • Use of the matter summary and remittance slip in the invoice package so they are sent as payment requests to "Accounts Payable".

Offer Multiple Payment Methods

Offer online payment options, EFTs, credit cards and the email of funds, to optimize the firm's chances of receiving payments in-full and on time.

  • Inclusion of payment-method options in the remittance slip and statement of account.

  • Implement the e-bank sub-license to automate the on-line payment receipt process with a third-party on-line payment method.

Review Process for Accounts Receivable

A systematic weekly review of aged accounts receivables and a subsequent standardized documented follow-up on overdue accounts. Documentation of all communication in the form of collection status notes as well as next-steps tasks and to-dos in context of pre-established receivable and limit-based business process rules and triggers to provide early visibility.

  • AR Analysis Report with client-level status note;

  • Business Process Rule: Receivable warning emails and/or automated status change based on age of the oldest invoice.

  • Exposure & Collections: Client and matter dashboard – Mitigated exposure – retainer in trust and deferred or post-date cheques - and receivable status.

  • Leverage the "Parent" – "Group Client" structure to obtain the complete picture.

Leverage the Invoice Package Auto-Save

Use the saved e-mail package to re-send the invoice to the client. When an invoice is generated and printed or emailed in final form it is automatically saved in a pre-defined location under a standard naming convention. The invoice properties and show invoice list filter is immediately updated with a hyperlink for easy access by the user.

  • Autosave Invoice Process;

  • Client-Matter Dashboard – Invoice drill through.

Implement a Client Communication Policy for Outstanding Receivables

Implement a receivable client communication policy that includes the regular issuance of the statement of account with aged driven text, subsequent collection e-mails as well as the ability for the collections manager to systematically follow up on unpaid invoices with a telephone call. Although statement of accounts and collection e-mails provide a collection start point, they are passive tools which are not effective for enlisting payment when there is client dissatisfaction as the client is not actively engaged. Speaking directly to the client and documenting next steps, remains the most effective way of maintaining a positive client relationship leading to issue resolution and subsequent payment.

  • Statement of Account:

    • Optimise set-up options for escalating text based on age of the oldest invoice.

    • Send the statement of account when due – a combination of invoice date and age – as opposed to sending them all at once.

  • Communication Protocol:

    • Use of group types and types to manage the tasks (to-dos) and the resulting conclusions and next steps.

    • Use categorised notes to record completed actions followed by next steps.

  • Exposure & Collections: Client-matter dashboard mitigated exposure and AR status.

Maintain a Collections Journal

The maintenance of a collections journal for clients with overdue accounts provides visibility and transparency to those holding a relevant role at the client and matter level. The collections journal should include a record of statement of accounts sent, agreed deferred payment schedules, as well as notes resulting from telephone calls documenting present status and conclusions reached and up-coming tasks for agreed next steps.

  • Exposure & Collections: Client and matter dashboard – Mitigated exposure and receivable status

Use Retainer Funds and Deferred Payment Schedules

The use of retainer funds and deferred payment schedules resulting from collection agreements simplifies the receipt process, eliminates redundancy and provides visibility of the mitigated exposure.

  • The Client – Matter dashboard and receivable reports provide visibility of exposure and receivable positions in consideration of retainer funds collected and agreed-to-deferred payment schedules.

  • Highly visible form a variety of sources, retainer funds can be applied as part of the invoice preparation process or subsequently as invoice payments from trust.

Receipts for scheduled deferred payments are systematically generated for the user responsible for processing the deposit on the day they should be processed.

Use the Exposure & Collections Tab

Matter stakeholders depend on the execution of firm policies and procedures with respect to the timely capture of time and disbursements as well as the billing and collection process to effectively prioritize their collection efforts, manage the communication, and take necessary steps when the risk is beyond acceptable levels.
The "Exposure & Collections" tab and Report provides decision makers with visibility of all factors affecting the collections effort. It includes:

  • The calculation of mitigated exposure which includes:

    • The sum of unbilled time, unbilled disbursement and receivable values reduced by retainer values where used, the value of deferred payment schedules or post-dated cheques where used and recoverable sales tax (if any).

    • This measure is also presented as a percentage of value worked and in graphical form. In this case, retainers and/or deferred payments would reduce the oldest aging period;

  • Highlighted values that exceed client level credit limits and/or matter level Fee, WIP and/or AR limits in use;

  • Receivable values from a variety of perspectives and the calculated days outstanding;

  • Collections notes and tasks, with a focus on the last notes and task not yet completed to date, as well as the ability to drill through to the task list and collection journal for more comprehensive filter options;

  • Drill through capability to retainers in trust or trust information, as well as deferred payment schedules and unposted third-party disbursements (if any), as these will become unbilled.

  • Net fee billed realization information, a summary of goodwill investments made and impact on worked value details.

Credit Notes and Write-Off Policy

Issue credit notes to reduce previously billed fees to adjust the invoice to a mutually agreed value. Reserve the receivable write-off process to consolidate the bad debt expense for non-collectable invoiced values due to the client's unwillingness or inability to pay.
Both invoice reducing vehicles allow for the categorization of the cause through the selection of firm-defined reasons, however only the receivable write-off process allows for it to be identified as written-off but ignored for collection purposes.

Write-down:

  • Part of the invoice preparation process, this invoiced reducing method is used to reflect internal inefficiencies captured before the invoice is completed. It is reflected in relevant measures such as billing variances, effective billing rates and realization rates.

Credit Note:

  • A client document used to reflect internal inefficiencies captured after the invoice is completed and sent to the client and/or to reflect agreed fee or disbursement reductions after the invoice is issued. This process triggers a fees credited record or a non-recoverable disbursement instead of bad debt expense.

AR Write-Off:

  • An internal process used to reflect client credit issues – unwillingness to pay for efficient agreed work completed and/or the client's inability to pay (receivership, bankruptcy); triggering a bad debt GL operation.

  • Use of the "Ignore for collection purposes" AR write-off option.

Implement a Policy to Use the Status "Collections"

The use of the collections business process rule to automatically communicate and trigger a change of status of a client from active to collections when a client defaults on expected payments while the matter remains in progress, limits work in progress investments by providing visibility to stakeholders including timekeepers to curb additional efforts until the issue is resolved. The status change controls the potentially uncollectible value as well as incentivizes the client to initiate discussions to resolution so the work on matters can resume. The client status reverts automatically to active once payments are posted, which in turn allows the processing of accumulated unposted time records and requests for funds.

  • Client Properties: Use of client status, considered most effective.

  • Matter Properties: Use of matter status, considered an exception to the use of the client status.

  • Business Process Rule: Receivable warning emails and/or automated status change based on age of the oldest invoice.

  • Client – Matter dashboard visibility as well as Acumin.ew with potential desired impact on document management systems leveraging the status as part of the third-party integration model.

Implement an "Unbilled Entry" Write-Off Policy

Unbilled time and disbursements considered bad debt expense must be billed at their recorded values. This will ensure they are included as a receivable write-off for greater control and consolidated visibility for all stakeholders.
Unbilled time and disbursements not considered bad debt expense and not written down to zero during the billing process should be minimal, reflecting a few forgotten values. It is considered best practice to limit the unbilled entry write-off process to this specific use case reflected in a separate policy for non-recovered post final invoice time and disbursements.

  • GL Account properties – label to reflect best practice use case.

  • AR Write-Off: Used to reflect client credit issues – unwillingness to pay for efficient agreed work completed and/or the client's inability to pay (receivership, bankruptcy); triggering a bad debt GL operation.

Use Status Rejected to Support the Credit Note and Write-Off Policy

When a client defaults on payments leaving the firm with uncollectible amounts which must be written-off as bad debt expense, once the matters for the affected client in default are closed, it is recommended that the status of the client be set to "Rejected". Leveraging the client status in this manner mitigates the risk an existing matter will be re-opened, or a new engagement accepted without first triggering next steps involving recapture of previously uncollectible values.

  • Client Properties: Use of client status, considered most effective.

  • Matter Properties: Use of matter status, considered an exception to use of the client status.

Implement a Third-Party Disbursement Policy

Implement a third-party disbursement policy that transfers the responsibility for pre-payment or payment to the client and withholds a supplier payment until the disbursement is paid by the client, to mitigate the potential for unrecoverable disbursements.

  • Retainer and/or 3rd Party Disbursement Trust Process

  • Business Process Rule: Hold supplier funds until the client pays the disbursement.