Saturday, December 15, 2007

The Ending Twelve…

As we approach December 31st, all of our hopes and dreams will be indelibly encrypted in the annals of time and only the memory will continue. Sadly enough, the human mind never remembers the original event, but rather a memory of the memory. Through time and new events the facts of the original event gets distorted and frayed in our minds. It is only through reviewing evidence of history that the memory, or rather memory of the memory, comes to the forefront of our minds.Current research into how memories are maintained suggests that the original facts of an event can be lost forever. The research suggests that the senses take precedence over memory. In the study, the researcher took a sample of people who lived through the 1989 events of Tiananmen Square. The sample population was separated into two groups. Group A, were shown pictures of the actual events, while Group B were shown altered pictures of the event. Group A recalled the 1989 event as it occurred. However, Group B had a completely different recollection; very much in alignment with the pictures they were shown.As I watch the sun breaking the horizon, the finality of 2007 is at the forefront of my mind. For the most part, it was a good year filled with successes and tremendous learning experiences. However, as I undertake that arduous task of clearing up emails I am catapulted back to some of the most interesting events of 2007. Until this moment, I had truly lost appreciation for the events that have shaped 2007 and me, personally and professionally. Those events are now lost in time and unless I make the effort to seek them out, I will continue, as always, looking forward to tomorrow. All the while, failing to learn from the past, make the best of the present with the view of reshaping my future.Today is day twelve for cash basis firms with a December 31st year-end; the twelfth deposit day until 2008. To these firms, the race to the finish line is in the home stretch. At this point, nothing is of value but to make the “magic number”. All success is based on the achievement of that goal. However, sadly enough – it doesn’t matter! It doesn’t matter because midnight December 31st marks the end, whether or not the goal is met. From that point, a new goal begins. The events of 2007 will then be packaged in the hearts and minds of everyone and we will step into 2008.Although I am not one to follow popular culture, there is a piece of music that resounds of the finality of the endings and the perpetuation history. Closing Time by Semisonic has a line that screams what we have been discussing…“Every new beginning is from some other beginning’s end”. Every event in our lives is gauged against the yardstick of beginning, middle and end. What we fail to do is to understand this continuum and learn from events. We tend to be so caught up in “what’s next” that we fail to learn from our past.Last week I had the opportunity to have lunch with a CFO of a national firm, at a time where every minute is precious. The conversation at hand was how his team has some exorbitant amount to collect before December 31st. The number, which he shared, was significantly higher than in previous years. We spoke about the number and some of the other dynamics of the firm. I came to realize that the feat that was to be accomplished was simply impossible! When I said, with my usual bluntness, Terry (not his real name) that goal is impossible. The deafening silence that resulted was pierced with a sullen ‘I know’. The conversation went down the road of what the partnership needed was a specific number; but all of the dynamics through the year didn’t point to that growth. Instead the events pointed toward 15% shrinkage of the firm.In cleaning up my emails, I found emails from Terry that marked highlights of 2007. These range from adoption of new technology, new processes and expansion into new markets. But today, none of those things matter. What matters is the end, the countdown to the end. The joys and expectations of early 2007 will culminate in disappointment and failure. Sadly enough, 2008 may be fraught with more of the same, as 2008 will begin with new budgets, new expectations, new goals and aspirations, but sadly the same practices. This process calls to mind something I have heard a while ago “insanity is the result of doing the same things the same way over and over, but expecting different results”.In reflecting on 2007, I feel that we fail to have a postmortem on events, personally and professionally, to learn from the past in order to reshape the future – to ward off insanity. Regardless of what the next twelve deposit days bring, realize that the fate of the outcome has been predestined with each passing day of 2007. Once the beginnings of 2008 rain in, take a moment, dig up those old reports, the minutes to 2007 meetings, check emails, and reflect on the actions of 2007 and how they have culminated into the outcome. Keep in mind that the past is recreated in your mind by the information you use to trigger the memory. Create the ‘correct’ image by reviewing ALL the facts – not only the positive ones. Without the ‘correct’ view of the past, the will to change the future will only be a recapitulation of what has already happened.

Saturday, December 01, 2007

Newtonian Physics and Law Firm Collections

My entries of late have stimulated a flurry of responses from my colleagues in the corporate world. To them, the practices of law firm collections are completely unfathomable. It wasn’t until the trailing end of last week that several conversations triggered my analysis into, why behaviors of law firms are the way they are and why they will continue without change. On November 26, the thought provoking conversation took place. My colleague said, “Precedence has been set and it takes one (firm) to break away from the pack, to make change...” That single statement had two very powerful elements. Firstly, the precedence has been set and secondly, the concept of breaking away, which in itself bears with it a question of the effect of breaking away.

In dealing with the first part of the statement, “the precedence has been set”. We have to realize the practice of law, like any other profession is steeped in tradition; for which many practices have continued through generations. With such tradition, there was and continues to be no compelling need to change. Essentially historical practices have set the stage; to be the mold that shapes the present and the future. The second key concept questions, what if there is some stimulus or reason for a single firm or firms to break away from the status quo and undertakes change, what would happen? With such a radical change, will other firms follow suit or will the firm breaking the status quo be alienated from the market? The answers to these questions, I feel, date back to the mid-1600’s during the inception of classical physics.

To sum up briefly the questions to which we seek insight, are: (i) the precedence is set and what is needed to break away from the status quo, and (ii) how will the break away affect the firm and market as a whole? Insights into these were first postulated by Sir Isaac Newton in 1687 in his treatise, Philosophiae Naturalis Principia Mathematica. At the time, Newton was simply examining the physical world, seeking to understand why the world behaved as it did. This treatise later became the very foundation of some of the most pivotal laws in physics.

Newton’s First Law of Motion states that every object will remain at rest or in uniform motion in a straight line unless compelled to change its state by the action of an external force. Well isn’t that today’s law firm, when it comes to collections practices? Each year we do the same thing! January to March we assess the wounded and close the year. April to July we are into reporting. July to September we are talking to our partners about WIP and AR. October to December we are manic trying to make the ‘budget’ number! Basically, we continue to do what we have because there is no force providing the impetus to change. Our inertia propels us forward on a pilotless trajectory; it has always been this way and we have done well, so it will always be this way and we will always do well.

Unlike the Laws of Physics, the pilotless inertia of current law firm collections practices needn’t go unchecked or unaltered. It is our own failure to make change that is at fault here and not the environment. Ed Poll in his “holy grail” of law firm collections, “Collecting Your Fee”, explicitly states that firms have only themselves to blame for their collections woes. I feel this is partly the case, Newton’s First Law suggests the reason why these bad habits perpetuate – there is no external force to change! Borrowing from the medical profession, at one point in history, they (doctors) too were poor collectors, just like law firms. But what happened, an outside force got involved – insurance companies. The insurance companies took over the financial management of medicine and left the practice of medicine to the practitioners. The actuaries of the insurance companies did what they did best – profit management. The practitioners were left to do what they did best – practice medicine. I feel it will take some extraordinary outside stimulus to corral the legal profession into a more refined business model. One where financial management has been stripped away from the firm and placed in the hands of a body who has such expertise and leave the practice of law to the lawyers! (For those who have been following my posts, I suggested this direction several months ago.)

Let’s say for the sake of argument that one firm, on January 1, decides, “we are going to break away from the pack behavior and do things right”. We will have solid engagement letters clearly outlining our terms, we will have our dockets done by the end of each business day, bill all WIP by the end of the month in accordance with the engagement and our collections team will be on the client by the 35th day; what will happen? If your immediate answer is, that firm will be grotesquely profitable and everyone will get enormous bonuses. You are wrong!

A firm that engages in such a ‘radical’ departure from the status quo will not get the results, as theory would suggest. No Newton’s Third Law of Motion states that for every action (force) in nature there is an equal and opposite reaction. It is the client’s ‘reaction’ that is not being considered, that would lead one to believe the firm would be immediately grotesquely profitable. Any action that the firm undertakes will be received by and reacted on by the client and often in opposition to what we expect. If you don’t believe this third law, let’s deviate for a second to aspects in life to which we are familiar. Let’s say, the government hikes up interest rates. The effect, everything for the average person gets more expensive. They lower interest rates, everything gets cheaper. This impact affects our discretionary income and therefore our spending. Another good example, but complex, is the effects of taxation. In the simplest sense, the government needs more money. So they raise taxes, that begets them the government more money. Where does it come from? The taxpayer’s pocket, which then through the multiplicative effect of taxation, the population’s discretionary income decreases and so does spending!
Returning to our firm that undertakes a full 180-degree change to become more in alignment with better business practices of the corporate word. I postulate such an avant-garde firm will endure a very rough and rocky financial future. For the clients who have become used to a 120-day plus collections term and are now faced with 45-day terms, will seriously rethink their engagement with the firm. To these clients, up to that point of change, the law firm was their banker through interest free credit. The problem is further compounded since lawyers have commoditized the practice of law. Any radical move in client management, I feel, would drive clients to the other firms that offer more palatable practices. Personally, I would like to carry interest-free debt for 120+ days, oh and negotiate a deal at year-end instead of paying my bills in 45 days. Imagine how wonderful it would be to carry your MasterCard bill, interest free, for 4-6 months then within the last couple of weeks of the year get a 10-20% discount. Who wouldn’t think that is great and who wouldn’t get upset at the departure from that ‘status quo’!

Does this spell doom and gloom for today’s legal practice? I don’t believe so. I feel that eventually firms will hit the glass ceiling on profitability. It may be this glass ceiling that is the impetus to change. Until then, firms will continue to settle in on what they have had instead of what they could have. However, if they were to stretch to what they could have, through small incremental changes in their business practices, they will achieve immense success. The refreshing reality is, some firms have undertaken the journey. I personally know of six. One of which I met last week. On Friday, November 30, I had the privilege of speaking with the CFO of one such firm, an eastern United States firm, who has been in existence for over 100 years. Throughout our conversation I was amazed how the CFO and the collections manager were so calm. I asked if they had a December 31st year-end and why they weren’t completely manic like all of their U.S. counterparts. To which she (CFO) answered: “if you batten down the hatches all year long, there is no need to go ‘manic’ in the last few weeks of the year”. She was referring to a consistently applied methodology for running the firm that achieved profits throughout the year, not in the last 22 deposit days. Anything is possible, there simply needs to be an external stimulus to change and then management of the cause/effect of the stimulus.

Monday, November 26, 2007

Your Political Correctness is Upsetting My Freedom

Anyone living in the U.S. will know today, Monday November 26, is a very significant day. Today is the day that retail outlets post the outcome of “Black” Friday, the day after Thanksgiving Day. Over recent years the economic barometer has been carried by

Wal-Mart. If the Big Box retailer said Black Friday was great, the economy rages forward, if not, it tanks. How this day ritual came about is probably lost in the annals of time. I hope that every collector out there will be eagerly awaiting the release of this very important information, as it will shape your year end.

As I await the outcome of what is in essence consumer confidence in the economy, two thoughts run through my mind. First and foremost, what the outcome will be – boom or bust. (I already have a fair idea where the gavel will fall). However, the second thought is how it will be presented; will they call it “Black” Friday? One thing I have always known is you can always get what you want if you make infinitesimally small changes; you will get what you want while the other party doesn’t realize what is going on. The English have a mantra that speaks volumes to this “Slowly, slowly catch yee monkey”.

Last week, for some reason, I was reflecting on my adult life and came to realize how radically the world has changed since the last century- when I was a child. As a child in the 1900s, we had very old people, old people, parents and children. Today we have grouped them into: Mature, Baby Boomers, Generation X and Generation Y. Recently I attended a lecture that focused on how to get these groups of people to work together. However, back in my generation – they seemed to just ‘work together’, but they were called old.

In my adult life I have witnessed many changes in how we communicate with one another. These small changes that have been insignificant through the years have now been entrenched into our daily lives. According to my Human Resources person, one must not ask about people’s weekends as that can be a form of harassment. In one company I know of, they have legislated what employees can have on their desks and can’t have any pictures or posters. As some displayed trinket ‘could’ be offensive to someone else. In the five years, one country has banned the Children’s Nursery Rhyme… Ba Ba… Black Sheep. It has been since re-released as …Ba Ba Sheep. Just this week in the news, the television series every North American child grew up watching, Sesame Street, is not considered politically correct. That big Yellow goofy bird said things in the 1950-1990’s that by today’s standards cannot be said! Oh…my all time favorite, one country has mandated their Store Santa to say “Ha Ha Ha”, instead of “Ho, Ho, Ho”.

All of this political “correctness” has really impacted my collections. I spend too much time trying not to offend someone that the message of what I am trying to get across gets lost in the rhetoric of today’s communication requirements. I was recently privileged to read communication from a managing partner to a senior partner about the position of the person’s work in progress and accounts receivable. In the 150 words of verbiage, I was left wondering what was going on. The fact of this partner’s sloppiness in managing his practice got lost in the words. So how effective was that correspondence in motivating results?

In the past decade I have met some of the most “politically correct” professional services practices that I could ever imagine. I would like to take this opportunity to share a few of my favorites. The firm, a large west coast firm, invited me to meet their revenue partner, CFO and collections manager to discuss collections strategy and to look at the integration of technology. At one point in the conversation, I said “you should send statements to your clients”. With that the room went silent and the partner said “we can’t send statements to our clients, it will upset them”. What? Informing clients what they owe will upset them! I get statements every month from credit card companies, public utilities and I never get upset. However, in this firm’s mind, their clients would get upset should they receive statements.

However, my favorite firm that tops the political correctness ladder is a Midwest firm that took 5 years to agree to send their clients statements of account. Within 3 months of sending statements a senior partner put the brakes on the whole project, the partner’s reason, lack of “correctness” in the statement. In this person’s reasoning the title ‘Statement of Account’ represented a full account of what the client owed. However, the partner reasoned the caption was a misnomer, for the client owed the amount in AR and the amounts in WIP. So it was back to the committees to deliberate on what to do. The result after 90 days of deliberation was to change the caption to “STATEMENT*”. Where the asterisk lead the reader to the end of the correspondence where the term ‘STATEMENT’ was defined in several sentences. What!?

Back to reality, in a business transaction both sides should benefit. Someone received goods or services and someone is due payment. If the originating side received what they were to receive then they should make payment, whether they receive a bill or an invoice. Payment is due! It is the right of the providing party to receive payment. Very simply, these transactions are people processes. I think we should ‘can’ the political correctness get a copy of the Fair Credit and Collections Act (get the rules for your jurisdiction) learn what you can and cannot say. Then pick up the phone … say it… and collect the amounts due and banish from your mind whether it is a bill, an invoice or a statement! It is money due to your firm….so get it!

Tuesday, November 20, 2007

Evolve me back to the Serengeti

Human anthropology has always been of interest to me. As long as I could remember, I have spent a large portion of my reading time focused on human evolution and the origins of sociological structures. This weekend I had an extraordinary opportunity to hike with the Phoenix Park Rangers and a renowned archeologist to the top of Shaw Butte Mountain to examine Indian ruins. Here was an opportunity to look back into history – those civilizations that shaped the American Southwest.

The hike was extremely difficult with steep slopes and often very unstable footings. However, at the top of the mountain history gave up her story. What to the untrained eye was nothing more than a pile of rocks came to life through the voice of the guides. It seems that the Shaw Butte Mountains were first discovered in the early 1930’s. It wasn’t until the 1950’s that the archeologists determined that the high degree of pilferage of the artifacts warranted government involvement to secure the area. Since then, the entire area has been closed to the public and is monitored by local law enforcement.

For anyone who has visited Arizona in the summer, they would be hard pressed to believe that Phoenix was not under the dominion of Hades. The 120F temperatures become worse with the lack of shade and the presence of some of the worst life forms, all seeking a means for survival. Yet, native Indians called the Hopi inhabited the entire area. These tribes originated from the base of the Grand Canyon and migrated to the Sonoran Desert and beyond; some of the harshest environments in the Southwest.

During their stay in this harsh land, some 2000+ years ago, they learned to become one with nature. These tribes of 75 or so people knew that survival meant clearly defined roles within the tribe. They were hunters, gatherers, sentry, homemakers, builders, planners and astronomers. By means of carefully studied celestial behaviors, these Indians were able to determine what time of the year it was and therefore shape how they would survive. The key to survival was everyone had a role. Each person’s unique skill was required for the continuance of the tribe!

As history unfolded, the survival of the ancient peoples was a result of them forming groups and working toward the survival of the tribal unit. In today’s society, the bonds of teamwork are less important for human survival. We no longer need to take up our sentry post for protection, while our comrade stalks dinner. For us, meals are often a phone call away – and it is delivered! However, through each of the services we need for our survival there is some degree of teamwork. There are people at the public utilities commission that ensure our basic needs are met, and there is a huge infrastructure that ensures our food supply.

With that, there are teams of people all working, somewhat together, that ensure our survival. The basic difference between the Hopi of centuries ago and us today, is our survival is based on our contribution to the economic engine, which recognizes our efforts with a medium of exchange. The sad part of it is the glue that bound our ancestors together is almost non-existent today. This is grossly present in the poor work ethic of today’s workforce. Today, we are in the ‘me’ era, while our ancestors were in the ‘us’ era.

Amazingly enough a tremendous amount has been written on these eras, as it relates to human development. Essentially there are three phases of human development: dependency, independency and interdependence. The dependency era is the ‘I need you’ era. This is the time from infancy to adolescence. The independency era, is the ‘me’ era. It is all about me and I can take care of me. The highest level, is the interdependency era, the ‘us’ era.

In moving off the Serengeti, humans have devolved from interdependency to dependency. I sense we are in a position stuck somewhere between the two. It is in the allusive position that, I feel, impedes us from accomplishing great things. We no longer focus only on what we do best for the betterment of the team, we put 70% focus on our skill and 30% on trying to tell someone how best to do what he or she have to. This behavior is most prevalent in the professional services, and specifically in the practice of accountancy and law.

In today’s firms, partners behave as if they are running their ‘own’ practice; they are not acting as part of a much grander entity – ‘the tribe’. It is all about ‘me’. They manage their own client relationships, bill and for the most part are responsible for collections of the amounts. They do all of this under the guise of client ‘relationships’. They are essentially focusing 70% of their talent on what betters the organization and 30% on things they know nothing about – like technology, billing, and collections. Just recently I had a meeting with a large firm Managing Partner, the CFO and the Billing and Collections Manager. I came to realize that half of the partners in the firm act as if they are sole proprietors! The firm had a true ‘eat what you kill’ mentality. You work it, you bill it, you collect it… it is yours. I thought, "What would Darwin make of this devolution?"

However, this isn’t unlike many firms throughout North America. Today’s firms are so full of ego that money is simply flying out of the window! Consider just how much billable time is wasted on ‘billing’ and ‘collections’. And the humorous part is lawyers know nothing about collections! All of this is done because firms are stuck in the ‘me’ era and they feel they can do it all. The corporate world has gotten out of this mode, simply through market pressures. However, today’s legal firms are stuck in the ‘me’ mode. The only excuse they can fathom up is…“our profession is about ‘relationships’”.

Professional services are built and maintained on relationships, as is every business. However, the reclusive ego-driven nature of law and accountancy represents the blinders by which these organizations are stuck in the ‘me’ era. It is amazing how much more these professions would achieve if each partner focused on what they did best, the practice of the profession. The medical and dental fields have recognized that they can achieve more through interdependency. The practitioners maintain relationships with their clients, at the same time focusing on their expertise. All I can say is that my dentist has never called me about payment on my crowns, nor has my surgeon for fixing what was wrong – now that is a higher form of business! Interdependency!

Saturday, November 10, 2007

Why Fish, when you could Farm?

Last week, I had the opportunity to spend my time at a CPA managing partner conference. It was a great opportunity to meet with some managing partners and to gain an understanding of the major issues they are facing. As it turns out, CPA firms are very much like law firms in their organization and practices, so much so that their WIP and AR management issues are almost mirror images of each other. After two days of meetings, and round table discussions it dawned on me that the problems faced by law firms and CPA firms, are deeply rooted in their organizational structure.

As we all know, law firms are built of varying legal acumen of the practitioners. At the bottom rung are the students who must learn the ropes; higher up the tier are varying levels of senior associates. The top of the firm is made up of department heads, non-equity partners, equity partners and the managing partner. In the accounting world, the names are different but the structure is somewhat the same. As I can deduce, the role of the managing partner is basically to manage the firm based on direction of the various committees. Now, depending on the firm, the managing partner may have their own practice; which really doesn’t lend itself to ‘managing the firm’. Then one must question, what really requires ‘management’ in today’s firm?

In his book, Collecting your Fee, Ed Poll makes a very blunt statement that law firms are the product of their own actions. They have no one to blame but themselves for the slowness of collections of their bills. I believe Ed is very accurate in this conclusion, however, I must take it a step further. The managing partner of the professional service firm is solely responsible for all of the delinquencies associated with collections of outstanding receivables. The managing partner must face the reality that they and only they can make a change.

You must be wondering how such a bold statement can be made without some support. Support really isn’t needed, as the managing partner is responsible for the ‘management’ of the firm. So having garbage receivables and poor cash flow is directly their responsibility! I feel that the managing partner is either spread too thin or simply doesn’t have enough power in making a change. Therefore, the firm continues day-by-day, month-by-month and year upon year to have sloppy accounts receivable management practices.

If you take a moment to examine how law and accounting firms are built you will begin to see where the flaws exist. It is these core flaws in the structure that leads to an ineffective managing partner. These firms come about principally by mergers, acquisitions or organic growth. For the most part, M&A activity has lead to large national and global firms. During these activities, small firms become bigger firms, which become bigger firms and so on. However, with each M&A activity different cultures are forced together. It is the failure of these, often heterogeneous cultures to meld that is the basis for all of the problems.

Following an M&A event, there is the existing culture and the new culture. Well both cultures have ‘always’ done things a certain way. Who is going to change now that they are a single firm? The problem is exacerbated when the new culture is in a different location. It is much more difficult to discern if the cultural differences is a necessity of the local economy, the firm exclusively or some combination of both, therein lies some of the challenges. Post M&A activity, often the cultures don’t gel and the firms now have the essence of two companies under one name. As the firm continues in its expansionary plans each successive M&A activity increases the number of cultures that continue to do things ‘their-way’, all the while; operating as a single entity.

On a macro-level there can be several cultures, by virtue of the M&A activity, but what about firms who have grown organically? Firms also fall victim to micro-cultures. In the organically grown firm and also the M&A grown firm, all the partners make up the ownership of the organization. To that end, they each believe in how they should manage their practice and how the firm as a whole should operate. After all, they do own a piece of ‘the pie’. The compensation of the partnership structure acts to create an information hording mentality, where each partner is more focused on his or her own practice, through billable hours and client intake, rather than on the overall well being of the organization.

It is the presence of these multitudinous cultures that makes the managing partner completely ineffective. Essentially the managing partner is faced with the task of managing (depending on the number of partners) his or her own peers; who like them, have a practice and must generate revenue. So the difficulty of the task to keep all the partners playing the same game is almost impossible. All of this is compounded with the many active committees in the firm, each pushing or pulling for their own political agenda.

An example of this came to light during a recent conversation I had with a colleague, I found that the managing partner has no control on his firm; it simply continued as it had for decades. My colleague is the managing partner of a national firm. His firm has grown principally by M&A activity and with 10 offices across the United States the culture is radically different between offices. In each of the offices there is an office managing partner, to whom all local partners report. However, the situation that I used to bring reality to light is in the firm’s practice of expert witness in accounting/financial litigation.

In the firm, one partner in the head office manages a practice of expert witnesses for white-collar crime litigation. This partner has agreements in place with insurance carriers for this type of work and all such work throughout the firm goes through this partner, except for their west coast office. This head office partner sets her own rate in which the insurance company sometimes fails to pay. She then seeks compensation from the insured. The reality of the failure of the firm to act consistently was a bit of a surprise to my colleague; however, he didn’t want to address the issue, simply because, the ‘cultures’ are different. As dinner progressed, I brought to light how the firm was basically acting as two different firms when it came to this practice group. At the end of the night I closed with, if a single practice group is so heterogeneous, what is going on between all office practice groups and within practice groups? To that, I received a blank stare. It is no wonder that they have AR issues in the various practices in the organization.

With firms’ blatant failure to ‘gel’ and have one codified practice throughout the organization, the managing partner becomes nothing more than the tour guide for a group of fishermen; someone who simply makes ‘suggestions’. Each partner simply fishes in the sea of revenue to get his or her own catch. Instead, firms could reap tremendous rewards through leadership, direction and focus. All the partners must be focused and operating under a single codified set of rules. Once that is achieved, the managing partner now becomes the leader of the firm’s destiny; a farmer. As a fisherman, each person takes his or her chances. As a farmer, the foundation is laid; the rules are in place, everyone is in lock step together, and the end result – a bountiful harvest. Sadly, in today’s practice most partners are casting their lines into the sea of revenue, when they could be harvesting from the fields of profitability!

Saturday, November 03, 2007

Collections, the Currency of Communication

Have you ever noticed how people communicate with one another? Often they don’t realize the messages they are sending through body language. Human communication is the most advanced and complex of any species on the planet. Effective communication requires a sender, a receiver, a medium and an understandable code; language. The most amazing thing about human communication is that people communicate in many different ways at the same time, they could say one thing and their body language is saying something else. Body language or actions, speak louder than words. As an example, think ‘no’ and try to nod your head ‘yes’. It is very difficult; your body will react to what your mind is thinking. Next time you are in a meeting, look around the room, shut your hearing down and let your eyes “listen” to those in the room. I will venture to bet you will quickly identify people’s receptiveness to the topic and the speaker.

Effective AR collections is so bound to communication it is unreal. There are many forces surrounding communication that will determine your effectiveness in your task as a collector. In previous discussions and webinars I made the statement that there are only three reasons people don’t pay bills: bill related issues, relationship issues and economic issues. For today’s conversation, we will assume that billing issues are non-existent and we will examine relationship and economic issues.

“… a client who genuinely respects you and the work you did will pay your bill in a timely manner.” ED Poll (2003)

In meeting Ed a few years ago and having the opportunity to speak with him on several occasions, I can’t help but say that those few words embody AR collections. Not just law firm collections, but all collections. When we communicate with our clients, we need to keep in mind that every communication either gets us closer to payment or further from a payment. Our motivation, if you haven’t already seen it, should be closer to receiving payment!

There is a complex dynamic in communication when the collections person first makes contact with the client regarding the outstanding amounts. At this point the client has already made up their mind about the payment of the account. The client, by virtue of their interaction with counsel, has already determined the value of service provided and as such has affixed a price tag on it. It is the counsel’s responsibility to communicate to the client in such a way to demonstrate the value of the services provided and therefore moves the relationship closer to payment. I have addressed the importance of counsel communication in my study Collections after Billing, a Bit Late.

Now that counsel has failed to communicate the true value of the work, it us up to the collector to finish the job! The problem is now much more difficult than it was prior to billing and immediately after billing. The culprit to this increased difficultly in collections is the passage of time. Any MBA student studying the softer skills of business will tell you the range of emotions a buyer goes through before a major purchase, at the time of purchase, post acquisition and thereafter. The longer the passage of time following the acquisition of the item that the buyer has, they begin to lose the euphoria of the purchase. The buyer begins to question the value of the acquisition and essentially a reevaluation of the product or service takes place.

In the collections world, the collector is making a call for payment where the client has either already begun the reevaluation process or is in the midst of the process. In addition, other things have begun to happen; economics. Recall I made the statement that what goes on in one’s mind determines ones actions. Well, how the client feels about their economic situation hastens the reevaluation process and also sets the priority for payment of the account.

Recently a colleague and I were discussing AR collections and he expressed how in his circle of collectors, outside of professional services, other organizations are having difficulty collecting outstanding receivables. To that I responded, of course! Just look around. How consumers feel determine their buying and payment habits. If consumers feel that the economy is great, they will be more apt to spend and leverage their position. Whereas, if they feel that the economy is on shaky ground they will begin to be much more cautious with their resources. No matter where you are, consumer confidence drives the economy. It is the lowest denominator that fuels national and global economies!

Isn’t it amazing how the job of the collector has just become exponentially more difficult! With each call the collector is faced with, the client that has already revalued the services, prioritized the payment plan and has done so because of the current economic situation of their company, municipality or country. Now you Joe Collector – need to get that bill paid; before December 31!

I have always professed, the collector who only focuses on the bills outstanding, operates in isolation. Today’s professional collectors must see the entire picture! They are the ones who must repair broken relationships, open the lines of communication, and demonstrate to the client the value of the services provided. They must reverse the mental reevaluation process and prioritization process that the client has already undertaken. And they must do all of this within the realms of the current economic system! Of course, Joe Collector cannot change consumer confidence. However, in his capacity as a professional he can demonstrate the true value of the product or services received so much so that the client sees payment as a priority.

AR Collections is a very difficult task with the odds stacked against collectors. However, diligence and effective communication will get your bills paid before someone else’s. Remember, everyone calling the client is vying for the payment of their bills- communicate the value in paying you first!

Sunday, October 28, 2007

Clock’s Ticking, what’s today’s Deposit?

For US based firms, this time of the year is the most exciting. They don’t recognize time in hours, days and weeks. The new time measurement is ‘deposit days’. That is the number of days remaining when the banks will be open to accept the avalanche of payments that will hit the firm. It is amazing how, firms who don’t meet their target, blame the lack of ‘deposit days’. That is almost like saying; I could have passed that exam, had I another – 15 hours!

The concept of time is so very allusive. For years I spoke of time as an illusion, it is an intangible and doesn’t really exist. However, it is the basis on which everything in our world operates. Webster supports my contention of time being an allusion with “ the system of those sequential relations that any event has to any other, as past, present, or future”. With that said, the demarcation of events is what we have built our entire existence upon, and rightfully so! Without the concept of deadlines, nothing would ever get accomplished! Imagine in our professional world, Ms. Client you need to pay your bill. By when? Mr. Taxpayer, your tax remittance needs to be paid! By when? Notice how ludicrous these statements have become, without the recognition of some point in time?

Although allusive and only an event marker, time is the traffic cop of our economic system. It is how we, judge success and failure. Essentially we establish a goal, set the deadline date, and then judge success by the achievement of that goal. With long time lines, most goals become achievable. However, as each day brings one close to the deadline date, the difficulty in the achieving of the goal increases, for some, exponentially. Essentially time gets away from us! But how can it? It isn’t real. It isn’t like that glass of water we drink or we watch evaporate. Time is only the reference between two events; sunrise and sunset. However, when we fail to achieve our target or goal, it was the fault of time – it couldn’t be us!

There is an entire industry out in the world that sells on the comfort that our failures are not our fault, it is the fault of insufficient time. This industry, it the time management consulting industry! Spend a moment in the local bookstore or go online and search for time management. There is probably more written on time management than anything else. I feel, time management is the fad diet for the mind. It is comfort to know that I didn’t fail, it is the result of time getting away. All of which gets fixed with the day planner, the Rock Theory or whatever.

Success at a goal doesn’t come down to managing time. It comes down to managing oneself around the achievability of the goal given the time available. The keyword here is achievability. Have we established realistic expectations, have we the required skill set, and have the required amount of time (sequential passage of events) to meet the deadline? It is in this area that US based professional services organizations become their own assassinator of their own goals. These organizations set lofty goals based on whims, set unrealistic time frames, and then beat their staff to compliance. This cultural phenomenon has been going on as long as I can remember, and probably long before I came around. Sadly enough, no one takes an account that this approach is physically and emotionally destructive and yields only marginal results. Steven Covey refers to this as “take time to sharpen the saw”.

This time of the year, for US firms. There is no time to do anything but, push, push, and push. People have become so conditioned that there are only X deposit days left, so we need to do all we can. In so doing, we capture the low hanging fruit, and reach higher and higher up the tree. The problem with this approach is what I mentioned earlier, as the time to the deadline approaches the difficulty in achieving the goal increases. To these firms, collecting the easy receivables in September/October leaves all the difficult receivable for November/December. Ideally, the low hanging fruit should be left to the end and the more difficult receivables should be tackled in the early days, the early days of January to September!

I sense all of the issues we see in professional service organizations is a direct result of the lack of ‘necessity to change’ in their history. Professional services have always been shielded from the ‘real world’. Since they are privately funded and there has been no outside entity pushing them to grow and become efficient, there was no need to. Their desire to grow only rests within their own hands; evidence that self-policing doesn’t work. Today’s firms need an outside financing body, which will force them to grow. Time (deposit days) don’t need to be managed, rather the culture of the firm needs to be managed; without which, tremendous profitability remains tied up in archaic practices. And the insanity of ‘year-end’ push, will be here to stay!

Tuesday, October 23, 2007

Miracle on the51st

It will never be an academy award winner nor draw accolades from outside of the firm. But to each professional services firm, the success of an entire year culminates to the deposits of the last 10 days of the year. It is so astounding how a multi-million dollar operation puts its future in the hands of a few and it all comes down to precious days! In the past week I have spoken with a few firms who refer to this time as Miracle of December, they recognize time not by the calendar, but by deposit days. The sad thing about it all, it doesn’t have to be this way. However, history continues to repeat itself. Where trained professionals do not manage collections and it is something that is done in the latter part of the year.

I won’t use this time to harp on what should be done. Rather I want to spend some time talking about choices. I have learned over the years that life is a series of choices, none right, and none wrong, simply choices. To that end, we set out goals and go about our means to achieving them. Whether the goals are valid or realistic is not important, they are our goals and therefore we pursue them. It is in the methods we use to pursue our goals that makes us unique.

As you may have picked up from past writings, my feeling is that AR Collections is a service to our organizations that we must provide each and every day. We must be diligent in obtaining what is rightfully ours and doing so in the most respectful and professional manner. This, I feel, is achieved in those organizations that are full or modified accrual.

With that said, firms need to drive their bottom line. They need to achieve the level of profitability necessary to continue operations, to grow and to take advantage of new opportunities. Firms only have two options in driving the profits they need to be successful. They need to generate more revenue, which must get paid, or they need to cut costs. Recently I have spoken with a few firms that have done all they could to generate more revenue. They had gone so far as to put a bounty on billable time, 75% bonus for 3,000+ billable hours per year. However, after 2 years of this and attorneys at full throttle, the next logical step was to cut costs. The cost cutting endeavors will span a few years as the reorganization takes root. However, I feel, in time this will too hit the wall.

Hitting the wall or the proverbial glass ceiling is the spot, I feel, many firms come to when it deals with profitability. They try increasing the top line, the billable hours. They try different things on collections, sourcing and outsourcing. They try these quick fix reorganizations. Sooner or later, the glass ceiling sets the limits. The true limits may not be discerned, they may be hidden in inflationary adjustments or some windfall. They are there!

Breaking the glass ceiling is not done with reengineering the processes of operation. It isn’t in ‘changing client intake’ or having more Power Point Slides at the partner retreat. It is in making an inherent change in the way the business is run, that is right – the business. It is a business and should behave like that. A recent conversation with a colleague made it clear, that his firm was not run like a business. He jokingly said, “Our firm is more like a ‘mom & pop’ shop.” Here is a firm that spends millions in meetings upon meetings, retreats, think tanks like Business Process Reengineering (BPR) and the idea that is left in the minds of all the employees is that this is a mom & pop shop.

The hammer that breaks the glass ceiling isn’t in all the quick fix. It comes when firms realize that there are better business managers than attorneys, there are better business strategists than partners, and better visionaries than the managing partner. The business and the vision of the firm should be shared by all and managed by a visionary. The power of propulsion must come from the attorneys and the entire team.

In the right environment, everyday is a successful day. Why should you wait and deem success in the last 10 days of the year? It is your choice! Sadly, I don’t think the time is ripe for firms to make this change – this paradigm shift!

Saturday, October 13, 2007

My Reality vs. Your Reality

Each week, I write my entry based on conversations I had during the week with colleagues. I am always amazed how some entries create a flurry of responses and others go completely unnoticed. Last week’s entry created a wealth of feedback. I received everything from; “You don’t know the reality of the situation.” to “You hit it right on the money.” It was for this reason I wasn’t too hasty in adding another entry; I was hoping to purge the remaining thoughts from those who had something to say.

I am really pleased there are people in cyberspace who take the time to read my entries and more so to comment. Although they don’t comment in the public forum, which could trigger a debate, they do comment. This week I thought I would explore the feedback from those who took the position that, “I don’t understand the reality of the situation.”

Reality is one of those words with a very illusive meaning. Webster, in trying to give us meanings for words, tends to become largely circular with the word reality. The first step in the definition takes us to the word real. From there, real is something pertaining to fact and fact is ostensibly apparent. Reality, for me, also has a definition that my colleagues forced out of me when I was working in public accounting. Which somewhat parallels that of Descartes. However, with all of that said; reality is what is apparent. Taking this back to our situation of those receivables that have gained antique status; the reality is: some receivables do. That is it!

However, that can’t be it! That must not be it! That shouldn’t be it! If you take that position, then you have hit the road of complacency. If that is the moniker you wish to attach to yourself. So be it! However, those who were willing to push the card just a bit further, to ask the question … why? And then, why not? Those are the people able to create a new reality! However for many of us, we continue to perpetuate our existing reality. I don’t believe this perpetuation of bad habits is a result of laziness; it is simply the act of not ‘pushing the card’ enough or not knowing the direction in which to push.

Today’s professional services practices manage accounts receivable the way they have always managed accounts receivable. I believe it stems from an early time where professional services were a noble profession and asking for money was considered to be taboo. As sole proprietors banded together to form partnerships the philosophy stayed. I have spoken with many professional service firms that still believe that the ‘client’s will pay’, and that asking for payment was taboo. I recall a partner from a CPA firm in New York, who said, delinquent receivables is fine. The client will need audit and tax work soon enough, and then they will pay the outstanding bill. To that I responded, what happens if they simply change firms, then what? The look on the man’s face was definitely something to be captured. The firm worked on the premise the client will come back, so there really isn’t a problem. Law firms are no different. They ‘push’ and then they become complacent, someone assuming the belief that if the client has some ‘space’ they will have some divine revelation and then pay.

The problem with today’s firm is they are suffering with internal turmoil; they want to change but they want to maintain the status quo. More often than not, status quo – wins! Allow me to share a story, which screams how status quo wins. One of my favorite firms, a national firm, grew fairly large through acquisition. What they are left with is many cultures loosely attached to the main office. The firm has a central collections group that handles about 50% of the receivables. The firm has a national managing partner and each office has a managing partner. The collections group, as best as I can see, runs hundreds of reports each month. However, to demonstrate the perpetuation of status quo, in 2007 the firm set high expectations for cash receipts and has fallen short each month for one reason or another. Now they are into their year-end push. Oh this time, the collections manager is going into retirement. Without a specific retirement day set, the firm began recruiting. After several months, they settled in on a candidate. A top collections candidate! This person brought 25+ years experience in areas of risk management and collections, a true professional. With the new candidate set to start September 17th, the firm decided that the retiring collections manager should stay on until December 31st, to help transition the person in. The reason, although the new manager is a top grade professional, “he doesn’t know how to deal with attorneys and legal collections”. Therein is the first step down the status quo road. As I see it, the new candidate would bring in a new perspective. However, the transition stage will indoctrinate them into ‘status quo’.

I recall a similar situation from the late 1990’s, where one such professional collector started in a Texas based law firm. She was ready to take on the world; she knew credit and collections and was ready to make a change! A few months after our meeting, we were talking and she shared that the firm wanted her to be more of a reporting machine than a collector. I told her that she had difficult choices to make, starting with where her career was going to go. Needless to say, passion shone through and she left the firm! In both of these situations, and I have many more examples, firms have the opportunity to redefine receivables management in the legal sphere. Instead, they choose –status quo.

It is time that firms really look to change, if they want it. Now that billing rates have hit $1,000 per hour, one must question why. Is it because the value of the service that has driven the rate, Keynesian economics? Or, is it simply the dilution of collections realization that has taken its toll? I would like to close with an excerpt of an email I received from a friend who is a true professional collector. We have since spoken about my blog and she has agreed to an interview. Hopefully her perspective will reshape professional service reality, if not seed thoughts of a new reality.

“Someday, I want to hear about the legal side of collections…from what I’m getting…it doesn’t sound like there is a SOP in place…just collection efforts… willy nilly. Am I understanding this correctly? In a manufacturing environment there are procedures…material ships/services rendered, invoice generates with payment terms noted, collection calls begin 10 days after due date (or as close to that time as possible). If our efforts do not result in success, we will hold future orders or do no further work until an agreement has been made for settlement. If this doesn’t work…personal visit …could be by sales rep and/or me. Still not working, demand letter detailing our legal intentions if payment is not received within a 10 day time period. This usually works…less than 1% (sales) written off to bad debt…legal environment does not seem to be as simple…but why couldn’t it be? Certain protocols & ethics in volved? Just curious…we could have this conversation later …just puzzles me”…

Wednesday, October 03, 2007

Enough Already!

It’s here! Those nine months of waiting for the year-end push has finally arrived. For those US based firms with a December 31 year-end, now is the time. Now is the time to pull out all the stops, revive all the connections to getting those accounts paid. Throughout this flurry of activity there are those accounts that don’t get touched, not even the slightest glance. You know them, those seriously delinquent ones, those bankruptcy ones, the ones where the clients can no longer be found.

Lately the idea of enough has plagued me, the idea of when is enough… really enough. For anyone who has studied marketing, buyer’s behavior is very complex. In regards to research, compiling information, making the purchase and ultimately faced with either more fact-finding or buyer’s remorse. However, on the collections side I have yet to see an article that deals with the psychology of collections. I can only surmise that there are complex emotional states of those associated with the process of AR collections.

In the perfect world, counsel would have undertaken due diligence in securing the client. In so much as documenting expectations of both the client and how the firm expects to get compensated. From there, work would be performed and ultimately the time billed. To this point, the foundations of collections have been established. The moment the bill goes out the door, the nature of the foundation is put to the test. If the foundation of the attorney-client relationship is solid, the firm will be paid in a timely manner. If not, the collections artillery is brought into action.

Through the passage of time, the collections team undertakes increasingly more effort in the collections rendering, to get the account paid. However the point ultimately arrives, when a tremendous amount of cost has been expended on the account only to find the client isn’t budging. The client is not paying! This is the point in the relationship that fascinates me the most…the “now what” moment.

It seems that when the “now what” moment hits, firms have no idea what to do. I believe that this moment is filled with emotion and making a decision solidifies reality. What are the firm’s choices? There are a couple of key options. If the firm feels completely justified that they have done their due diligence at the onset and throughout the relationship, then they should litigate and collect what is rightfully theirs. Alternatively, the other option is simply write off the account and move on.

Interestingly enough, when faced with the reality of the seriously delinquent account, firms don’t act in a reasonable sense. They neither litigate nor write off the account. I believe their reason for which is deeply rooted in the psychology of the attorney-client relationship. To litigate would be to stand strong in the belief that the firm did everything right and is rightly due payment. However as we all know, that isn’t always the case. Doing things right is more the exception than the rule. Another reason for not litigating is the probability of a malpractice countersuit and the stigma of being the firm in the community that becomes known as the “litigious thugs”. So firms are very apprehensive to litigate.

The only other option is to concede that there was a failure in the relationship and the account should be written off. However, the simple act of writing the account off moves the emotions from an ‘unrealized’ failure state to a ‘realized’ failure state. It is much easier to live in hope that one day, one miraculous day, the client will have an epiphany and pay. What makes this all the more entertaining is that often these accounts are delinquent by years. Sometimes far exceeding the statute of limitations!

The failure to realize failure is simply poor business sense. It is in the recognition of failure that learning takes place. Admitting that one’s actions were the probable cause of a relationship going sour is an important learning exercise. The timeliness with which the situation is internalized and the course of action is taken, hastens the learning and ultimately mitigates the probability that similar mistakes aren’t made in the future.

A colleague of mine, a finance director for an oil exploration company, explained the degree of analysis with which their organization examines differing business opportunities. Using statistical analysis, ventures are examined on their ROI to the 1/1000th of a penny. When the market price of petroleum shifts, even by as much as a penny that could be immediate motivation to simply cap an oil well.

I think it is high time that law firms, who truly want to be profit driven, cast off the shackles of the victim mentality. Stand tall in the belief that your client will tell you, by way of their check book, what they feel about you and the work you have done! Attorneys and the firm’s support infrastructure have to do the job right the first time, believe they have done the job right and be willing to stand by it. Then if things go wrong on the payment side, be strong enough to cast off the emotion and take action. Realize that the relationship has ended, maintain integrity and take action to protect your bottom line!

Monday, September 24, 2007

Hey…. Let’s get together sometime soon….

No matter whom you are or acting on behalf of, that phrase brings on some type of relationship. It is the basic human need to fill a void that drives people into a relationship; we are simply not whole on our own. Relationships are multi-faceted beyond the human mind’s comprehension. Relationships can be as simple as helping the neighbor move furniture or as deep as it brings about another life. Relationships also have their place in the business world. Depending on your location, they can be the life blood of who you are, as is the case of the Japanese Keiretsu, while some corporate relationships are simply meant to achieve a small task.

In today’s legal market place we are seeing a remake of the late 1980’s where firms are in ‘merger’ talks. Hardly a day goes by that I don’t read about firms are in ‘talks’. I often wonder if the mergers of today results in the boutiques we saw form and flourish of the 1990’s. The corporate world as flourished on M&A activity. I recall some of my readings a decade ago about the rampant failures associated with M&A activities. As it turns out, what seems great on paper fails because cultures simply cannot meld together.

In the last year the M&A activity with law firms has really picked up momentum. As the talks continue, some groups disband while some actually gel into a new practice. With all of this activity in the marketplace I don’t feel that the basis for these talks is reasonable. I believe that often these firms who are talking M&A are really setting themselves up for failure. The best situation is where each side recognizes they need the other to become better. However, from I have been made privy to, this often isn’t the case. My favorite basis for a merger came out when two firms were in ‘talk’ the basis for the merger, one firm’s profit per partner was $10,000 higher than the other firm. It was felt that together, they could have a larger market presence and thereby get their profit per partner up for the ailing firm.

Anyone sporting an MBA shingle will immediately attest to that fact that M&As have a very high probability of failure. Some immediate ones that come to mind, which were all over the news: Daimler Benz and BMW. In 1994, BMW bought the Rover Group on the basis of entering the SUV and off-road vehicle market. Then after 6 years and millions of dollars, MG Rover was spun off. BMW made the public state “we’re going it alone”. Then in 1998, Daimler Benz got the idea to enter the low end market through their purchase of Chrysler. Now less than 10 years later, Chrysler becomes the Benz Frisbee – spun off to a venture capital firm. I could spend a huge amount of time looking at all of these deals that become curve balls into space. But the result is clear, the basis for M&As often don’t take into account the most critical factor – the human element. Oh it is easy to merge any company, move some PCs, get a few new servers, hook up a new network and done. Profits should flow! However, what companies don’t realize, is that it isn’t the hardware that makes a company, it is the culture. It is the attempt to meld cultures that end with internal tensions and a disbanding of the venture.

I feel that today’s firm should take a serious look at themselves and determine how best to grow their practice. For the most part, M&As is not the route to go. I sometimes wonder why firms don’t opt for organic growth. Could it be that they simply don’t have the culture that lends itself to organic growth or there isn’t a zealot who can envision what ‘what ifs’? If we can’t grow organically, what is the next step…..M& A.? In last week’s edition of Legal Week, Helen Mooney discussed how US firms are ‘merger-minded’ with Western European firms. Sadly, some of these firms are bullish in that regard. Sad in the sense that they have not looked at the human side of mergers.

In my career, I have seen M&As come and go. Mergers are severe cultural shocks even when it happens with an organization in the same geographical region; it is millions of times worst when it happens over time zones and oceans. I have seen these firms form and suffer tremendous internal turmoil, so much so that the sum of the firms is less than they were separately. Then there are those occasions where, partner groups spin off into boutique practices or the firm becomes a train wreck.

Well given the fact that M&As have a high probability of failure and most firms hit the glass ceiling on attempting organic growth. What’s left? The thing that is left is a new mind set, an external motivation. The corporate world knows this all to well. The growth by way of capital markets; selling stock in your legal practice! The concept of legal practices going public has been bantered around internationally for as long as I can remember. This approach, I feel, has the greatest probability for success in a growth oriented law firm. However, to achieve this, the firm must undertake a radical shift in how they operate. Law firms need to begin to run like a real business!

In addition to running like a real business on the financial management side, firms would need to have a vision of what they are trying to achieve and where they want to go. That means that all partners must see the vision and their role in achieving the vision. Often in a legal practice there aren’t any visionaries, as partners we are in it for ourselves. Sadly enough so many firms are run like a collection of small firms (partners) each running in their own direction; somewhat like herding cats. It completely baffles me how these organizations continue, when they could achieve so much more. Without the foundation of vision, these firms will be in their current holding pattern forever.

For firms who can articulate their vision and are willing to relinquish their ego driven control, the capital markets hold tremendous potential. With the capital injection, the firm vision can come to its fruition, without the disruption of cultures and the like. Hard to believe? No! Chris Mondics of Philly News wrote Buy Stock in a law Firm? As it turns out, the Australian firm of Slater & Gordon decided that going public was the only way it could grow with its vision while keeping its culture in tact. The firm went public in April 2007 and the stock is currently trading at 70% above its initial offering price! Here is a firm that had a vision, and recognized the pitfalls in different methods of its achievement.

History is filled with the spin-offs of M&A failures, why become a statistic. If it is your vision to grow, you cannot annihilate the people who grew the practice. There are more than one way to achieve your goals, but first you must have a vision, then an evangelist to emblazon the vision in the minds of everyone. After that, all that is needed is capital… and that is easy to find. Your firm’s destiny is only a vision away. Are you working towards it, or simply herding cats?

Saturday, September 15, 2007

Work Less, Make More

What an amazing philosophy to adopt! Basically I will put in less effort and make more of what I want. I will bet to this point you thought more represented more money. Well it could it could also mean more free time. However you choose to fill in the blank it is up to you. At the end of the day, you can make more by working less. The secret is in how you choose to work. Anyone who works with me learns the secret very quickly. Throughout my dealings with my colleagues I may ask ‘working hard?’ They realize very quickly that the correct answer is not ‘yes’ the correct answer is ‘no’. With today’s level of technology, people should not work hard, people should work smart. We should learn to leverage the resources we have available to us to work less and make more.

The need to ‘make more’ has driven the corporations of the Western World to new heights in financial achievements. In these pursuits, many people have benefited, not only financially but also with new technologies that make life a bit easier. Making more is a good thing, as human kind directly or indirectly derives the benefit. It is when the ‘make more’ mantra becomes the all encompassing end. Following the Enron meltdown, it seemed everyone with a keyboard and internet access had something to say as to the reason why Enron failed. It was one author that I thought took a very fresh perspective; he said “Enron’s failure was the direct result of shareholders wanting too much”. In his well thought out argument, he made it clear that the shareholders pushed management into their wrongdoings.

Today’s legal practice is no different than any other business. There is a need to make more, whether it is for growth, expansion, modernization, or simply bonuses. The motivator to make more is there. Unlike commercial entities that are driven by profits and ROI, professional services establish their own yardstick of success and are probably the reason that they aren’t as profitable as they could be. (Law firm profitability and destiny is a topic I will address in the coming weeks) I believe that today’s professional service firm has so much pent up value that it is scary. These organizations need only change one thing and they will unlock hidden profits!

In an earlier writing I addressed the potential profitability hidden in outsourcing some functions. I know several firms who have exploited regional price differences to generate cost savings. I believe that each firm is currently sitting on at least 100 processes that, if examined and refined, will add value straight to the bottom line. One such cost saving caught my attention as I was reading the October 2007 issue of Litigation Support Today. The article in question was: The Off shoring of Litigation Support Functions.

Litigation support is a time consuming, labor intensive process which requires the greatest adherence to detail. Some of the processes include bibliographic coding, e-discovery, and document review. When these activities are undertaken in today’s firm, it requires people; probably the highest cost of any firm. However, what has become increasingly more popular – outsourcing the function. Not to a firm down the road, but to countries like India, and China where just the exchange rates brings the costs down to 1/30 of what it takes to do in North America.

The process of Litigation Process Outsourcing (LPO) isn’t new. It was actually pioneered by a Dallas firm in 1995. William Brewer III of Brickel & Brewer founded I&A International, a foreign company that undertook litigation support for US based firms. Today, there are close to 500 foreign litigation support service providers, all concentrated on the Asian continent. E-discovery alone is slated to become a 4.8 Billion dollar per year business by 2011 all of which will hit foreign markets! The author of the article, Sally Kane Esq., contends that firms could save between 30-90% by tapping into the vast, inexpensive and extremely experienced foreign markets. Recently I read an article where a firm, faced with a $450,000 estimated litigation support price tag, outsourced the process to India and added $410,000 to their bottom line.

Please keep in mind; I am not professing outsourcing as a solution to every firm. I think that each firm has to look at their multitudinous processes and recognize that there are hidden profits just waiting to be freed, with only a small change to current practices.

Saturday, September 08, 2007

AR Management in a Small World

Even after a decade it still amazes me how the world of professional services still manage receivables in isolation; isolation from the world around them. In today’s professional service practice we see the invoice as the means to an end, and that is as far as we see. We never see the world from our client’s perspective. It is in this failure to see beyond the client that impedes our true potential in making a major impact in the collections of outstanding receivables.

In today’s professional services world we are far too introspective, as we only look at what happens within our firm and to our firm. We fail to see that our firm is part of a network, a local, regional, national and even global network. We don’t see or don’t appreciate that it is stimuli that happens in all of these networks that have varying degrees of impact on our firm. These stimuli affect our staffing, billing, taxation and most importantly our ability to collect our outstanding receivables.

Unless you have spent the last 8 weeks on some intergalactic space adventure you would have heard about, if not been directly affected, by the financial meltdown in the US economy resulting from sub-prime lending. The effects of this economic jolt, isolated in the US, affected tens if not hundreds of thousands of people; here and all around the world. This economic stimulus is not unlike the Asian Financial Crisis of a few years ago or the Russian Petroleum Crisis. The one thing that all of these events share, they originated in a single sector or a country or region, and their impact is felt around the globe.

There is a tremendous amount of research available that directly addresses the interconnectedness of peoples and economies around the world. But somehow we aren’t sensitized enough to bring it into our collections efforts. Today’s Current Asset Managers, those managing WIP and AR, must get out the dark ages and use all of the tools available to understand the economy and how it affects their clients. It is only through this understanding can they make educated strategic decisions on the collections of outstanding receivables.

Today’s Current Asset Managers should understand the impact the sub-prime crisis will have on their firm. Just in the last 4 weeks, several sub-prime lenders declared bankruptcy, and the remainder of which undertook mass layoffs. Simply looking at the most prominent, Countrywide, they issued a statement that they will lay-off 20,000 employees nationwide. However, that wasn’t enough ‘to get air flowing’; they needed a cash injection from Bank of America of 2 Billion dollars. Bring that home now, what does that mean to my law firm that has Countrywide as a client, or add a degree of separation. What does that mean to my client who has their commercial real estate financed through Countrywide and who is already debt laden?

A few years ago I gave a presentation on becoming more strategic in AR management to mid-sized law firms in the mid western United States. This was at a time of pre-recession in the US economy, a time when the Canadian economy was starting to gain momentum. Of the firms present, a few had clients in the consumer products realm. The question I asked of those firms, a bulk of your clients use raw materials in the production of consumer products, much of those raw materials originated from outside of the USA. “Since the NAFTA Free Trade agreement was premised on the partner countries having a certain exchange rate with the USA, how do you think it will affect your client’s ability to manage their business now that those country exchange rates were increasing?” All that was heard was the buzz of the fluorescent lights, the blank stares were overwhelming. Here was a group of Current Asset Managers who simply never thought about how their clients would be affected. It was only from the following dialogue that they became aware of; how their client’s business did determine how the firm got paid.

It think it is high time that asset managers stop the analysis paralysis, stop the mountains of reports, stop the highly reactionary year-end fiascos, stop behaving like we are in the dark ages! Today must be the day to shed the ‘ball and chains’ of your past! Recognize that you and your firm can add tremendous change to your bottom line by simply understanding your clients in light of what is going on in the world today. Whether it is toy recalls, sub-prime crisis or OTR cartage from Mexico, it is your duty to understand your clients and act in the best interest of your firm!

Whether you choose to believe it or not, it is a small world. The Milgram experiments of the late 1960’s demonstrated to a non-internet world that there are only 6 degrees of separation between any 2 people on the planet. That was over 40 years ago! It is a small world, listen to it and learn. Most of all bring that knowledge back to your firm and act on it, it’s your duty!