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!