Now that the dust has settled or at least started to, I want to kick the year off with some reality. My last entry returned a flurry of responses, the nicest of which were, the modern day, “raspberries”. Some of the others made suggestions as to where I should dislodge my head from. Wherever the readers are in the spectrum of responses, one response prompted today’s entry. The note basically made it clear that I had no idea what was happening in their environment and that all I do is hurl inflamed statements regarding business management and don’t provide any direction for a resolution. Freedom of speech is a wonderful gift!
Dear writer, I do know what the professional services world is like. I have been here for almost two decades both on the front lines and working with clients. As an outsider, I see the reality of all of the firm’s actions without the emotional connection. The problem with today’s professional services organizations rests with those on the ground in the finance team. They are so disoriented and therefore cannot see the way out of the forest! They have fallen victim to ‘status quo’. They have decided that their fat paychecks carry more weight than making a change. They don’t want to go beyond doing what they should be doing which is to begin increasing the financial health of their employer. On a like for like comparison, people in the finance departments of law firms make more money than their corporate counterparts and do less work; less meaningful work! They are paid for complacency; a sort of ‘hush’ money.
Following my last entry, one of my colleagues, Charlotte, from corporate America, stepped forward with some suggestions on how to get legal collections into the 20th century. Once firms see the return on investment of modern day business management, then a movement into the 21st century is possible.
I met Charlotte at the 2007 National Association of Credit Managers (NACM) conference in Las Vegas, NV. The NACM is an organization of credit professionals from all industries who emphasize a better management of credit decisions through education and knowledge exchange. Over the past few months Charlotte and I have spoken to great lengths on credit laws and practices in today’s industry. Charlotte heads up credit and collections for a multi-billion dollar organization that has 40 plus offices in the United States. Her organization is currently in the acquisition mode and has assimilated several smaller entities in the last few months. Working with her staff of two, Charlotte has consistently over the past 10 years received accolades from executive management as her team has kept their DSO hovering around 37 days for net 30 credit terms. In listening to some of the trials of this large organization, I can appreciate that managing a multi-billion dollar AR portfolio requires strategy and skill and not MBC (management by crisis); more brains than brawn! Even through the several acquisitions, Charlotte’s team have managed to take torn and tattered AR portfolios and turned them into stunning gems.
Here is Charlotte’s roadmap for today’s legal firm.
1. I would recommend starting a process for new clients in 2008…it would be a bit overwhelming to get this going for all clients right off the bat. Established clients will not be receptive to the process of providing credit information; however, they should not be excluded from the collection process. Perhaps a modified collection process would be more in order for these accounts.
2. Start simple with credit policy (standard practice)…more can be added once the basic info is established. Application should include full legal name of client, address, contact info, credit references and contact person for payment. It should include the terms of payment & consequences of non-payment; spelled out terms in layman's language. (Do attorneys have an internal network to see if their clients are spreading out work? If so, you may want to consider sharing credit info with those attorneys as well to learn if they are getting paid).
3. Qualify the client and their ability to pay. Options to qualify--credit reports, personal guaranty, bank LOC, retainers, etc. Establish a credit line based on credit info record. If charges are near or exceed the credit line and the account is past due, a collection call should be initiated. Charges for new work should be reviewed and approved before additional work accepted. Total credit exposures include the WIP & AR and calculate accordingly to know total risk.
4. Explain the client collection policy and keep it simple. Would not recommend late fees or finance charges starting off but may want to consider it as an option if account goes beyond a certain predetermined time.
5. Be sure the client understands the billing; invoice regularly and in this environment may want to provide some way client knows about WIP. Also be sure client knows who he or she may contact within the firm to discuss invoices & charges. This person must be qualified to explain charges so the call does not escalate to the attorney.
6. Hire a customer friendly, credit professional to manage all aspects of the above while keeping attorneys out of the picture. (Not sure how to say it best for this environment, but in my world…the sales rep is the good guy and I am the bad guy…it works well in my world). My favorite adage is: "You can attract more bears with honey than vinegar any day of the week". Never back the customer/client into the corner but always give respect and offer options for a win-win solution. Finally, smile as it comes across in the communication.
There you have it, the first step to getting off the mark. All I can say is…start now, as October 1, 2008 will be too late to avoid the usual year-end train wreck!