Monday, January 28, 2008

Prospecting with Receivables

A few times in the past year I wrote about the radical difference between organizational management in the corporate world and that of the professional services world. These differences permeate every facet of the entity, from vision to what type of coffee is available. It is for this reason that professional service organizations operate under a profit-limiting glass ceiling unlike their corporate counterparts. After years of research in this area, I have concluded that the managerial organization of professional service organizations is inherently flawed and this is the reason for the rampant inefficiencies that plagues all of these organizations.

The greatest absurdity placed on today’s law firm partners is the expectation that they have skill in all areas of organizational management. Although they may be well versed in reorganizations or stock issuances, they don’t have the unique skill in managing their own partnership. Then because there isn’t a single leader but rather a sea of partners, jugular issues are sacrificed for the sake of status quo. Regardless of the firm, today’s partners must maintain a threshold number of billable hours per year. They must manage billing and collections realization, manage junior professionals, build their client base, bill for services and collect on their billings all within a 168-hour week! Given time for sleep and commuting, all aspects of today’s partners’ time are sliced down to the 1/10th of an hour!

Following a few conversations with three partners of a prominent global firm, I would like to share some of the highlights of our discussions. The conversation on prospecting came about when I made notice of a significant achievement the firm had achieved in a new practice. My colleagues shared with me how difficult it was to get their practice where they needed it to be. They were pressed with the demands of keeping on top of the workload they had and prospecting for new clients. Although well versed in their area of specialty they had difficulty in getting hold of and conquering the prospecting function.

Prospecting is probably the most difficult job in an organization. The position is well suited to a person with a true hunter instinct. This individual must seek out organizations that could use their product or service, find the correct individual, get beyond the gatekeeper and make contact. Once contact is made, a relationship must be initiated, then nurtured either to the point of a sale or a parting of ways.

In the corporate world, businesses have specific people whose entire role is to be the hunter, to find the prospect and open the dialogue. Once the dialogue is opened then a product/service specialist is introduced. The specialist, through fact-finding, attempts to close the gap between the prospects needs and the firm’s offering. In a highly sophisticated organization, a closer is brought to move the process to the ultimate sale. However, in the professional services world, this entire process rests on the partner’s shoulders.

Sadly enough today’s partners don’t realize that prospecting is already at their doorstep. Some of the best prospecting leads are on the pages of their receivables listing! The beautiful thing about prospecting within the receivables listing is you already know the clients’ business, if they are good payers, and you already have a relationship. There are essentially two types of prospecting which can be done from a receivables listing, service expansion, and service extension.

Service expansion is a process of providing different services to the same client. By way of an example, suppose the firm has a client, a company in the business of automotive parts manufacturing. That client would definitely have a need for patents and trademark work because of their R&D technology. They may also require advise in employment law, possibly litigation, immigration and maybe estate planning for the principals. Today’s firms have to realize that their receivables listing is an untapped goldmine of new work just waiting to be mined! The first step in tapping this valuable resource is communication. It is the partner’s responsibility to maintain regular communication with his or her client and to find out their needs to see how the firm may be able to be of assistance. In addition, the partner should keep other departments and practice groups informed as to the type of client for whom they have just completed work. Essentially the firm must ensure that each client is aware of all of the services the firm offers. This type of behavior is slowly being realized when firms offer lunch-and-learn sessions on current topics. However, this “shotgun approach is better than nothing. Truly, what is needed is a highly refined strategic approach, such as a personal call to the client with information of a new law that could impact their business!

Service extension is much more involved and requires the partner to be more in tune with the client and what is going on within their organization. A good example of this was provided to me by a Director of Administration of a national firm. During our conversation on the topic of delinquent receivables, he brought up that one of the firm’s large national clients had requested better payment terms. When faced with this type of question, the firm must have a plan on how to react. Although my colleague’s firm did issue the extended terms, they got nothing in return when they should have!

In the December 2007 issue of Credit Today an article entitled: When Your Customer Asks for Extended Credit Terms, by Doris Solis, explains how this question opens the door to a myriad of opportunities for both the client and the organization. Solis expounded on the many reasons why clients seek extended payment terms and how a true credit professional must research the company before making a decision. This is a critical juncture in the relationship. The client wants something, extended terms and the firm wants something, payment of receivables. The key area of research for the credit professional is in the basis for the extended terms and the client’s ability to pay essentially the client’s credit score and their circumstances.

I shared the article with my colleague and explained how the firm took the wrong approach with the client. When faced with the question of extended credit terms, they should have undertaken a thorough analysis of the client and their ability to pay. What they would have found was that the client was a good credit risk and wanted better terms because they were undercapitalized while they were in a strong growth phase. Where the firm made their mistake was in not seeking something in return for the better credit terms! As it turned out, the client had legal work placed in nine other law firms. The firm should have opened a dialogue with: “we recognize that you are using ten firms to fulfill your legal needs. We could offer you extended payment terms and possibly better hourly rates if you agree to move, where possible, 50% of the work you place with other firms to our firm.” The end result, if taken, the firm would have new business from a good client without the hassles of prospecting for new clients!

Today’s firms have so much technology, that they simply fail to see the opportunities right before their eyes. The receivables’ listing clearly outlines the good, the bad, and the ugly clients. From there, firms could easily take the next step in expanding their business – learn more about the clients and communicate with them. Having a receivables listing in hand and knowledge of the client’s business, most of the prospecting hard work is done! Start using that collections intelligence wisely – prospect from your receivables!

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