Subscribe to RSS feed

«

»

2017
Nov 16

What to do About Falling Realization Rates

Are your firm’s realization rates declining? If so, most firms are in the same boat. According to the 2016 Report on the State of the Legal Market from Georgetown University Law Center and Thomson Reuters Peer Monitor, the average firm’s billing realization rate fell from 94% to 87% over the past ten years. Collected realization fell from 93% to 83% during the same period.

Setting a goal of 100% realization is not realistic. However, you should be able to keep your rate above 90% with a concerted effort.

Do Not Make Write-Offs Routine
Poor realization is a problem that begins long before you bill clients. While write-offs are sometimes necessary, such as promising a discount to a client, they should not be routine.

To prevent excessive write-offs, make sure lawyers are using time and resources efficiently. Proper training, communication and delegation can eliminate many of the worst problems. If you require lawyers to submit time records daily, you can better control the amount of billable time that slips through the cracks. In addition, require the billing partners to explain any write-offs that are in excess of a predetermined amount or percentage. Having to explain such decisions to other partners will help deter the practice.

Put Procedures in Place
When it comes to realization rates, the best defense is a good offense. First, put fee structures, billing cycles and methods, payment terms and collection procedures in place. Then, clearly explain them to prospective clients before you begin any work on their behalf.

Exercise particular caution with new clients by reviewing their credit histories and relationships with other firms. Do not accept new clients that seem like significant risks, no matter how high the potential fees could be. If you are on the fence about a client, consider requiring an advance fee deposit that is equal to several months of work.

Almost nothing is more effective at keeping realization rates high than sending bills promptly and regularly. To ensure you maintain a schedule, use an electronic payment system that delivers invoices directly to clients, tracks their payments and alerts you when you need to send reminders. To encourage swift payments, offer discounts (even 1% can be a powerful incentive) or value-added services to clients who remit on time and in full. Consider providing the same perks for previously delinquent clients that improve their payment histories.

Collect Like You Mean It
Once a bill is past due, an accounts receivable employee should make a reminder phone call. If the bill remains unpaid, the billing partner needs to talk to the client to find out if there are any objections regarding invoice items or deeper issues, such as dissatisfaction with the work performed. Before sending an account to collections, your firm administrator or managing partner may want to try to negotiate payment by reducing or removing penalties in exchange for full or partial payment.

Although you may not want to accept less than what is due, keep in mind that a collection agency’s fees or litigation will limit the amount you eventually recover. In many cases, it is better to discount part of an account than to let a dispute escalate. On the other hand, using a collection agency allows your firm to distance itself from the process, eliminating the awkwardness of requesting payments from clients. Additionally, outsourcing this function will leave attorneys and staff with more time for other matters.

Manage Better
In today’s competitive legal services environment, firms need to bill and collect every dollar they can. To boost your realization rates, talk to your financial advisor about how you can reduce write-offs and improve collections.

For more information, contact Jacqueline Janczewski at jjanczewski@orba.com or call her at 312.670.7444. Visit ORBA.com to learn more about our Law Firm Group.
© 2017

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>