Law firms work hard to provide top-notch legal services, but getting paid on time can sometimes take just as much effort. Late payments and overdue invoices can cause massive disruptions to a company’s cash flow. A high stack of accounts receivable (AR) is bad for business as it impairs daily operations as well as the business’s scalability. 

By incorporating accounts receivable collection best practices into your standard client management process, your firm can maintain better control over its financial health.

Are Your Law Firm’s Accounts Receivable Processes Up to Date?

Managing your AR poorly can cause financial strain for your law firm. Accounts receivable refers to the money owed to a company for services already rendered but not yet paid by clients. 

In legal practice, this often comes in the form of outstanding client invoices for completed cases, payments delayed due to client disputes or billing errors, or even clients simply experiencing financial difficulties and being unable to settle their balance. ARs can also occur when your firm’s payment schedules are structured based on case milestones and certain cases end up stretching over months or even years.

If not addressed immediately, ARs can make your cash flow unstable and unpredictable, even affecting your ability to cover expenses. On top of this, poor management of ARs can sour relationships with clients and taint a firm’s public reputation. 

Like any business, law firms may hire collection agencies, with fees reaching up to 50% of the funds recovered. An even greater loss would be to write off unpaid invoices as bad debt since the firm receives no compensation for services provided.

Businesses can find better value in lowering their accounts receivable altogether, ideally aiming for zero AR. This strategy directly improves a company’s financial health with the following benefits:

  • When AR is minimal, law firms spend less time chasing after unpaid invoices and disputes. Resources can be reallocated to more productive tasks for clients, boosting client satisfaction in return.
  • Zero AR also enables businesses to operate much more efficiently. 
  • Firms with fewer outstanding receivables can maintain more accurate financial records, which is important for keeping a business steady and capable of making informed financial decisions.

However, zero AR may be tricky to achieve when you’re already caught in the thick of managing high receivables. To lay a solid groundwork for key internal improvements, it’s essential to learn how you can effectively collect accounts receivable.

Optimizing AR for Law Firms: 7 Best Practices for Accounts Receivable Collections 

A law firm’s collection rate on sent invoices should never fall below 97 percent. Law firms can adopt a few strategic practices to collect accounts receivable faster and establish a stronger financial position.

1. Strengthen client communication

A successful AR process begins long before the first invoice is sent. Even before a client signs a retainer, make it a point to explain your payment terms, timelines, and billing processes to set clear expectations and effectively collect accounts receivable in the future. By openly discussing these in initial consultations, you can immediately start your relationship with a potential client on a transparent note.

Moreover, strive to maintain this level of open communication throughout the case. Regularly update your client about their legal matter’s progress, any works in progress, and the corresponding fees for each milestone you’ve achieved. Law firms may find it useful to invest in setting up a secure client portal like TimeSolv’s in-app feature, where clients can easily access this information.

2. Automate your billing process

To ensure clients receive timely payment reminders and invoices, it may be worth looking into specialized law firm billing software. Tools like TimeSolv streamline AR collection on your behalf by automating key steps in your billing process, such as invoicing, tracking payments and outstanding balances, and safeguarding clients’ payment details. 

3. Make invoices as clear and detailed as possible

Clients may delay processing payments when there is confusion regarding the services rendered. To avoid such issues, make sure your invoices are clear, concise, and detailed. Avoid legal jargon and explain each service that clients are billed for. If possible, break down large tasks into summaries non-experts can digest.

4. Allow clients to process payments online

Offering convenient payment methods is crucial if you want to get paid on time. Accepting checks only can limit your clients, resulting in delayed payments for a variety of reasons. Set up a system that enables clients to process payments online, accommodating different methods. Having an option to pay online also encourages faster transactions and reduces common payment obstacles.

TimeSolv, in particular, makes it easy for law firms to integrate online payment processing into their billing system. Our in-app payment solution accepts credit cards, debit cards, ACH payments, and electronic checks from clients, helping firms receive payments faster and with less hassle.