Cash Flow: Ten Tips To Keep It Moving
Cash is the grease that makes the business wheel turn, and the practice of law is definitely a business! Without enough cash at the right times, your entire practice will grind to a halt. Here are ten tips to help attorneys keep that cash flowing:
- Change your billing cycle. Bill one-fourth of the alphabet each week. This way, you will receive money from clients on a regular basis, probably weekly, rather than once per month.
- Shorten your billing cycle. If you remain on the monthly billing cycle, be sure your clients receive your statements on or before the first day of the following month. To do this, your billing cycle must end on or about the 25th of the month.
- Send statements after a particularly beneficial psychological event even if somewhat before or after the normal billing date. This will place the client on the peak of the "client satisfaction curve," the time of least resistance for payment of fees. Later, the client will invariably forget how important you were in the process of the result and wonder why the bill is so high.
- "Age" your accounts receivable once a week. Time passes quickly when you are busily engaged in practicing law and advocating clients’ interests. There are times you may tend to forget that one client owes you money while you are working on other clients' matters. Forgetting or ignoring "old" clients results in forgetting or ignoring the accounts receivable, thus, it is important to be reminded frequently. On the one hand, you will be able to pursue collection with the regular weekly reminders that money is owed to you. On the other hand, you will be able to thank a client you talk to who has recently sent in payment on their account.
- Don't wait to deposit checks. The first rule of cash flow management is do not accumulate checks for deposit until the end of the week! While the check is "cooling its heels" in your desk drawer, too many catastrophic events might occur.
- Be sure that you sign all outgoing checks. Do not delegate this authority. You must know the present status of your "business" at all times. Further, your attention to detail will help prevent embezzlement by a "trusted" employee.
- Consider an automatic bank sweep. Banks today provide for an "automatic sweep" on a daily basis. Establish a minimum amount of money to remain in your general account such as $2,500. The exact sum depends on the amount of checks and deposits that pass through your bank account each month. Then, instruct the bank to segregate all funds in excess of this amount at the end of each day and "sweep" or transfer those "excess" funds into a money market (interest bearing) account until needed.
- Use remittance envelopes, pre-addressed and stamped, and mail them with your statements. This saves the client time and effort in mailing your payment and, frequently, saves at least one to several days in your receiving payment.
- Hire someone, even if only part-time, to help collect. If you are having little success in collecting your accounts receivable or if you believe that the sales person (you) should not be the person collecting the bills, then hire someone (e.g., a part-time accounts receivable clerk from a local college or a retired bookkeeper) to do only this task. The cost of the person will be less than the money received as a result of that person’s efforts.
- Develop a Cash Flow Statement. The cash flow statement is sometimes called a Cash Flow Budget, a Statement of Cash or a Forecast. Whatever name you are comfortable with, this is the statement that you need to concern yourself with at least on a weekly, if not daily, basis. It is the single most important tool for the success of any business activity.
Reprinted from the August 2004 issue of Law Practice Today.