Collection rate is defined as the revenue you actually collect into your operating bank account divided by the total amount invoiced. Typical collection rates for law firms are around 85%, but they vary markedly by firm. Increasing your collection rate is a great way to earn more without actually doing any additional work.
We've spoken to a few firms who are able to achieve a near-perfect collection rate, and they all have one thing in common: They collect payment before any work is done.
There are four main ways firms do this:
1. Transition to flat fee work. Flat fees are typically earned on receipt, so client payments can go right into the operating account before work begins. For more details on the benefits of flat fee work and insights on how to transition, check out this Financially Legal episode with lawyer and law firm consultant, John Grant.
2. Build a subscription practice. Like flat fees, subscription payments for a set amount of legal services can typically go right into the operating account. A common model involves automatic monthly payments from a client's bank account or credit card. As Kim Bennett of K. Bennett Law says, "The big revelation with my first subscription legal services client was that I got paid on time, all the time." For more details on how to set up a subscription practice, check out the Financially Legal episodes with subscription lawyer/entrepreneurs Kim Bennett and Jon Tobin.
See our detailed guide on how to price, build and manage your subscription legal services offering
3. Accept advance fee deposits...continuously. Oftentimes firms that accept advance fee deposits do so only at the outset of a matter. We've seen some firms, however, that track as a key performance metric, the percentage of each month's billings that can be paid directly out of advances already sitting in the trust account. This evergreen retainer model may sound like an accounting headache, but there are plenty of tools out there to put this process on autopilot and keep your trust accounts reconciled and in compliance with the rules of professional conduct.
4. Keep payment methods on file. No this does not mean writing client credit card numbers down on paper and keeping them in your office or asking for bank account details over email. Systems exist to easily outsource the collection and storage of sensitive payment information. Storing payment methods in this way allows your clients to simply reply to an emailed invoice or trust request, asking you to charge the card or bank account on file.
If you have questions about how to implement any of these strategies, please reach out to us at Confido Legal. You can schedule a time to speak with a member of our team here, or see other ways to get in touch.