This article covers the second step in our three-step Collections Optimizer process: Offer Payment Flexibility.
Why Collections Matter
Improving collections at your law firm has three primary financial benefits:
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Revenue: If your firm tracks revenue on a cash basis, the more you collect on your invoices, the greater your revenue.
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Profit: While a ten percent improvement in collection rate will only increase your revenue by 10%, it can double your firm’s profit. This is because the work to earn that money is already complete, and there are virtually no offsetting costs.
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Cash: By speeding up the time it takes to get paid, your firm will convert accounts receivable into cash more quickly. This will increase your firm’s bank balance, giving you more money to reinvest in the firm or distribute to partners. Since longer payment timelines are correlated with lower collection rates, shortening the payment timeline also improves collection rates (see revenue and profit above).
Tools for Adding Client Payment Flexibility
If you are following along with our Collections Optimizer process, you have already implemented a collect-early billing model. Now it’s time to offer greater payment flexibility for your clients. Offering clients payment options will improve your firm's collection rate. For more on the data behind this, see our guest article in the American Bar Association GPSolo Magazine. So what can you do to offer payment flexibility? There are three main tools you can employ:
Credit Cards
Credit cards don’t just reduce friction in the payment process. They also provide a valuable source of short-term credit for both businesses and consumers. Since legal bills often lead to expense spikes for businesses and consumers alike, this credit can be the difference between making a payment and delaying it. Additionally, when working with small businesses and startups, these businesses may not be able to access credit. But the business owners or founders may be able to use their personal credit to finance their legal bills. While offering credit cards is not a silver bullet, it often enables more clients to pay your firm more quickly.
Payment Plans
Payment plans are a powerful tool to give clients greater payment flexibility. Payment plans allow you to take on matters you otherwise would have to turn away, and they help create a structure for clients with outstanding bills to make manageable payments toward their balance. That said, payment plans must be implemented carefully. If you allow a client to enter a payment plan at the outset of a matter, the plan duration and payment amounts should match the work being done on the matter. This allows you to avoid a situation where a client stops paying for the plan, and you have already done the work. While payment plans can be cumbersome to implement manually, tools exist to put them on autopilot and let you simply watch the payments roll in.
Client Financing
There is an emerging set of lenders partnering with retailers and other businesses to offer credit to consumers and businesses right at the point of payment. In the consumer world, these providers are often called Buy Now Pay Later providers. While many of these lenders have historically been wary of financing legal bills, some providers are beginning to open up to the idea. Having a relationship with one or more lenders that support the clients you serve can be a powerful tool for increasing flexibility and helping clients pay (and pay sooner). For more on the rules around implementing third-party financing options, see this guide.
Summary
Offering payment flexibility is a crucial step in optimizing your collections process. By implementing credit card payments, payment plans, and client financing, you can improve revenue, profit, and cash flow.
To get help implementing any of these solutions, schedule a consultation with our team. Even if your firm isn’t a good fit for our platform, we enjoy sharing helpful tips and strategies to improve your firm's financial health.
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