Managing credit has always been something that causes stress for law firms as it brings plenty of unexpected challenges for solicitors and their accounts department.
As we all know in the legal sector, it’s important for law firms to understand their cashflow, and all the processes and procedures to ensure that it is all being handled correctly. Managing credit if entering into a new role, can be so much more challenging than you ever thought, and moving into a legal cashier role has an entire other level or pressure attached to it. This is why we provides heaps of help, useful training, and recommendations to make sure that you know the ins and outs of managing credit and controlling it.
When working on credit control many of us think of cash flow and this has been one of the main focus points for firms in the last year or so. Cash flow is widely important and the ability of a law firm to access cash will secure its financial health and allow it to survive and grow. Everyone has had a huge hit since the pandemic so cash flow might look a little different than it did before, there are some great tips on how you can improve your cash flow and become financially healthy that are really easy to introduce into your law firm.
ILFM are aware of all of these struggles, and we know how to help you get through them!
What is credit management for law firms?
Great credit management in a law firm is about excellent relationships built on trust with your clients. Yes, it’s a way to minimise debt the best way possible but without the trust, a law firm’s business might not be as profitable as it should be.
When we at the ILFM talk to our members and colleagues about credit managing we see it as a way for law firms to reach their full potential for profits by:
- safeguarding client risk
- settling outstanding balances, and
- improving cash flow
It can be really tricky to come up with everything needed to have a successful credit management plan, and if you are going into the new role as a legal cashier then there can be a lot of unexpected decisions that you aren’t prepared to make. Come and speak to us, you won’t regret it, I promise.
Managing Credit in Law Firms
It may feel impossible for you to get your head around your firm’s credit policy and understand everything from template letters, bills, and what should actually be included in the policy. We all know it’s important to feel confident in this area as you want clients to pay in a timely manner so that your firm’s finances aren’t impacted.
We’ve just come out of a pandemic and many clients will be struggling with their payments; we’re all being faced with unprecedented challenges, especially solicitors! Our feedback tells us that lawyers and their accounts departments are busier than ever, yet still dealing with colleagues and staff who are sick or took a redundancy package – the work seems more aggressive than ever, the issues surrounding cybersecurity are more pressing and many clients are struggling to pay, both B2C and B2B because of their own cash flow problems!
It is more important than ever for law firms to take action to ensure that their credit control processes are efficient and aren’t causing damage.
There’s a lot that needs to be considered in the credit management process to ensure that the plan is efficient. You need to understand the billing process and how to arrange credit checks and scoring on your clients. There are tonnes of different credit control procedures and collection techniques that you need to consider too. Of course, there is the debt recovery procedures and legal proceedings that must be understood.
It can seem overwhelming ensuring your credit management processes are on point, but once everything is broken down and you have help and support with the credit management, you’ll see that it can be done, and without loads of stress! Please never panic, because there are plenty techniques that you can try to improve your credit management. It really is our bread and butter, that’s why our membership fees, training and support are so affordable, we are not-for-profit body – so use us!
If you’d like to join the ILFM if you are not yet a member, please click on our link below for all the information you need!
I’m interested – show me what’s involved!
Credit management no longer needs to be a burden that solicitors and their finance teams stress about. You can attend useful training courses which will teach you what you need to know about your new role or advance your current knowledge to see if your methods are efficient. Ensuring that everyone in the law firm is familiar with the credit procedures is essential so this is something that you also need to consider.
One of the best reasons for having an efficient credit management plan in place is to maintain client relationships as I mentioned above. Yes, your practice may have taken a hit through the pandemic, but so have your clients and they may not have the funds to be able to continue working with you at the moment. Giving them an option of a credit management plan means that they can stick around and you can manage their payments accordingly, whether you decide on enforcing the debt recovery is up to you of course.
That said, do make sure you haven’t forgotten any outstanding bills! It happens, run checks to make sure they haven’t slipped through a slippery net. With software or without, humans need to stay vigilant to any gaps, if you are focusing on recovering debt but have forgotten there are 10 outstanding big client bills, crack on with that first!
Making sure that everyone in the law firm is familiar with the plans means that clients will be up to date with it too! This way there is no confusion around when payments are due, and the conditions that they have to meet. If your legal secretary is in charge of end of month billing but isn’t aware of an agreement in place with a client, it will look unprofessional and equally annoy the LS somewhat!
Cash flow in law firms
As you know, cash flow is extremely important in your lovely law firms! And it is something that many law firms have had to prioritise in the last year due to the Covid pandemic. Having good financial health is necessary for a law firm in order for it to survive.
What is cash flow?
What is cash flow exactly? It is how much money goes into your business and how much is goes out. Sounds simple, doesn’t it? If you’re in the finance department or the main accountant or a firm, you might be sighing at the word “simple” we hear you! Anyway, the cash flow shows if your practice is financially healthy and helps to identify any issues with finance that you may not be aware of.
How to improve your cash flow
Credit management is all about adopting the most efficient, trustworthy methods to improve cash flow.
If you have more money going into your law firm than going out, you are in a ‘positive cash flow’ situation and you have enough money to be classed as financially healthy. However, if you have more cash going out than coming in, you are risking your businesses finance. You will know how important it is to ensure that you are doing everything you can to have a positive cash flow because finance can have a huge impact on everything in your law firm.
Here’s what to expect:
- Budgets and cash-flow
- How to monitor and use them
- Stress testing
- Collection and conservation of cash
When are the fees paid?
When you get paid depends on what are of the law you are practising in! If you are in criminal law, or personal injury then you may not get paid for over 18 months + , which obviously has a huge impact on your cash flow. So, managing cash flow and identifying issues in your finance is crucial so you don’t end up in a dangerous area with your finance. We know of some sole practitioners for example, who were struck off because of using client funds to bridge the gap between other payments coming. We never want you to feel that burden of stress.
Changing your pricing strategy can help to improve your firm’s finances and cash flow drastically. These changes don’t have to be huge, but there are some ways that you can make adjustments and see a huge difference in your cash flow.
Have a good credit control plan
Make sure that all the credit control plans have been documented so that your firm knows what they should be doing regarding this. This makes it easier to share with clients what their credit control plan is and shows the credit-control team when to contact clients for the money. Having all of this outlined is a great way to keep everything together for your firm and clients, so that there is no confusion. If a payment is missed by the client, you know that it isn’t because your credit control plan is inefficient, it’s time to take further action with that client.
Cash flow can be complicated to handle, and there are different techniques that a law firm can implement to make it more manageable. Remember to plan ahead and have an easy billing and payment system set up so that there is no delay in getting the payment.
I might not have mentioned software in this blog post, but of course technology for legal accounting is exceptional and we recommend many firms who can help if you aren’t already aligned with legal accounting software.
Our Training and Recommendations
Does all of the information about cash flow and managing credit for law firms make your head feel like it’s going to explode? It can be a lot of pressure and extremely exhausting trying to figure out all of the processes without any training. We completely understand that feeling and have come up with a way to offer help and support to you without confusing you even more!
Our Credit Management for Law Firms is a great one-day workshop that will help you with the strategic aspect of your firm’s credit policy as well as the transactional level detail such as template letters and bills. This training goes into detail about aspects that many forget to think about! It can be used as a reminder for old hats or as a new guide for newbies in legal accounting.
This workshop is to help you gain an understanding about all the different aspects of credit control and it introduces you to the wonderful world of credit management. It doesn’t just cover the standard information like why a firm needs a credit policy and how to create one, it also covers credit checks including scoring your clients, along with debt recovery procedures and legal proceedings.
So, if you are interested in learning more about credit management support then you should join in with an ILFM full day training session (online). We love doing this session, and everyone involved always leaves feeling much more confident in the processes.
Credit management and cash flow for law firms
If you are reading this, then you know there is a much to consider when you’re involved with credit management and cash flow for your law firm. There are different processes and techniques to try out in order to improve cash flow which be hard to identify as to what will work for your effectively for optimal profits. Credit management is something to consider looking into and evaluating the plans that you already have in place to make sure they are working well, not just in theory, but in practice.
We know it can feel like a huge burden, and after the pandemic cash flow might be a little harder to manage, but we are here to support you however we can! If you want to get in touch with us about credit management or cash flow for your law firm then please do enquire, book on a workshop or just join up as a member and found out all those resources at your fingertips.
I hope you found this blog of interest and don’t forget; cash is king!
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