When your collections process is humming along, cash flow stays steady, and everyone from partners to vendors feels confident. But over time, even the most efficient collections system can start to sputter. Let’s talk about how to give your collections machine a tuneup so you can keep your financial engine running strong.
1. Revisit Your Billing and Invoicing Processes#
Start with the basics: are your invoices clear, accurate, and timely? Clients are less likely to pay if they’re confused about what they’re being billed for. Review your billing templates to ensure they break down services in simple terms. Automate invoice generation if you haven’t already, and make sure invoices go out on time—delays in sending bills often lead to delays in payment.
2. Evaluate Payment Options#
Are you offering clients enough ways to pay? Clients expect convenience, and providing multiple payment options—credit cards, ACH transfers, online payment portals—can make a big difference. If you’re not already using a secure payment platform designed for law firms, consider implementing one. Make the payment process as frictionless as possible.
3. Update Your Client Agreements#
Take a close look at your client engagement letters and fee agreements. Do they clearly outline payment terms, including due dates, late fees, and consequences for non-payment? If not, it’s time to update them. Transparent agreements set the tone from the start and help avoid misunderstandings later.
4. Segment Your Accounts#
Not all overdue accounts are the same. Segment them based on factors like age, amount owed, and client history. A long-standing client who’s a few days late might just need a polite reminder, while a newer client with a large overdue balance might require a firmer approach. Tailoring your collections efforts can make them more effective.
5. Streamline Follow-Up Procedures#
Do you have a consistent process for following up on unpaid invoices? If not, create one. Start with automated reminders for invoices that are just past due, and escalate to personalized follow-ups as necessary. Keep the tone professional but firm—your goal is to maintain the client relationship while securing payment.
6. Empower Your Collections Team#
If your office has staff dedicated to collections, make sure they’re equipped with the right tools and training. They should understand the legal and ethical boundaries of collections and know how to handle difficult conversations. Investing in their skills can pay off—literally.
7. Leverage Technology#
If you’re still relying on manual processes for tracking payments and overdue accounts, it’s time to upgrade. Many legal practice management software systems include robust collections tools, like automated reminders, payment tracking, and analytics. These features can help you identify patterns and pinpoint bottlenecks in your collections process.
8. Monitor Key Metrics#
You can’t improve what you don’t measure. Regularly review key performance indicators (KPIs) like days sales outstanding (DSO), collection rates, and average time to payment. These metrics will give you a clear picture of how well your collections machine is functioning and where it might need additional tweaks.
9. Establish a Policy for Hard-to-Collect Debts#
Despite your best efforts, some accounts may remain uncollected. Have a policy in place for when to escalate to a collections agency or write off a debt. Knowing when to cut your losses can save your office time and energy that could be better spent elsewhere.
10. Communicate with Clients Early and Often#
Lastly, don’t underestimate the power of proactive communication. Reach out to clients before their payments are due to remind them of upcoming deadlines. If a client is facing financial difficulties, consider offering payment plans or other accommodations. Being flexible when it makes sense can help you recover payments while preserving goodwill.