July 19, 2013
In the first in a series of three blogs, we will look at some useful tips in order to help you improve your firms’ cash flow.
Strong and sustainable cash flow is essential for any successful business. It is one of the single most important reasons why many businesses fail, regardless of how productive the business is.
Many businesses are struggling with their cash flow and therefore it is essential that you understand and recognise the specific threats which impact on your firms business and its cash flow.
This blog will look at improvements you could make to your billing system:
1) BILL PROMPTLY
Bill your clients as soon as the matter is completed or agree with your clients to interim bill if a matter is expected to continue for a long period of time. Having an inconsistent billing system will give the impression that you are in no rush for payment, and leaves money in your clients pockets which could be in your bank account.
A delay in billing could also prevent a client to office transfer for monies already collected. Remember under the SRA Accounts Rules 17.2, ‘you must first give or send a bill of costs, or other written notification of costs incurred, to the client or the paying party’ before a transfer can be made to office account.
2) BILLING METHOD
Where matters are billed on a time-served basis, you may wish to discuss this with your clients and agree to bill more frequently. E.g. Probate fees that have historically been billed quarterly could instead be billed on a monthly basis to enable a client to office transfer sooner.
Where a fixed fee has been agreed with a client you could arrange a payment plan which breaks the fee into smaller monthly payments until the matter is completed. This should also prevent the client from querying the bill on completion.
PAYMENTS ON ACCOUNT
Ask for payments on account before you start any work. This could help with payments of disbursements until the matter is completed and a final bill is raised.
Consider sending bills via email. This will reduce the time it takes for the bill to reach the client and may speed up payment times.
It is important that your billing policy is agreed with your clients at the outset of the matter, and included in your client care letter. This should prevent fee disputes once final bills have been delivered and also achieve the outcomes outlined within the SRA Handbook.
3) Review your payment terms
Your bills should clearly state the payment due dates and you should send regular statements; clearly stating which bills are overdue.
Managing your clients’ credit is an important part of cash flow management so you should flag up those clients who have a history of slow payment and do not act for clients who do not pay their bills. Chasing clients for outstanding bills costs your firm time and money and can be highly unprofitable. If you are engaging with a new client it may be worth having them credit checked before you start any work to highlight the risk of non-payment.
Only agree to extend credit terms if the client has a good track record for sticking to payment agreements. If a client has a history of slow payment, changing the credit terms (say to a monthly payment plan) or even eliminating credit entirely may be necessary.
If you are the COFA for your firm you may wish to consider including ‘billing’ in your staff handbook to ensure all employees and managers comply with your firm’s policy. This is important in your monitoring of financial stability and compliance with SRA regulations.
For more information and advice on any of the matters raised in this blog, please contact us on 01772 821021.