Managing Accounts Receivable in Law Firms

Managing Accounts Receivable in Law Firms

According to an Attorney at Work article, law firms, particularly smaller firms, often face the challenge of overdue accounts receivable (AR), which can strain their financial stability. Even with healthy revenue figures, unpaid invoices can significantly affect cash flow and overall business health. Proactively managing collections is essential to maintain financial stability and avoid letting unpaid invoices accumulate. 

The article highlights the following strategies to strengthen accounts receivable in law firms.

• Be Proactive: Set clear payment terms in engagement letters and client onboarding materials, including payment deadlines and interest charges for overdue invoices. Bill regularly rather than waiting until the end of a matter to avoid large, overwhelming invoices.
• Use Retainers and Flat Fees: Implement retainer agreements where appropriate, ensuring clients pay upfront. Increase retainers in high-risk situations or use evergreen retainers to maintain a steady cash flow. Additionally, flat fees should be considered to eliminate payment uncertainty.
• Stay on Top of AR: Regularly run AR reports and categorize overdue accounts by delinquency length. Address accounts over 30 days overdue immediately. A consistent reporting and follow-up process ensures no outstanding balances remain unchecked.
• Regular Reminders: Automate reminders through practice management software, ensuring clients are reminded before and after payment deadlines. Follow up with emails and phone calls for overdue accounts.
• Offer Alternative Payment Methods: Provide clients with various payment options, such as credit cards or online portals, to streamline the payment process and reduce barriers to payment.
• Take Action for Recovery: After 90–120 days, consider using a collections agency or small claims court for persistent overdue accounts.

Effective accounts receivable in law firms require proactive steps, clear communication, and consistent follow-ups. Small law firms should establish efficient AR management practices, use retainers, automate reminders, and offer flexible payment options to reduce overdue balances. Taking action early can prevent AR from becoming a financial burden.