A/R: Asset or Liability
Law Firm Study
Accounts receivable: Asset or liability?
Typically, a law firm's accounts receivable is one of the largest current assets on the balance sheet. But unless given appropriate attention and management. they can all too quickly become a liability.
Throughout my business career and management training I have always been told that my accounts receivable (AR), the money owed to me by my clients after invoicing, is an asset. If this is so, why does it take many firms so much effort to monitor, manage and get bills paid? An asset is a resource that should have a positive effect on your business, but how can the money from your unpaid bills do this if it is in another company's bank account?
Accounting convention records your AR as an asset — I'm not going to argue against this. Not at all, my point is that unless properly managed this financial asset can all too easily become a liability to a firm, sometimes severely stifling its financial well being. Obviously, liability is a play on words — here I mean a disadvantage for your firm rather than the accounting term.
The neglected child
Everyone involved in billing and the collection cycle needs to work together to prevent your AR becoming a liability, thus taking up valuable resource within your firm. It is not just the responsibility of the finance department, although most of the management and monitoring activity originates here, but involves the partners and the billing timekeepers too. But receivables collection is not glamorous and is often a neglected and undervalued business activity.
For law firms, the AR is very likely to be one of the largest current assets on the balance sheet. But for many it has little kudos. One key reason for this is with managing and maintaining client relationships. Almost at odds with each other are the need to get paid quickly, and the need to maintain a good client relationship. So, can a revenue-management tool build in the sensitivities of client-relationship management and also reduce the time to get paid?
A revenue-management tool specifically designed for your business will improve speed of payment and better manage client relationships. In addition, it will keep you and your clients better informed, reducing the risk of unpaid bills, and lowering operational costs. But don't take my word for it. The most successful firms in your industry have a billing and collection policy implemented by an industry specific revenue-management tool.
Technology
Technology can improve revenue management activity. But what should you be looking for? A good strategy engine working at multiple levels is of prime importance. This is the thinking part of the revenue-management tool. Without the ability to process, report, manage and analyse at client, matter, payer and invoice level, any tool will impose restrictions on your revenue-management processes and activity. The ability to get the engine to work for you, and the uniqueness of your firm, requires a flexible processing module.
Clearly, a strategy engine is important to any firm, but to work effectively a complete revenue-management tool must be able to:
Work within the firm's culture, and the uniqueness of the client/partner relationship, to turn invoices into cash;
Drive the collections activity of the team to take advantage of skills and gain efficiencies;
Produce timely informative and accurate reports to keep management and collection staff aware of the current status and enable the firm to make informed decisions in revenue management;
Contain collections intelligence about the client portfolio to be used in coordination with management's strategic vision;
Allow for effective implementation of automation to remove the mundane tasks from the finance team while empowering them to become more efficient and effective.
