Finding the key to lockup for a smooth post-pandemic recovery
If your lockup rate exceeds the industry average of between 10% and 20% of total billings and constitutes mostly of overdue invoices, it might be time to review your processes and make some changes, warns Mike Stevenson, managing director at Iceberg.
Is resolving the industry-old challenge of lockup the secret to a smooth post-Covid-19 business recovery?
As we emerge from the pandemic, making billing processes as efficient as possible will be key in ensuring a smooth transition back to ‘normality’. While a steady pipeline of client work may take some time to build back up again, it’s crucial for law firms to ensure they’re getting paid on time for the work they do.
Of course, some level of lockup is inevitable as there’s a guaranteed delay between completing the work and receiving payment for an invoice. However, if your lockup rate exceeds the industry average of between 10% and 20% of total billings and constitutes mostly of overdue invoices, it might be time to review your processes and make some changes.
Because of Solicitors Regulation Authority (SRA) regulations, financing options around book debt are limited. Firms must adopt a ‘back to basics’ approach, working closely with clients and fee earners in order to improve payment processes.
- Review the process currently in place
The first step is asking the fundamental question: who is responsible for ensuring that invoices are paid on time? Within SME law firms especially, that duty often comes down to the lawyers themselves. However, this will feel like a conflict of interest for many fee earners – their priority is to preserve a great relationship with their clients and chasing invoices multiple times can feel counter-intuitive.
If fee earners are consistently failing to meet their payment targets, it might be time to consider whether the role of chasing invoices should sit elsewhere. An option would be for this to be passed onto an external party that has no relationship with the client, either within the firm or outsourced.
- Commit to training
If taking the responsibility away from fee earners isn’t an option, then the solution might be in investing in some training to help them develop better oversight of the entire payment policy process.
As part of this, it’s important for finance team to really understand the concerns of fee earners and offer proactive support and solutions. The training should be tailored to the individual processes and challenges of a firm.
It should include general financial and cashflow insight, so that lawyers can understand why it’s so important for invoices to be paid on time and the impact of sustained delays. It will also be helpful to establish some detailed and clearly set out processes, so lawyers know exactly when, and how, to chase their clients.
- Outline clear communications around payment policy
In order to educate fee earners on a firm’s payment policy, it’s important to ensure that the policy itself is detailed and clearly explained.
It’s worth reviewing the comms around payment policy to see if those can be improved. Communications should be detailed with clear timing scales and payment options. They should also include a cohesive guide around debt recovery policies and procedures.
It’s also worth considering how payment policy information is communicated to clients – is this proactively shared with them and explained? Are there clear lines of communication with clients, with efforts taken to ensure they understand all options available to them? If the answer to that question is no, you might want to review if the firm needs clearer client communication processes.
- Offer flexible options to clients
The pandemic has been an incredibly difficult time for a lot of businesses, and this will include many of your clients. As much as we all want invoices paid, it’s important to take this into account when following up with clients.
Do you have flexible payment terms and payments plans as options available to help clients that might be struggling? If not, now might be a good time to introduce them. Taking the time to show care and compassion during the bad times will make all the difference later down the line.