Receivables Don’t Count: Lawyers Don’t Need To Be The ‘Bank Of Client’

It is the annual end-of-the-year scramble, and whether you are a dinosaur, a millennial, or anyone in between, right now your job is to collect those receivables so that they are in hand and counted by December 31. It’s not the easiest thing to do, with the holidays, year-end closings, year-end “we have to get these documents revised, amended, restated,” and/or year-end “we need to settle this case now so we can take the hit this year,” and the like. The crunch is on.

When I was in-house, we told our outside counsel every single year to submit any and all bills by the drop-dead date that Accounts Payable would set in order for payment by December 31. Firms that hadn’t billed us for months (and why that would happen was something that baffled me; don’t lawyers and staff like to eat, pay rent, mortgages, and so on?) would, as that drop-dead date passed, dump a whole mess of bills on us, right before or after Christmas, for payment by year end. Really?

Those bills often exceeded our biggest estimates. How do we explain that to management? Do you think a courtesy call or two to let us know what was about to be unloaded on us would have been appreciated? Of course not, who did we think we were working with? Any sensitivity to the client’s situation? Please.

The usual drill for my client was that when we’d get the bills, the original would be sent to the assigned attorney for review, with a copy to the client, whose department was to be charged.

Even if the client didn’t have any problem with the bill (and couldn’t, unless schooled in the fine art and science of reading and understanding legal bills), the lawyers often did, and me, especially. (No surprise there.) We’d wait the prescribed number of days and then if we hadn’t heard any squawks from the client and after attorney review and any demanded adjustments, the bill would be sent on to Accounts Payable.

I’m not going to rant about legal bills, but I remind outside lawyers that if you want your bills paid in a timely manner, you have to bill in a timely manner. Does that make sense? No dumping six months’ worth of billing in late December and expect an overnight turnaround. It didn’t happen with my client, and I can’t imagine that the turnaround would be that quick elsewhere. Remember that the Titanic was not able to avoid the iceberg.

So, even though I believe New Year’s resolutions are silly, perhaps outside firms might resolve to be more prompt with their billings. If there are going to be issues with the size of bills, then hash them out sooner, rather than later.

The whole year-end frenzy of collecting receivables prompts my question: What truly is a “book of business”? You can read on this website and others that it’s the precious “book of business” that causes copious amounts of law firm drooling when a partner at another firm looks to make a move. However, based on my observations (purely anecdotal, of course), it looks like that book can be pretty skinny.

If it’s the valuation of the business that the clients provide, what actually constitutes that value? Is it client billings, e.g. receivables, or is it the actual dollars and cents collected, deposited, and in good funds, as my client used to say? As we all know, receivables aren’t worth the paper they’re written on (apologies to Samuel Goldwyn) unless they’re collected. So, I wonder if the definition of “book of business” should be modified to add the word “collected,” or is that understood? You tell me. If the receivables are collected four to six months late, do they really have the same value as clients who pay promptly based upon a firm’s timely billing?

We’re good at asking for money on behalf of our clients. I think we’re great at that, given some of the opening demands I’ve heard in mediation, but I don’t think we’re as good asking for money for ourselves, for work we’ve done for our clients. We don’t see ourselves as bill collectors, but isn’t that what we need to be this time of year?

It’s really hard to ask for money, but someone, if not you, has to pick up the phone and make those calls. Don’t use emails for this purpose; only phone calls will do. It’s way too easy for a client to avoid emails, put them in the “stall” folder, delete them accidentally on purpose, forward them to Accounts Payable (“I know I sent this on to A/P; it’s in their hands now”), and other excuses. It’s always more fun to hear someone squirm about reasons for nonpayment than to simply read it in an email. (I don’t know if squirming translates into an email anyway.)

Follow up with the client after submission of the bill(s). Make sure they’ve been received and are being processed. If there are questions, get answers forthwith. If the client isn’t sure about where the bill is in the “process,” nicely ask the in-house lawyer, if there is one, or whoever is in charge of legal bill review, to follow up.

Law firms, regardless of size — whether solo, small firm, medium size firm, or Biglaw — should not have to be in the business of involuntarily extending credit to clients or financing accounts receivable. (Yes, I know there are clients who sit on bills to manage their cash flow, but that’s a topic for another day.) My point is that just as parents can choose not to be the Bank of Mom and Dad, lawyers and their firms can choose not to be the “Bank of Client.” There are real lenders for that purpose. I should know; I represented them for years.

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Jill Switzer has been an active member of the State Bar of California for 40 years. She remembers practicing law in a kinder, gentler time. She’s had a diverse legal career, including stints as a deputy district attorney, a solo practice, and several senior in-house gigs. She now mediates full-time, which gives her the opportunity to see dinosaurs, millennials, and those in-between interact — it’s not always civil. You can reach her by email at [email protected].