Top 5 Tips for Law Firms to Improve Cash Flow
Thought passing the bar was the hard part?
Managing a law firm’s day to day operations can be a daunting task - you have cases, mounds of paperwork, deadlines and hours of prep work to ensure a positive outcome for your clients. Because your services come at a high price, many firms find that it can take up to 90 days or more to get paid. Meanwhile, your living and business expenses continue to pile up.
The administrative burden associated with paper invoicing and accounting distracts you from the valuable time you could re-allocate toward building your practice. So, with respect to your time, let’s get right to some solutions.
Here are the top 5 tips to help your law firm increase cash flow, collect more revenue and improve operational efficiencies:
1. Accept Credit Cards as a Form of Payment
Offering your clients the ability to pay with a credit card provides your clients with the option of paying off your services over time, rather than all at once. Here are some powerful facts to consider:
Research shows that firms that offer credit cards as a means of payment collect up to 29% more revenue
66% of consumers prefer to pay by credit card, the percentage is even higher among millennials
Credit card funds can be deposited into your bank account as quickly as the next day
If you’re currently waiting three months to get paid by traditional invoice, accepting credit cards is a huge win.
With so many processors vying for your business, evaluating different pricing proposals can become overwhelming. However, as long as you insist on what’s called “interchange plus,” or, “cost plus pricing,” your fixed and negotiable fees will be transparent, allowing you to see exactly what it costs to accept credit cards. Pricing options such as “tiered rates,” (which quote different rates depending on card types), or “promotional rates” that offer you a rate without even looking at your bank statements, are oftentimes, very misleading. These types of rates are typically marketing tactics with lots of hidden fees and surcharges. Upon closer review, you may find that the promotional rates only apply to debit cards, or, to Visa and MasterCard card types and not American Express. It is important that you fully understand your rate structure, because your effective rates can wind up being nearly double what you were quoted. Lastly, and perhaps most importantly, remember that it’s not always about rate. Payment processing for law firms differs drastically from how the typical retail and restaurant merchant processes, and there are important regulations around how funds are allocated. Make sure you find a processor that understands payments regulations and how they apply to law firms specifically. A seasoned payments professional can offer knowledge and payments technology that is far more valuable than a low rate.
2. Replace Paper Invoices with Electronic Invoices
Paper invoicing costs your firm time and money. Creating and printing the invoice, stuffing the envelope and using snail mail is not the most efficient way to bill a client. Electronic invoicing is a far less manual solution that will allow your firm to:
create custom invoices online
provide a means by which clients can pay for your services online, using a credit card, debit card or their bank account (this form of payment is called ACH)
If your services are on retainer, electronic invoicing can be scheduled to automatically send an invoice on a monthly basis, so your fees can be paid timely. If you’re tired of following up with unpaid invoices, sending multiple pieces of mail and paying for postage, electronic invoicing is a much more efficient way to bill your clients and increase cash flow.
Many firms do not offer payment plans to clients because it increases the time it takes to collect your full fee. Payment plans can also wind up being an administrative nightmare when trying to reconcile multiple payments against balances owed. While these are valid concerns, offering payment plans may alleviate some of the sticker shock that can be associated with an invoice, and the software available in today’s marketplace can help to automate and reconcile balances on your behalf. Some law firms feel that presenting a payment plan as an option helps to secure payment in full, since payment terms are a collaboration between the client and the firm. This arrangement, commonly referred to as “recurring billing,” can be popular with Criminal Defense and Immigration Attorneys and because of the sense of relief your clients may feel knowing that they don’t have to come up with a large payment all at once, payment plans can prove to be an effective tool in obtaining referrals from your clients.
While yes, it is no longer common to write a check at the grocery store or in a restaurant, the service industry, specifically medical and law practices, still accept paper checks as a form of payment. If your firm accepts paper checks, know that you can save trips to the bank and maximize cash flow by accepting ACH (automated clearing house) payments, instead of paper checks. This payment type deducts funds straight from your client’s checking account. Similar to credit card payments, ACH attempts provide an immediate “approval” or “decline,” letting you know the if funds are available. Another benefit of ACH payments is that financial institutions will clear ACH payments before paper checks. Consider this: if a consumer has $1100 in the bank and an ACH and paper check for $1000 goes through on the same day: the ACH will process, the paper check will bounce - that can mean the difference between you getting paid, or not. It is worthwhile to know that credit card and ACH payments, recurring billing and electronic invoicing features can all be supported through the same software called, a “gateway.” There are many gateways available in the marketplace today and the pricing and functionality can vary dramatically, so again, finding a consultative salesperson that has subject matter expertise in this technology is paramount.
5. Enroll in Next Day Funding and Amex’s OptBlue Program
Here’s an important tip when signing up for your credit card processing account - ask when you will receive your funds! All credit card funding times are not equal. Some processors have funding schedules that require you to wait 48 hours for funds to be available. Enrolling in next day funding can fully optimize cash flow by shaving days off funding time. Furthermore, funding for your American Express transactions may be delayed an additional 24 hours and show up in a separate deposit, which can complicate reconciliation. With Amex’s OptBlue program, you can settle all your credit card transactions as late as 11 PM eastern time and get funded for your Visa, MasterCard, Discover and Amex transactions the next business day, all in the same batch. Both next day funding and the Amex OptBlue program are available through your processor - there is no need to find these solutions through your bank or through American Express. When evaluating processors, asking for these programs will be key to finding a solution that will contribute toward the success of your firm.
The credit card processing world has become riddled with regulations and complexities, but a processor and sales representative who specializes in payments for law firms can recommend the right technology and program that supports the diverse needs of your firm, while improving cash flow and reducing administrative costs. You worked so hard to get to where you are today, take the time to ensure you’re doing what’s best for your firm - and your bottom line. Ask the right questions, adapt the right technology and know what you’re paying for.
