How your billing procedures can improve cash flow

Strong and sustainable cash flow is essential for any successful business regardless of size.  Poor cash flow management continues to be one of the most common reasons for business failure, regardless of how productive the business is.  Strong billing procedures can be a major contributing factor to maintaining financial stability and in this blog, I will look at changes you could make to your firm’s systems and behaviours to help improve its cash flow and keep control of its finances.

 

Prompt billing

Bill your client as soon as a matter is completed or agree an interim bill with your client if a matter is expected to continue for a longer period of time. Having a weak / infrequent billing procedure will

 

  • give the impression that you are in no rush for payment, and leave money in your clients pockets which could be in your bank account.

 

  • prevent a client to office transfer for monies already collected being made.

 

It could also result in more bill disputes as the client’s perception of the value of the work carried out may diminish over time.

 

How do you bill?

Changing how you bill your clients could have a positive impact on your cash flow. The following options are available for you to implement:

 

  • Time-served Fees – Where matters are billed on a time-served basis, you may wish to discuss this with your clients and agree to bill more frequently.

 

  • Fixed Fees – Where a fixed fee has been agreed with a client you could arrange a payment plan which breaks the fee into smaller monthly payments to be made as the matter progresses.

 

  • This should also reduce the risk of the client querying the bill on completion.

 

  • Payments on Account – Ask for payments on account before you start any work. This could help with payments of disbursements until the matter is completed and a final bill is raised.

 

  • Bills to Trusts requiring authorisations in advance from Trustees – consider sending a draft bill detailing your charges before issuing the actual fee note. This gives the Trustees time to review the draft before the ‘bill’ becomes due for payment or, where you are holding monies on client accounts but have not transferred the funds to office, the 14 day period runs out.

 

  • E-Billing – Consider sending bills via email. This will reduce the time it takes for the bill to reach the client and may speed up payment times.

 

Client care and fees

It is important that your billing procedure is agreed with your client at the outset of the matter, and included in your client care letter. This should help prevent fee disputes once final bills have been delivered and also achieve the outcomes outlined within the SRA Handbook.

 

Review your payment terms

Your bills should clearly state the payment due dates and you should send regular statements once fees have been issued distinguishing between amounts that are due and overdue.

 

Managing the credit extended to your clients is a critical part of cash flow management.  Tools such as putting an account on hold for a period of time or putting a payment plan in place should be considered for those clients who have a history of slow payment and requesting payments in advance from clients with a history of not paying their bills is essential. Chasing clients for outstanding bills costs your firm time and money and can be highly unprofitable.

 

If you are the COFA for your firm you may wish to consider including ‘billing’ in your staff handbook to ensure all employees and managers comply with your firm’s policy. This is important in your monitoring of financial stability and compliance with SRA regulations.

 

By taking the above into consideration and implementing tighter procedures, your firm will be able to plan for a more financially stable approach to billing and ensure that it does not hinder the firm’s cash flow.

 

Karen Hain is Partner for the Professional Practices team at Moore and Smalley. For more information contact Karen on 01772 821021.