Processes for credit control within a firm are crucial if clients are going to pay on time and cashflow is kept positive.

The process needs to start with the firm’s billing procedures and the technology utilised.

The firm needs to ask itself, “how is the client going to pay their bill?” What options are available to the client to pay? How can the firm make this as easy as possible? The easier it is for the client to pay, the faster the client pays.

What will the firm accept as payment?

Cheques and Cash are used less and less these days as most people pay electronically. There are certain members of the public that still use cheques, but the vast majority utilise online or card payments. That means the firm needs to be flexible.

The disadvantage of using physical forms of payment is that bank branches are consistently closing around the country, meaning paying in is becoming more problematic. It requires someone to take time from their day to go to a branch to pay in and if that person is busy, which they invariably will be, the cheque will likely sit in the office for a few days. This then becomes a breach of the SRA Accounts Rules because client monies have not been banked promptly. Then the firm must wait for the cheque to clear where electronic payments clear instantly.

How can the firm make it easier for clients to pay electronically and on time?

1. Ensure that the firm’s client account bank details are at the bottom of every invoice it sends out.
2. Send the invoice electronically.
3. Set up a payment portal system where the client can pay by credit/debit card online. This can be done outside of the case management system, but many are now implementing this technology so the payment can be assigned quickly to the correct file. Payment portals usually use secure links for card transactions.
4. There are also pieces of software that allow a client to have their own portal set up from the beginning, right from the file opening. They will often include AML and Source of Funds options which will ensure the firm is compliant there also. The more information provided to the firm directly into the CMS by the client, the easier everything tends to be.
5. Portals can also send automated electronic reminders. These are sent automatically to all clients who have not paid promptly or according to the payment terms of the invoice.

Payment terms and what happens if these are not met?

Agreements need to be made with each department to ensure everyone is clear about how the firm’s payment/credit control policy works. The reason for speaking to each department is because bills are raised at different times depending on the work type. Some raise bills at the end of the case and some do monthly interim billing. If there is a long running litigation file or a divorce matter, what happens if the client does not pay the interim bill on time? Does work stop until they do? Discussions must be had and it is likely that decisions will depend on the client’s individual circumstances.

Who chases clients for payment?

Should it be the solicitor working on the case who chases for payment or should it be an administrative task undertaken by the accounts department? There is an argument for both.
The argument supporting the solicitor chasing the bill is that they have had the most contact with the client, they know them well and therefore are best placed to chase for payment to be made.
The argument supporting someone else, such as the accounts department is that the solicitor cannot be 100% objective in chasing the debt down because they are too close to the client. It also could compromise the relationship with the client and the matter that they should be focusing on.

How do we know which bills are overdue?

It is the legal cashier’s responsibility to report on the debtors. This should be a monthly report which is circulated to all department heads and directors. The legal cashier needs to also review the debtors, especially the older ones and discuss with fee-earners why they are unpaid.

Debtors should not remain on files indefinitely. Either they need chased up to be paid or they need writing off. Debtors must be highlighted and discussed to ensure the firm has the correct debtors showing in the balance sheet and that the firm also has a sensible matter listing and an accurate live list.

It is very easy to let a debtor listing increase, but in this time of financial insecurity, the faster debtors are chased down the easier they are to recover. The act of recovery however must be procedural, where everyone involved knows their role.

Alex Simons MAAT
Outsourced Accounts & New Business Manager
The Law Factory LLP