Cash Management 101

Not to appear to be piling on, but here is yet another call for the introduction of merely sane and rational, everyday business management processes into law firm land.

In this case, the topic is not recondite in the least:  Plain old cash management and timely collection of accounts receivable.  Big yawn?  Well, consider:

• If a firm's weighted average cost of capital is 7% (scarcely an aggressive estimate);
• And if a $10-million fee has been billed but is being "neglected;"
• The outstanding receivable is costing the firm $13,500 per week.

Any number of reasons are evinced for firms' being less than assiduous in minding their receivables, but they add up to a flat-footed failure to recognize that law firms are not magically exempt from the rules of Management 101:

• No single person oversees all of the outstanding bills to a single client; they're "overseen" (indulge us in applying the term) by each partner for his/her matters.
• A client may be debating or protesting a specific bill on one matter, so the firm feels hobbled in pursuing all other non-disputed bills.
• It's awkward to have a conversation about the $10-million outstanding.

The rebuttals to which, in order, are:

• Appoint a "fixer."
• Are you serious?  Would the client be so indulgent with its customers?
• See #1.

Here again we have law firms in a behavior pattern that would be laughable in corporate-land; it's the equivalent of a major company assigning its customer collection follow-up to the troops on the factory floor, or to its sales force.

Adopting straightforward cash management disciplines is not an act of hostility towards your clients:  Imagine, they might even view it as an indication of professionalism.