How law firms can maintain a consistent cash flow

By Content Sponsor|13 October 2020

In a landscape beset by economic turbulence, giving clients the option of instalment plans to pay bills may be the best path forward in ensuring regular cash flow for your firm.

In the past, the risk of not getting paid that law firms faced largely revolved around the prospect that individuals or companies were “poorly run or met misfortune”, thereby rendering them unable to pay their bills, LEAP executive chairman Richard Hugo-Hamman muses.

Nowadays, however, the situation is different he says, in that even some of the country’s biggest companies may choose not to pay their bills, “essentially because they can”. Such a scenario is exacerbated, he continues, on the ground if and when individuals are unable to cover their mortgage repayments or even utilities bills, and banks can offer more credit. But law firms are not banks, Mr Hugo-Hamman notes, and such attitudes towards payment are not sustainable or compatible with a firm’s fiscal longevity.

Richard

The whole culture is changing to one where the decision to pay is being put into the hands of the purchaser. You can’t run a law firm if your clients are all going to decide if and when they pay you,” he deduces.

— Richard Hugo-Hamman

In the face of such a culture, law firms can and should consider enacting instalment plans with and for clients, which can help reduce the risk of missed payments and help transform a firm into one that has more predictable revenue, LEAP submits.

“The argument in favour of instalment payment plans and creating more predictability is that you must take advantage of this in that more people prefer paying a certain amount that is affordable regularly because everybody else who is giving them discretion is going to turn into banks, as people will be extending every bit of credit they can possibly get,” Mr Hugo-Hamman argues.

“Law firms don’t have enough capital reserves to be able to survive that. Not only is it important for their survival, but it is a great opportunity to change how they operate.”

One option that law firms can look to offer such instalment plans is with RapidPay, a wholly-owned subsidiary of LEAP, which allows clients to pay more flexibly and thus guarantee that the firm maintains a healthy cash flow. This platform, LEAP notes, “can take the complexity out of receiving payments and rest assured that you will be paid swiftly and securely”.

Urgency to create predictable revenue

Ensuring that one’s law firm has a consistent stream of revenue coming in is, of course, important at all times. But it is especially pertinent as the pandemic continues, RapidPay general manager Ferdi Chavez explains, when social distancing is now societies new normal and business practices must change to ensure continuity of revenue.

ferdi

Predictable revenue is critical because debt is predictable and must be paid on specific frequencies and dates – mortgages, tax, payroll, power, rent, etc.

— Ferdi Chavez

“Predictable revenue is critical because debt is predictable and must be paid on specific frequencies and dates – mortgages, tax, payroll, power, rent, etc. Ensuring that regular, predictable revenue is established means that upcoming debt is covered and law firms have confidence in their continuity of service – much the same way an employee has a regular salary payment and has confidence their personal debt will be covered,” he outlines.

For Mr Hugo-Hamman, there are two main factors driving urgency: one, the increasing volume of legal work in the marketplace, and two, a corresponding decrease in the capacities of clients to pay.

Using the example of family law with regard to the former, he outlines that “divorce rates are starting to skyrocket and the first generation of blended families are experiencing crises of immense proportions. So, there’s a lot of potentially complicated and expensive legal work emerging as a result of the extraordinary circumstances that we are in”.

On the question of the latter, Mr Hugo-Hamman points to Sydney private schools as a case study for the capacity of law firm clients to pay their bills: “There’s a lack of affordability even in something like [private schooling in Sydney], where 30 per cent of fees have not been paid. For a law firm, having 30 per cent of bills not paid would probably be catastrophic,” he reflected.

“If I was managing a law firm, I would be spending a lot of time thinking about this, because it might be okay today, but you need to be thinking about affordability in six to 12 months’ time. People on JobKeeper are still feeling comfortable and not eating into their assets, but when JobKeeper goes, that is going to change the financial position of millions of people.”

Will such payment plans work for law firms of all stripes?

All firms, Mr Chavez stresses, need to ensure that they are paid upfront for disbursements and have clients on payment plans.

“Why should a firm cover the costs of a client for disbursements, especially when it may be several weeks before the matter comes to close e.g. conveyancing? Firms should take monies into Trust upfront to ensure there is a ready amount of funds to cover disbursements as they fall due rather than dipping into their own cashflow to cover their clients’ debt,” he suggests.

“Conversely, ensuring clients are on a payment plan ensures the client has predicable debt that is due and enables the client to budget adequately for their legal services rather than having ‘bill shock’ when the matter comes to a close and they have to scramble to pay a sizable debt in one go.”

These strategies apply equally, Mr Chavez details, to sole practitioners as it does to large firm with 50 or more employees.

Mr Hugo-Hamman supports this, noting that instalment plans will work the same no matter how big or small a law firm is.

The real question to be answered, he posits, is determining what kind of law firm one wants to run.

“You can use instalment plans sporadically to solve the collection of bad debt, you can use it sporadically when a particular lawyer might detect that they will secure a client by offering it, but I think that if you want to secure your business, it is a leadership issue, and you should address how you implement instalment plans as a default method rather than an occasional payment method,” he says.

stephen

Maguire Barnes Family Lawyers principal Stephen Maguire recounts that, in his experience, clients have been “very receptive” to the option of instalment plans. As a practitioner in the family law space (particularly given the work with children and property issues), he and his firm have a good grasp on the financial state of clients, meaning that RapidPay is a platform they would look to utilise more often than not.

Clients “love” being able to pay flexibly by way of instalment plans, he continues: “I say to them that I don’t want them being hungry, so they can nominate the amount and I am happy with that. It gives access to justice. It’s a game-changer for family lawyers.”

Fidelis Legal solicitor Nathan Kariotoglou backs this, advising that instalment plans have been a “big selling point” in the age of coronavirus, given how many clients have suffered reductions in their income.

nathan

“It has actually increased our range of prospective clients, as there are a lot who can’t handle fees upfront, but are more inclined to do payment plans. We have received a large number of clients because of these payment plans when they are reluctant to pay fees upfront. A lot of these clients do have other fees that they need to take into consideration which can be quite substantial, particularly in tough times and dire straits. They just need a bit of wiggle room to pay their fees,” he explains.

— Nathan Kariotoglou

Looking ahead to the post-pandemic world

Mr Kariotoglou says that he’s been “really happy” with the various instalment plans his firm has been able to implement, with the majority of matters the firm handles now operating with such plans in place – something it will continue to utilise in the looming ‘new normal’.

“Although there’s a bit more work accounting-wise to deal with these plans, we wouldn’t have the clients we have now without it. Having frequent and reliable cash flow is critical, so we know money is coming into the account in particular dates,” he says.

When asked if he would recommend that other law firms implement instalment plans to better work with their clients, Mr Maguire said “I already have” – particularly the ones that already utilise LEAP, he adds.

“The important thing is that, with COVID-19, it keeps the cashflow going. When I was away on holidays, people kept paying money on the account. I can see what’s coming through and whether money is in transit.”

Ultimately, for Mr Chavez, what the pandemic has reinforced is that such instalment plans are a necessity at all junctures, not just those in which economic turbulence is rife.

“Regardless of our uncertain times, all firm should adopt these practices immediately, whether they have just started or an established firm – debt is predictable, so should revenue be.”