The hidden cost of late fees

By |12 November 2015
Bruce Coombes

Legal practices around Australia are paying a high price for late-paying clients, write Bruce Coombes.

In fact, the Federal Government’s Department of Industry, Innovation and Science recently released a paper on Australia’s culture of late payments. The study found that small-to-medium businesses lose access to an incredible $19 billion each year because of overdue payments. This is because clients who go to ground when invoiced sometimes never resurface, despite repeated calls and emails. Recovery efforts can sometimes end up costing more than the invoice itself.

Apart from the fact that your team deserves to be compensated for hours billed, predictable income from on-time payment is integral to the running of any successful legal business.

Beyond just affecting cash flow, however, late payments can affect your practice in a number of other undesirable ways.


1) Decreased productivity

You hire your admin staff to take care of the many administrative facets of running your practice. However, chasing payments shouldn’t take up the bulk of their duties.

If too much time is spent following up with clients about their unpaid fees, it can prevent your team from providing the vital support that you need in other areas. This can affect the services of your entire firm, while increasing overall admin expenses, and reducing staff morale.

2) Lack of liquid capital

Having outstanding invoices means less money in the bank for your legal practice of course but it also means your growth ambitions can’t be realised. When you don’t have ready money in the bank, your potential for making investments is diminished, and the long-term certainty of your business is compromised.


3) Unplanned extra expenses

When bills take too long to get paid, you can find yourself outsourcing your overdue accounts receivable to a debt collector. This can also end up being costly, however, as they will help you recoup the money you are owed, but will take a portion of the amount for themselves. This kind of expense has the potential to significantly affect the bottom line of your annual earnings.

4) Impact on your reputation

You need clients who respect what you do. Business relationships can be damaged when you are constantly chasing invoices and having negative conversations around payment. To make matters worse, you may find yourself paying your own bills late because of a lack of consistent funding – another hit to your reputation. 

5) Insolvency

The Federal Government’s Prompt Payment Protocol Paper noted that 90 per cent of small business failures are caused by poor cash flow. Late bill payments from larger corporate firms as well as individuals are a contributing factor. 

Your competitiveness in the market is compromised when you don’t have access to the fees you are owed. Going out of business is a worst case scenario, but it happens around the country every day.

Bruce Coombes is the founder and managing director of QuickFee, a provider of professional fee funding to lawyers and accountants across Australia.

The hidden cost of late fees
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