How much you bill or How fast you collect?
What’s more important financially – how much you bill or how fast you collect?
As a lawyer, your inventory is not billable hours – it’s the cash those hours represent. Depending on your type of practice, it may take up to 18 months from first client contact to first assignment. Add the typical 150-days average billing cycle for new work and you may not see a return on new work for nearly two years.
Piling up billable hours without receiving cash is the road to insolvency. Financially successful lawyers prepare a forward-looking budget of cash receipts and payments for the next 12 months. Keep that statement on a rolling 12-month cycle. As you conclude the current month, look at the 13th month and add it into your budget, adjusting any other months needing modification based on new information.
The next important step is to keep your aged accounts receivable listing always at your elbow. Make sure your clients are paying you in accordance with their agreement, the promise they made to you in the engagement agreement. If they don’t honor their commitment to you, "fire" them and move on to the next client. Don’t let them waste your time or build up the amounts they owe you.
Following this advice will assure you have a positive cash flow and lead to financial success.Tags: Cash Flow - Finances
Categorized in: Cash Flow - Finances