Law firms: How much money is being lost in your firm due to unpaid bills?

Do you even know or care?

You’re not getting paid at all and no-one seems to be that bothered.

Whose responsibility is it to recover monies owing?

 
🟣Credit control?

 
🟣The relevant fee-earner?

 
🟣The Head of Department?

🟣Someone else?

🟣No-one?

Or are you all just passing the buck?

Look, I don’t want to be mean but if you really wanted to, you could eradicate bad debt altogether. It’s very simple.

 
Just follow the second R of my TRUE WORTH methodology which stands for:

💥Receive Remuneration – remittance at speed is just what you need.💥

How?

💧Get money on account – always!

💧Bill fortnightly or monthly. No excuses.

Until a job is paid, it is not complete.

AND make sure you get paid before the job is completed.

If your lawyers are not doing the above, you need me!

This is the last in the series of 8 leaks I see in law firms. Tomorrow, there will be a rather lovely post showing how the value of my work goes on months and months after training has been delivered.

Law Firms: Stop the madness – every year, law firms up and down the country are losing hundreds of thousands of pounds because their lawyers are discounting final bills.

 
Even if it’s only £10,000 per fee earner and you only have 10 fee-earners, that’s £100,000 pure profit, isn’t it?

 
And if you have 100 fee-earners, that’s a cool million.

Gone, never to be seen when it could have been yours.

Imagine that another million on your bottom line would do for your firm.

What could you do with that?

There are many behaviours which cause them to be losing money as you can see in the previous 6 posts about leaks.

🟣Do you have any idea how much they are discounting? Work out your own figure if you can. Make sure that you’re sitting down, though.

Are you happy with that? Surely the answer must be a resounding no!

🟣When they are discounting?

🟣How frequently they are discounting?

🟣And why they are discounting?

The question I am particularly interested in is WHY they are discounting.

Let me tell you a story about a client I worked with. He is a Senior Partner in a law firm.

💧His discounting habit was to knock £200 to £300 off every hourly rate paid invoice.

💧No discussion with the client.

💧No rationale behind it. Purely a knee-jerk, emotional reaction.

💧We worked out that he was probably losing around £16,000 a year just from this one behaviour.

💥I helped him to understand the value of the work he was doing for his clients.

💥I helped him to uncover the reasons why he was discounting.

 
💥I changed his perception.

💥He stopped discounting.

And I can achieve these sorts of results (and more) in my group training and coaching programmes too.

If you’re scratching your heads wondering how on earth you can solve this problem, then it’s simple, just get in touch with me.

Law firms: How much WIP is on the clock at any one time and how long is it outstanding for?

The answers to these questions will determine the following:

🟣the state of your cash flow

🟣whether you get paid at all

🟣potentially increased discounting

🟣the firm’s stability

🟣how many complaints you receive

🟣the state of your stress levels

In my book, whatever your answers are, it’s too much and too long.

So why do lawyers NOT bill on time?

🧿because they don’t even think of it! Really? Yes really.

🧿because they’re too busy! Yep, I hear this one. It’s ridiculous.

🧿because they’re too scared. Because they haven’t billed regularly and they racked up a shed load of money, they’re worried what the client will say, so they don’t bill.

What’s the solution?

💧Get money on account – always!

💧Bill fortnightly or monthly. No excuses.

Until a job is billed, it’s not complete.

Under no circumstances, let the bills mount up.

If you’re not doing the above, you need me!

Law firms: Look I’m not saying you should never do anything for free, I’m just saying, you shouldn’t make an unconscious habit of it, otherwise you are throwing money away unnecessarily and making a rod for your own back.

When you work for free, the client doesn’t really value it, because they may not even notice it or if they do, they don’t consider its true value.

If they are a regular client, it then just becomes the norm and will be expected.

A habit is created which is very hard to break without outside, professional support.

NB: I am not saying never do anything for free. There may be occasions when this is warranted. However, it should be done in a way, so as not to be taken for granted.
Here’s my suggested approach.

A client asks for something extra, and you know it will take very little time to do it. They are a valued client and you’re happy to do it without charging. You say:

Normally, I would charge for this but as you are such a valued client, I am happy to do it for you on this occasion without charge.

However, can we just explore the value to you of me doing this?

That way, the client is very clear that

🟣 they are important

🟣 you don’t make a habit of doing stuff for free and

 
🟣 they understand the value of the extra work you are doing.

This is very different from an automatic habit of saying yes without any discussion. The former is born out of fear and the latter comes from a place of confidence.

Let me help you help your lawyers renounce working for free. 

Law Firms: Do you know that this is happening in your firm? I bet you do.

Scope creep happens because the scope changes (no shit Sherlock) and all too often, it’s not managed correctly so money is lost. It’s all too easy.

So why don’t lawyers manage this correctly? Probably one of four reasons:

🧿Because they don’t make it clear at the beginning of the project what happens if the scope changes.

🧿They don’t realise it has happened until it is too late, so they are then too embarrassed to go back to the client and talk about additional fees.

🧿If they do realise it, they don’t know what to say to the client.

🧿They lack confidence in having to talk about money in general which is a big part of why they don’t handle it properly in the first place.

So, what’s the solution?

🟣Teach them what to say, how to say it and when to say it.

🟣 Give them the confidence to do this, rather than listen to their wayward monkey mind.

🟣Sell them the benefits of doing this versus the pain of not doing it.

That is what I do.

Look out for leak 5 next week.

Law firms:  Do you know that this is happening and how much it’s costing you?

If your answer is yes, then that’s positive as without awareness, you cannot do anything about it.

However, if the answer is no, then that is very concerning.

I don’t really like being the bearer of bad news, but I have to say that in my conversations with law firm leaders over the last few years, I have discovered that this is a really common problem.

This means it is very likely taking place in your firm too, whether you know it or not!

Why do lawyers do this?

It really boils down to just a few things, yet they have a massive impact on your bottom line.:

🧿not being confident in having those fee discussions with clients

🧿don’t know what to say

🧿don’t understand their value

🧿fear-based thinking

🧿a habit

Even if you have the most up-to-date technology, this will not solve the problem.  I’m not saying don’t have technology; it’s vital. 

I’m just saying that it can’t make your lawyers do something they don’t feel confident doing.

What will you do then to solve this problem?

Will you just tell them to stop discounting?

That may work, but I doubt it.

Or will you give them training as to how to stop doing it?

I do hope it’s the latter.  If so, do get in touch.

Law firms:  If your lawyers are not recording all their time, how do you know if the work they are doing is profitable?

You don’t!

Providing you have a decent case management system, then you would think life would be sweet.

But no.

The biggest problem is not that lawyers forget to time-record, the biggest problem is what is going on in their heads. 

How they think and what they say to themselves impacts on whether they record all their time on a job.

And it’s not rational.

This is what I hear all the time:

“I shouldn’t have taken all that time to do the work, so I’m not going to record all the time, and so they don’t.”

Whether it’s a trainee or someone with 20 years’ PQE or more, I’ve heard it.

In fact, I remember a barrister working within a law firm who had 20 years’ experience saying that very thing in a workshop.  I.e. that she was taking too long and comparing herself with some imaginary barristers with the same number of years call as her and coming off badly.

It's totally irrational but very commonplace and is going on in your firm too – guaranteed.

You probably already know this yet haven’t solved the problem.

You must be able to get your lawyers to understand that recording all their time is vital for the business and they won’t be chastised for taking too long.

 You must appeal to their rational mind and manage their fears.  If you haven’t succeeded yet, may I suggest you get in touch.

This is particularly prevalent when lawyers are estimating for a fixed fee and happens for several reasons:

🟣They are very busy and don’t spend enough time considering how long it will take.  So, it might be a lick of the finger and stick it in the air sort of approach.  This is haphazard and may prove to be inaccurate.

🟣 It’s based on a job they did for another client which is similar but that was 2 years ago, but they still quote the same.  It probably wasn’t accurate then, so it won’t be 2 years later.

🟣Human beings naturally under-estimate how long something will take, regardless of whether it relates to cost.

🟣They are not confident talking about costs with clients and so the tendency is to state a lower fee, as they feel more comfortable doing that.  This means that potentially there is double under-estimating going on.

🟣They are not clear with the client what the boundaries of that fixed fee are.  The client is then at liberty to contact them constantly because it won’t cost them anymore.

🟣I will address scope creep as a separate post.

So, what’s the answer then?

🟣Don’t rush estimating.

🟣Discuss with an impartial colleague.

🟣Become aware of their own tendency to under-estimate.

🟣As a firm, get external training to help eliminate these leaks.

Even if you’ve had a client for a very long time, can you honestly guarantee 100% that they will pay if you bill after doing the work?

You can bet your bottom dollar that if they have a money problem, they will put themselves before you, and that’s a fact.

And it’s not just good enough to get money on account at the beginning, it must be topped up regularly, so the firm is never in a position where work has been done and there is money owing.

I recently heard one firm who was stung for a very large amount of money - a quarter of a million to be precise -which is not only crippling financially but emotionally too.

Decide as a firm that getting money on account is your standard procedure and make sure all relevant client-facing staff know this.

Law Firm Owners – it is imperative that you read this.

Whether running their own practices or employed fee-earners, lawyers are undoubtedly highly intelligent, skilled individuals who know their stuff and care about what they do, often working long hours to satisfy their clients’ needs.

Like other professionals, they are not immune to the challenges which the business aspect of their work may pose.  With the ever-changing legal landscape, this may be even more complicated for lawyers than other professionals.

Ever-increasing competition, much of which may be a race to the bottom on price, the perceived threat of AI, the minefield which is technology and the increased stringency of the SRA’s regulations may be enough to unsettle even the most commercially minded lawyer. 

For those who are heart-led individuals, who work with clients who are going through particularly tough times, it’s doubly, nay trebly difficult.  Having those money conversations and managing clients’ expectations can be immensely challenging. 

The big question is, even though their charge-out rate may well be set at the correct level, are your lawyers applying it properly or are they routinely discounting and over-servicing clients because they just don’t have the heart to, as they see it, add insult to injury by billing the full fee?

In my experience, I can tell you for a fact that it’s commonplace practice to lead with a discount.

So, what is the impact of this for the firm and for its lawyers?

Clearly there’s a financial impact on the firm’s bottom line, at times resulting in a significant loss of revenue year on year.

However, that is only one part of the story.

There is an equally important factor which cannot be overlooked and that is the well-being of lawyers themselves, since not charging and managing clients effectively often leads to them working excessively and quite understandably being very stressed, tired, and even overwhelmed.

Consequently, it may well be a contributing factor to the increase in mental health issues in the legal profession.

If we examine the problem of revenue either being written off in terms of discounting or over-servicing clients, it is, in fact, twofold.  Firstly, lawyers are trained as lawyers, they are not trained in the art of conducting business, so how can they be expected to be experts at it?  

It is therefore reasonable to expect that many of them simply have a lack of knowledge of how to talk to clients about the business side of the work.  Secondly, like any other human being, they have patterns of behaviour which are driven by their unconscious beliefs and their emotions, which, depending on their nature, may well lead to discounting and over-servicing of clients.

Law firm leaders – ignore this at your peril!

Academic ability, knowledge and even professional experience are one thing (well three actually); being competent and confident in business is of course a completely different skill set. 

Since most lawyers probably haven’t studied business, it’s hardly surprising or even fair to expect them to be good at it without adequate training; yet it is vital to the firm’s success and the lawyers’ well-being.

It is important to emphasise at this stage, if you haven’t already got the message, that this problem cannot be solved by process alone. 

From discussions with Managing Partners, CEOs and Practice Managers, it is very clear that they are tearing their hair out, frustrated with the amount of revenue, which is being unnecessarily lost, as they don’t know how to solve this conundrum.

Yet there is a solution once the dilemma is genuinely understood.

Since the problem is two-fold, it goes without saying that the solution must equally be two-fold.

1. Address the lack of knowledge.
2. Address the lack of confidence which encompasses habitual behaviours.

Remember that a lack of confidence is emotional rather than rational.  Human beings (and lawyers are human too of course) are complex, irrational, and emotional.   

This lack of confidence is usually what causes the all-too-frequent, unnecessary, and often automatic discounting and over-servicing of clients. 

Just one example is extreme people-pleasing behaviour with clients, even at partner level which is not uncommon not only with lawyers but other professionals too.  It usually comes down to long-term limiting beliefs which drive them to consistently do work which is badly paid and work all hours of the day and night. 

If not addressed, this may well be the slippery slope to overwhelm and a nervous breakdown.

Another less extreme example yet quite common is that of one of a past client, who is a very experienced sole practitioner, employment lawyer and part-time judge. 

During coaching, he said:

“I used to be constantly hunting on the prairie looking for the next kill, regardless of its quality.  I never really considered my value.  I wish I had learnt this when I was 25 and at law school.”

A third familiar problem, particularly associated with employed fee-earners is that they do not understand their charge-out rate, look at it from a very personal perspective, comparing it with their salary and think: 

“I wouldn’t want to pay that! 

And it’s that very thought which causes the damage; they cannot help themselves and will discount their fees, just to make themselves feel better.  That is normal human behaviour; to move away from pain.

Do you recognise yourself or some of your fee-earners in any of the above?

I expect you do.

So, what can be done about all of this?

They must shift their thinking from price to value and my True Worth Methodology is designed to do just that.  Here are just three of the nine key principles.

1. Understand Value Fee-earners must really understand their value at a deep level and then from that profound understanding always focus on the value of each piece of work that they do for a client, before thinking about what to charge.

This then moves them away from being price-focused and that price is the key factor in whether a client will buy which is erroneous thinking and just attracts the wrong sort of clients, to value-focused.

While this may sound very simple, it is not necessarily easy since one’s value is unconscious.  In fact, the more experienced a fee-earner is, the more unconscious is their value. 

Since it is human nature to take things for granted, then experienced professionals take what they do for granted and think it is easy. It isn’t of course but to them it is.  I know that this is true for me too. This is a significant part of the problem and process training alone is unlikely to fix this.

From feeling fearful about your fees, to feeling fantastic about you!

2. Woo with Worth. Next comes learning how to communicate their value to clients confidently as well as being able to elicit the value perceived by the client which I call Woo with Worth.

In addition, they need to communicate with the client clearly throughout a project, right from the outset to conclusion of billing and payment on the following:

a) Costs including changes to costs due to a variation in the scope of work.

b) When the project will be complete and any variations which arise.

c) Any other relevant information, so that the client’s expectations are being met and/or managed and therefore the likelihood of discounting is significantly reduced, if not eliminated.

Understanding your clients’ pain better than they do is a winner.

3. Optimistic Outlook.  This is all about mind-set, self-worth and building rock solid confidence so your lawyers can talk about fees and any other business-related matters from a place of strength rather than fear.  If your lawyers are not confident talking about money, they will come across as flaky.  Clients will pick up on it and are then likely to challenge their fees.

This is a significant part of the work and cannot be avoided or overlooked.  Your lawyers are not going to come and tell you that they lack confidence in talking about fees, as that would be to admit weakness.

However, when I train and coach them, I enable them to do this by providing a safe space where they can explore, with their colleagues, this challenging issue.  I then provide them with the necessary tools to transform how they think and therefore take empowered actions which are reflected in the bottom-line.

Mastering your mind means much more money

Sounds simple and yet many lawyers do not do this consistently well, which means they are in a weak position when it comes to billing.  You might be asking why don’t they do it, because it seems so simple and obvious.  I guess the answer to that is four-fold:

It’s habitual.

They’re busy.

They don’t know how.

They’re not confident.

bringing us full circle to the very beginning of this article.

In summary, the key to increasing revenue for your firm, without having to get more clients, do more work or compromise value or values is to ensure that you and your fee-earners are both competent and confident, not only from the legal perspective but also from the business standpoint by understanding your value, taking charge of your communication with clients and being able to confidently deliver your fees to clients. 

This will undoubtedly have a significant, positive impact on your bottom-line not to mention yours and your fee-earners’ wellbeing.