Pay Day: Internal Payment Processing Improves Law Firm Cashflow

The problem with most law firm payment processing options in traditional hourly billing models is twofold: first, law firms are always billing in arrears, so that the work that for which they’re asking to be paid for has already been done – not the strongest bargaining posture, honestly; second, the reliance is on the client to make payment . . . whenever they get around to it.  And, who knows when that might be – lawyers aren’t exactly on top of the payment food chain, when it comes to household bills.  Of course, the drawback is that your cashflow can get pretty spotty, in that environment.  And, hey – you’ve got bills to pay, too. 

 

Even in an environment where you’re billing your clients hourly – and asking them to pay you when you’re done – you can seek improved cashflow.  The way to manage that is by removing the payment request part of the collection process.  If you can acquire your clients’ debit or credit card or ACH information, and store it in a secure ‘vault’ (which many softwares offer), you will be able to take payments for work done from clients directly – without the traditional request – simply by clicking a button.  And, instead of sending a traditional invoice, along with a payment request, you can instead send a notification (including an invoice) that the payment will be processed at a near-term future date. 

 

Of course, this method can be utilized with a traditional invoicing model; but, you can also link it to other platforms: like evergreen retainers.  Under that scenario, law firms effectively charge a ‘continuing retainer’, by topping off the money a client has in trust, up to a set amount, at the start of each month.  For example, let’s say that the established continuing retainer amount is $2000; if at the beginning of the month, the client’s IOLTA account has $1400 in it, the law firm acquires $600 to reset the retainer amount.  Rinse & repeat.  This assures that there is always money on hand, to work on the case.  That’s why attorneys love retainers, in the first place – and, this is a way to replicate that feeling, over and over again. 

 

Law firms that bill hourly don’t need to be consistently running short on cash.  One or two basic tweaks, and the speed at which you collect could become lightning quick – as quick as your trigger finger. 

 

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If you need to improve your law firm financial management strategy, you know what to do. 

Through a unique partnership between the bar association and Jared Correia's Red Cave Law Firm Consulting, Vermont Bar Association members have access to experienced law practice management consultants at a special discounted rate.

To get started, visit Red Cave's Vermont Bar Association landing page, and start running your law practice like a business.