What is 90+ days past due bills costing your firm?

Maintaining a healthy cash flow is crucial for the success and sustainability of your law firm. 

Having cash allows you to weather storms in tight seasons, and jump on opportunities when they arise. 

However, a recent survey conducted by CollBox reveals a concerning trend: many law firms are struggling with significant amounts of past due bills, particularly those extending beyond 90 days. 

This blog post will walk through the true cost of these overdue invoices and explore solutions to help your firm regain control of its accounts receivable.

The Shocking Numbers: A Wake-Up Call for Law Firms

Our recent survey of over 50 law firms across various practice areas unveiled some alarming statistics:

• The average outstanding invoice amount per firm is a staggering $206,000.
• 73% of surveyed firms reported outstanding balances between $100,000 and $500,000.
• Some firms are carrying unpaid invoices totaling up to $2.5 million.

Perhaps most concerning is the breakdown of these past due bills:

• 41% of firms have invoices that are 90+ days overdue
• 26% have invoices 60-90 days past due
• 17% have invoices 30-60 days past due
• Only 6% have invoices in the 0-30 day range

In total, a whopping 84% of firms are carrying invoices overdue by more than 60 days, signaling severe cash flow strain across the industry.

The Hidden Costs of Past Due Bills

While the direct financial impact of unpaid invoices is evident, the true cost to your firm extends far beyond the numbers on your balance sheet:

1. Opportunity Cost: Every dollar tied up in past due bills is a dollar that can’t be reinvested in your firm’s growth, technology upgrades, or talent acquisition.
2. Administrative Burden: 35% of surveyed firms cited “chasing past-due bills” as their most frequent operational issue. This time-consuming task diverts valuable resources from billable work and strategic initiatives.
3. Cash Flow Constraints: Without a steady influx of cash, firms may struggle to meet operational expenses, potentially leading to late payments to vendors or even payroll issues.
4. Reputational Risk: Constantly following up with clients about overdue bills can strain relationships and potentially impact your firm’s reputation in the legal community.
5. Legal and Ethical Considerations: Irregular trust account replenishment, cited by 5% of firms as a recurring challenge, can lead to serious legal and ethical complications.

The Importance of Cash on Hand

Maintaining healthy cash reserves is essential for law firms for several reasons:

• Financial Stability: Cash on hand provides a buffer against unexpected expenses or revenue fluctuations.
• Strategic Flexibility: With adequate cash reserves, firms can seize growth opportunities, such as hiring key talent or expanding into new practice areas.
• Operational Efficiency: Sufficient cash flow enables firms to invest in productivity-enhancing technologies and streamline processes.
• Client Confidence: A financially stable firm instills confidence in clients and potential clients, potentially leading to more business opportunities.

Solutions for Catching Up on Past Due Invoices

The good news is that solutions exist to help your firm address the challenge of past due bills. Based on our survey findings, here are some approaches to consider:

1. Implement Structured Systems: Nearly all surveyed firms lack automation or structured systems for collections. Implementing a robust accounts receivable management system can significantly improve collection rates.
2. Outsource Collections: Many firms expressed interest in a “done-for-you A/R solution that doesn’t add admin burden.” Partnering with a specialized service like CollBox can take the stress out of collections and improve results.
3. One-Time Clean-Up: Over 50% of firms showed interest in a one-time A/R clean-up. This approach can help you regain control and re-establish cash flow quickly.
4. Training and Support: Provide guidance and systems to support overwhelmed teams. This can include templates, training programs, and tech-enabled follow-up systems.
5. Proactive Measures: Implement strategies to prevent future past due bills, such as clearer payment terms, upfront retainers, and regular client communication about outstanding balances.

Taking Action: Your Next Steps

The CollBox survey clearly shows that law firms don’t need another SaaS tool – they need a trusted partner to get the job done. Here’s how you can start addressing your past due bills today:

1. Assess Your Situation: Take a close look at your accounts receivable aging report. Identify the extent of your past due invoices, particularly those beyond 90 days.
2. Calculate the Cost: Estimate how much these past due bills are truly costing your firm in terms of lost revenue, administrative time, and missed opportunities.
3. Explore Solutions: Whether it’s implementing new internal systems, seeking outside help, or a combination of both, determine the best approach for your firm’s unique needs.
4. Act Promptly: The longer invoices remain unpaid, the harder they become to collect. Don’t delay in addressing this critical issue.

Remember, you’re not alone in facing this challenge. Our survey shows that most law firms struggle with past due bills. However, by taking proactive steps to address the issue, you can significantly improve your firm’s financial health and set the stage for sustainable growth.

Don’t let past due bills continue to drain your firm’s resources and potential. Take control of your accounts receivable today and unlock the cash flow that will fuel your firm’s future success.