Our revenue is our lifeblood. Without cash coming in we are lost but this is an area where so many firms get it wrong.

Can Pay, Will Pay?
The key thing to remember here is that it must start when any matter is opened. The most sophisticated debt collection systems of all will struggle if credit is being given to clients who cannot or will not pay. I have seen partners dive enthusiastically into doing work for itinerant tarmac layers who lived out of caravans and rarely stayed in the same place for more than a few weeks, and for service personnel on the many forces bases in North Yorkshire. These guys earned well enough so the work was not publicly-funded, but of course when there was a bill to pay they had vanished. They may well not have intentionally avoided their debt but their lives had simply moved on. All the effort put into their work became, effectively, a gift from the firm. Pro bono is fine, but only when you intend to do it!

Fee earners must accept responsibility and must, as a routine part of the file opening system, be made to answer three questions:

    a) Can this client pay for this service? (i.e. have they the means?)
b) Will they pay? (i.e. what is their attitude? Will a litigant pay even if they
  lose (unless, of course, you are doing a contingency/conditional fee arrangement)?
c) How are they going to pay, when and how often?

Your FE is by far the best placed to make these judgments and although they seldom like it they must be made to take responsibility. If there is any doubt about whether a client will pay you have no choice but to get payments in advance, monitor the time recorded, and insist on proceeding only while there is a credit balance.

A good tip? Ask your FEs to imagine that they are being asked to lend the client their own money, in cash. If they would really be willing to do so, fine. But if they have doubts they need to find a better way forward.

Billing
If the FE feels that credit can be given interim billing must be the norm, monthly if possible, quarterly as an absolute minimum. In this way you avoid running up huge balances that clients may struggle to cope with and your fee earner doesn’t spend time on work that isn’t being paid for; as soon as any payment gets overdue they stop work, write to the client to explain why, and only resume when the account is up to date. Ideally, get the client to accept a monthly payment, which you might collect by standing order or credit card, and then get your cashiers to simply run that. It takes much of the pain out of the whole thing.

Solicitors are so often so squeamish about this. They “don’t want to upset” or are frightened of losing a client, but do you really want to lose money keeping clients that don’t pay? (See also Performance – Clients). No, your fee earners must concentrate their time on generating revenues, and that means only doing work that will be paid for.

So make your FEs address this every time they open a new matter and then make them accountable. If you get a non-paying client look at the FE responsible with a beady eye and ask how it has happened. Help your FEs to understand that their role in the firm is to bring in fees, with the delivery of high quality work the way they achieve that. Billing figures mean nothing until the cash is in Office Account and FEs should be measured (and paid bonuses, if you do that - see Performance - Fee Earners) on cash in and not on bills delivered.

If you have difficulty establishing this policy just tell everyone that when FE performance and billing totals are assessed you will count bad debts as double, due to the admin costs involved in attempting to collect from non-payers. A litigator bills £130,000 in a year but has £12,000 unpaid? For the purposes of their annual performance assessment they will be considered to have billed just £106,000.

Do tighten up your file closing system. Even when you have been interim billing there will usually be a final bill to send. I have seen this routinely left for months, by which time the client has forgotten the good work you did for him or her and sees any bill as exorbitant. Always insist that your FEs bill immediately the job is finished.

And finally on this, make sure that your FEs are trained and then monitored on how well they estimate the likely cost of work for the Rule 15 letter, how that goes on to compare with the actual work needed and done, and on whether they bill as per their estimate. I have too often seen solicitors quote a few hundred pounds to take on a very significant piece of work with many thousands at stake for the client and a heavy responsibility on the lawyer, and even then bill below the estimate at the end. FEs have to be honest with the client about the risks, but they must also be honest with them, and with themselves, about the risks to the firm. The fee must reflect the value and the risk. And if you indicated a particular level of fee at the start and the client was happy with this, and if you went on to achieve what the client wanted, what possible logic can there be in billing less than your indication at the end? Believe me, this happens and I struggle to understand.

Solicitors sometimes appear to wish that they could work for nothing. The law is a huge intellectual challenge and those that take this on are often highly intelligent and determined to do their utmost to solve their clients' legal problems, but they tend not to be terribly commercial people. If any firm is to succeed it has to address this: the need to turn the intellectual challenge into revenue. FEs must be gently made to understand that without revenues at the right levels no business can continue.
 
Disbursements
There is only rule here: The firm is not in business to lend money to clients.

Unless a disbursement is genuinely trivial, and asking a client to pay it would look petty, you must ensure that FEs always ask for payment on account of such items, before the payment has to be made to the supplier. If you do nto do this you not only increase the strain on the firm's cash resources, you also add to debtor problems and risk incurring bad debts that will not merely mean that FE time goes unpaid for - they will actually drain cash from the firm as well.

Your credit card machine here is enormously useful. If you need a payment you can simply phone your client and ask whether they might pay you quickly, over the phone, "so that you can get on with the work". They will think nothing of this and will agree readily.

BUT beware! Credit card payments mean you lose the commission rate - often around 1.5%. You may regard this as acceptable when it comes to collecting fees, due to the speed and simplicity, but with disbursements you could be out of pocket.

So your credit card policy has to take this on board. Switch, Solo and Maestro cards usually carry a
one-off fee of about 45 pence, which may be considered a reasonable cost for the firm for bear (and could be reduced by negotition with your bank - see Finance - Treasury), but Visa, Mastercard and so on will mean advising clients that there has to be a small surcharge of perhaps around 1.5%. This is pefectly normal and legal - the travel industry has done it for years, for example - but you may get some resistance from clients. If so, suggest that they use their Switch/Maestro card instead.