Why can’t I ask for retainers from existing clients?
Most law firm owners are great at on-boarding new clients, setting boundaries, and asking for retainers.
An interesting phenomenon happens with legacy clients or existing clients – you know the good clients that stuck by you when you were first staring up. Law firm owners, and associates, sometime have no process to establish boundaries, policies and procedures when they weren’t in place way back when these clients were first on-boarded.
This also sometimes happens when a matter progresses and a retainer is depleted but work continues.
Why are my A/Rs so high?
Believe it or not I am told that solo and small law firm accounts receivable are typically in the 10% to 20% of annual billings. On billing of $300,000 per year that’s a whopping $30,000 to $60,000.
By practice area this is less likely to happen in real estate law, and more likely in litigation and other practices.
Many small firm owners may not have been exposed to the policy or procedure side of opening new matters and can sometime overlook the steps needed to properly open files with pre-existing or past recurring clients. This is dangerous from a regulatory perspective.
Problems caused by High A/Rs
Simply put it’s a death spiral. Lower cash flow means less working capital to pay expenses or payroll, which means line of credit borrowing, or worse using your visa to finance future receipts of A/R as you pay for your lifestyle.
Carrying A/R’s creates a constant weight and worry. Worry creates doubt and doubt leads to fear. None of those emotions build an owners confidence nor make them the best person to be around. An A/R balance is contrary to the best interests of the business as it keeps you working longer, saying yes to the wrong type of clients or matters, and generally chips away at the resiliency and growth potential of the overall practice.
Many lawyers receive a sense of belonging, friendship, self-esteem or acknowledgment from their clients, and asking for money or potentially upsetting the friendship developed over the past could lead to rejection or worse, loss of a client. Solo and small firm owners have to break free from that mindset and see they have a responsibility to the firm, the employees, their stakeholders (family) and other clients to operate at their best. That can’t be done with cash flow issues caused by A/Rs.
How to use policies and procedures to collect ongoing retainers
A policy is an rule set by the owner or a team around to support services provided by the firm. An example would be anytime a new matter is opened for an ‘ongoing or pre-existing client’ a checklist will be followed and fully complied with.
That checklist could include the following procedures:
- The associate with carriage of the file will send a confirmation engagement email setting out and confirming they were asked to assist with or provide services
- The associate or assistant or owner will request a retainer using the pre-approved standard retainer request email for past or pre-existing clients.
- The standard retainer request email will confirm no work will commence on the matter until the engagement or on-boarding is complete which includes receipt of retainer funds.
- A meeting will be scheduled to discuss the matters once the file has been opened.
- No one, including the owner, is allowed to deviate from the procedure/checklist
Policies and procedures (and checklists) are a law firm owners best friend, and great tool to delegate and train team members. They often are used to protect the business from the whims of an owner who is too nice to clients and likely often taken advantage of from a payment perspective.
Use policies and procedures to solve any ongoing problem you have had, and get out of the way and let your team help.
Joseph Chiummiento is a securities lawyer, coach and mentor to solo and small law firm owners, and a former bencher of the Law Society of Ontario. He can be reached by email at joseph@chiummiento.com