(8 min read)
Most firms treat accounts receivable as a collections problem. It’s almost always a design problem, based on decisions made long before the invoice ever went out.
By the time an invoice is ninety days old, your options are bad ones. Chase it, discount it, write it off, or damage a client relationship trying to save a few thousand dollars. What you can’t do at ninety days is go back and fix the engagement letter, the retainer structure, or the payment terms that put you there.
Aging A/R is a lagging indicator. To move it, you have to work upstream of it.
Who Owns Collections?
I have my preference, but that aside: ask three people at your firm who is responsible for collections and you’ll get three different answers. The billing coordinator, the responsible attorney, or “we all kind of do it.”
That’s not an accountability structure.
Get specific:
- Who sends the first reminder, and on what day?
- Who makes the second contact, and through what channel?
- At what point does it escalate, and to whom?
- Who has authority to approve a discount, a payment plan, or a write-off, and up to what dollar amount?
Answer these in writing and collections becomes a process. Otherwise it’s a reaction, happening at whatever pace the busiest person on the list can manage.
Find Out Why the Invoice Is Unpaid Before You Decide How to Chase It
One of the most common collections mistakes is treating every past-due invoice the same way. They aren’t the same, and each reason has a different fix:
- The client can’t pay. A payment plan or structured payoff might recover most of it. Continued chasing may recover none of it.
- The client won’t pay because they’re unhappy with the outcome or the invoice. That’s a relationship conversation, and it belongs with the responsible attorney, not the billing team.
- The invoice never reached the right person. With corporate clients this is routine: an A/P portal, a required PO or matter number, a billing guideline you missed, an approver who is unavailable.
- Nobody has actually asked. More common than firms want to admit.
An individual client more often has a cash flow issue; a corporate client more often has a process issue. Chasing one the way you’d chase the other tells you little about what is actually preventing payment.
Review A/R regularly rather than thoroughly and too late. A monthly aging report teaches you more than a quarterly deep dive, because at thirty days you can still diagnose the problem. At one hundred and twenty days, you’re doing an autopsy.
Use Your Leverage Deliberately, Not Reflexively
Firms have real leverage on unpaid invoices: stopping work, late fees, interest, and escalation to the relationship partner. The question isn’t whether you have it. It’s whether using it costs more than the receivable is worth.
- Will you actually enforce it? A late fee clause you’ve never once applied trains clients to ignore your terms. An unenforced policy is worse than none: it signals that everything else in the engagement letter is negotiable too.
- What is this client’s lifetime value relative to this invoice? Stopping work on a good long-term client over one slow payment is a bad trade. On a client who has been slow every time, it’s overdue.
- Is escalation to the attorney a strategy, or a way to make the problem someone else’s? It works when the attorney has the relationship and the standing to have a direct conversation. It fails when it’s simply a handoff.
Payoff incentives and payment plans both work, and both have a cost. A discount converts a doubtful receivable into cash today, but offered routinely it teaches clients that waiting is rewarded. Payment plans keep relationships intact and recover more than a write-off, but they extend your collection cycle and require monitoring. Use both. Use both on purpose.
And make it easy to pay you. E-billing, online payments, and automated reminders aren’t a strategy on their own, but they remove friction and take the emotional weight off your staff. A system, unlike a person, sends the seven-day reminder without hesitating.
Solve It Proactively at the Engagement Stage
Everything above is recovery. Here’s where the real gains are, and we’ll go deeper in a future post.
- Advance retainers and early replenishment. Trigger replenishment while there is still a cushion, not at zero. By the time the retainer is exhausted, you’re already extending credit. Keep an evergreen in trust.
- Alternative fee arrangements, subscriptions, and fixed fees. These change the timing of cash, not just the pricing. Money collected up front never adds to your aging balance at all.
- Anticipate the expensive moments. Trial, mediation, a major filing, or expert costs are usually foreseeable. Fund them before they hit. Your client should walk away focused on the outcome, not an outstanding balance.
- Teach your team what a “good” client looks like. Not the biggest matter, but the client who pays on time and doesn’t require three follow-ups per invoice. Attorneys optimize for the profile you emphasize. Make sure it includes how they pay.
Put It in Writing Before the Work Starts
Proactive measures only work if they’re documented and communicated.
- Put payment terms in the fee agreement and engagement letter. Set expectations on the schedule, the consequences, interest, and the replenishment trigger.
- Invoice promptly and state the deadline clearly. A firm that bills late collects late and collects less, because the work has gone stale and its own deadlines already look flexible.
- Keep a card on file or use auto-deduction where appropriate and permitted. It’s a significant operational improvement, and often the change that meets the most internal resistance. Use a credit card authorization form for verification.
- Say it out loud at the start. The payment conversation is far easier during the engagement meeting, when the client wants your help, than at 90 days past due.
If you pulled your aging report right now, how many aged accounts could you explain, not guess at, but explain?
If the answer is fewer than half, you don’t have a collections problem yet. You have a visibility problem, and it becomes one very quickly.
Tie It to a Number and to Compensation
The purpose isn’t a cleaner report. It’s not leaving money on the table that you already earned, and it’s cash flow you can predict, so hiring, technology, and space decisions come from a known position instead of a hopeful one.
- Set a target and a KPI, then measure against it. A collection rate target, a days-in-A/R target, a cap on the percentage of A/R over ninety days. Choose the metrics, establish the baseline, and report on the same cadence every month.
- Connect collections to attorney metrics and compensation. Origination and billable hours both reward work that may never turn into money. When collections carry weight in the compensation conversation, behavior around billing and follow-up changes quickly. That doesn’t mean attorneys make the collections calls, but it keeps them flagging billing issues early.
Bring Leadership a Business Case, Not a Complaint
If you’re the administrator or COO driving process change on A/R, everyone already knows collections are a problem. They deprioritize it because it’s difficult to confront. Walk in with:
- The metrics. Current A/R by aging bucket, collection rate, and days in A/R.
- The trend. A/R for the last 12 months. A snapshot invites debate about whether this month was unusual. A trend is much harder to dismiss.
- The financial impact, quantified. What the aging costs in real dollars: write-offs, working capital tied up in receivables, and the cost of any line of credit you’re carrying.
- A roadmap with an ROI. What you’d change, in what order, who owns it, and what the firm gets back.
Cash flow problems rarely announce themselves as cash flow problems. They show up as a hiring decision you postponed, a technology investment you deferred, or a line of credit you didn’t plan to draw on. The A/R aging report is where those decisions become visible months in advance, usually unnoticed. It’s where your profit potential goes to die.
The strongest firms manage the conditions that create receivables before those receivables ever become a problem.
At Outlook Advisory Group, our core mission is to guide firms to build stronger operations that are tailored, data driven, and transformational.
Melissa Hansel is the founder of Outlook Advisory Group, a fractional COO consultancy for law firms. She brings two decades of legal industry operations experience and runs a monthly roundtable for law firm owners. Connect with her on LinkedIn or Instagram at @melissahansel.coo to talk through your firm’s setup or suggest a topic you’d like to see covered next.