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What's your firm's collection rate?

It seems as though resistance to change lies amongst the most frequent commonalities of the human experience. And while that resistance exists in almost every person, the legal profession seems to have acquired outstanding excellence in this particular field. And yet, all the markers show that change is happening, albeit slowly.
The legal department of Thomson Reuters had some interesting insights to share in relation to "Overcoming lawyers' resistance to change" and the potential sources of that resistance. The reliance on the past for information and decision making in the form of precedent and the difference between fixed and growth mindsets were particularly interesting.
While I think it’s likely that these are amongst the factors that contribute to the slow pace of change, there may be bigger players in town. I believe that I’m correct in thinking that at no point in human history have there been a wider selection of aspects to tackle or choices of methods by which to do so. We’re not always so much resistant to change as overwhelmed by choices.
On a personal level, we might simply make a decision to eat healthier. Awesome. What does ‘healthier’ mean? Is it time to explore the delights of vegan cookery? Is keto the right choice? Raw versus cooked? Should you try to discover what our cavemen ancestors ate and try that for a while? Have a packet of cookies while you mull it over.
This particular challenge is called ‘paralysis by analysis’ and it is endemic in our society generally and more so in the business world. As a natural over-thinker to whom performance matters intensely, it was transformational for me to realise that clarity and focus are the weapons of choice in driving change and transformation. And in business, while Jerry Maguire might have been somewhat over-eager about it, money is king. You don’t stay in business without it.
Putting a focus then on the Key Performance Indicators (KPIs) of law firms that relate directly to the bottom line can often light the way to clarity on the kind of changes that both law firms and individual lawyers can implement that will bring them truly holistic value and tackle internal issues on many fronts. Small changes can have big impacts and our perspective dictates the changes we choose.
The 2021 Legal Trends report from Clio looked at patterns in relation to law firms in a growth phase, stable or shrinking phase through the lens of a number of aspects. One of these related directly to reporting tools and the fact that law firms in a growth phase are twice as likely to use reporting tools in their firm.

They cited 3 critical KPIs for law firms:

  1. Utilisation Rate - How much of the work carried out in a law firm is assigned to billable work, broken down by individual lawyers?
  2. Realisation Rate - How many of those billable hours are actually assigned to a clients bill as opposed to being absorbed by the firm?
  3. Collection Rate - How much of those bills are paid (on time or at all)?
According to their study, in 2020, lawyers achieved an average collection rate of 89% which equates to an average loss of the value of 11% of the work that is provided.
Interestingly, Claude Duclox addressed this issue in an article titled “What's your collection rate” in 2017. He says that in his experience, a range of 5 - 10% is an expected range of lost earnings and has maintained a steady collection rate of 97%.

He also lists a number of ways in which law firms have traditionally tried to tackle the issue:

  • Requiring upfront payment for flat fee arrangements
  • Ensuring your retainer fee is enough to cover the future bill
  • Limiting your practice to clients with a high likelihood of payment or instructions that can be controlled.
It is clear from Clio’s report that law firms in a phase of growth are achieving higher rates of growth in their revenues, client base and casework. On the other hand, Claude Duclox sees traditional practices adopted to try to improve collection rates as contrary to growth strategies. How then can law firms seek to implement growth strategies, achieve higher revenues, client volumes and additional casework whilst still ensuring that they get paid for the work they provide?
The answer may lie in the tools that legal technology is increasingly providing that allow real collaboration between lawyers and their clients and create the possibility for new types of billing in the legal industry. The consumption pricing (and billing!) that is a standard feature of modern life for your clients, could improve your collection rate and your bottom line.

Think better.

Think RightHub.

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