Peer panel: Financial management – Automation vs culture
14 July 2014
21 October 2013
30 January 2014
22 October 2013
11 November 2013
24 October 2013
Active financial management is vital, but with firms looking more closely at the process of debt and fee collection, the personal touch still counts
To what extent is good financial management in law firms a cultural issue and informed by the organisation’s structure?
John Raimbach, finance director, Goodman Derrick: Blaming ‘cultural issues’ for good or bad financial management is a cop-out. Law firms are businesses, much like any other business, and firms should be run that way. Our partners are entrepreneurial people and an honest approach with clients comes naturally to them. So long as a client has agreed a fair fee upfront, enjoyed good service and been kept up to date as work progresses, they will pay in reasonable time.
There might be something about structure. We have a relatively high proportion of partners, which means they have time to immerse themselves in their clients’ affairs. It follows that clients are well informed as work progresses and don’t get nasty surprises at the end. That’s not always the case when there’s a lot of delegation going on.
Brian Dunlop, chief financial officer, Ashurst: On the basis that ‘what gets measured gets managed’, firms that focus on financial management tend to achieve better results. It is important, however, that the focus on financial management runs throughout the firm. Much better results will be achieved if partners are driving for better financial management, rather than just the finance team.
Neil Sherlock, chief financial officer, Walkers: Culture is key. Law firms with good cashflow and strong balance sheets will have a senior management team committed to improving the financial management function. Such organisations will dedicate significant budget to improving the financial management process, spend money establishing independent credit control functions and put in place best practice collection systems.
Most importantly, they will ensure each fee-earner is kept informed of their performance metrics and set targets and budgets accordingly.
Such firms will also remunerate and reward, to a greater or lesser extent, fee-earners based on financial management performance.
Alex Hodgson, finance director, DWF: Culture and organisational structure are key when it comes to good financial management, but the systems and processes that underpin these are important too. Culture influences, shapes and dictates a person’s behaviour, and it comes down to what is seen as acceptable and what is not.
If there is a culture whereby it’s acceptable to have a long lock-up and write off work-in-progress (WIP) things are unlikely to change, but if the culture encourages a bill to be raised as soon as possible, it’s more difficult to go against the norm. You can have the best systems and processes in the world, but if the culture doesn’t shape a person’s behaviour to use those systems effectively, financial management becomes more difficult.
We have a centralised finance team and this makes a big difference. We’ve been able to take much of the administrative burden away from partners, fee-earners and secretaries, enabling us to make a cultural shift in terms of delivering operational efficiencies. This has allowed us to provide a more proactive service to partners, pushing bills as client terms determine they are due, rather than waiting for a pull from fee-earners.
Is the healthier economy making it easier to keep lock-up to a minimum?
Hodgson: Firms cannot rely on a healthy economy to keep lock-up to a minimum. Staying close to your clients and delivering a high-quality, cost-effective service is key to smoothing your billing. If your client is in any doubt about the quality and value of your service your bill will sit under a pile on their desk, and if they are looking to extend payment terms, your bill becomes an easy target.
Effective financial management is important in keeping WIP and debtor days to a minimum, but cannot be seen in isolation from overall client service.
Raimbach: It must be. In difficult economic times if one has a choice between buying a stock of widgets to keep the factory running or paying the lawyer’s bill, but not both, I’d pay the former. We’re in the relatively happy position of dealing with clients that are well-run, and have managed themselves around the worst of all this.
Sherlock: Yes and no. While the improvement in the economy has translated to some extent into higher business volumes, the lean years have put more pressure on pricing, which has fed into clients being more demanding when it comes to understanding (and ultimately paying) their bills. This can lead to
delays in payments from clients as lawyers engage with them to resolve billing issues or discrepancies.
A lot of firms – US firms, in particular – have moved to e-billing systems. Systems such as TyMetrix, Serengeti, LegalPrecision, CounselLink and Eliot are becoming more common. Such systems can be complex and costly to set up, and frequently we find that bills are rejected by the client on some minor technicality in the e-billing system. This can waste time and ultimately increase lock-up periods.
What impact is the focus on legal process and process-mapping having on lock-up?
Hodgson: The areas where legal process and process-mapping are prevalent show greater rigour in timing of invoices, as these are triggered as part of the mapped processes and handled centrally. They also tend to lead to swifter payment by clients as there are no unexpected surprises, particularly where cases are being handled on a fixed-fee basis, so the focus on process benefits both client and firm.
Sherlock: Relatively small in real terms. While more focus by clients on the constituent parts of an engagement can help with faster conversion from WIP to accounts receivable by use of automated systems and standard billing narratives, the vast majority of the conversion time is getting the bills paid when issued.
Raimbach: I had to Google what this even means. For us, no impact – we prefer to talk with our clients.
To what extent is automation in finance departments, and technology more generally, helping with financial management, and in which areas?
Hodgson: Automation is really important when it comes to driving efficiencies in financial management. We’ve tried to automate activities that are more process-driven and don’t need specialist knowledge to run effectively. Automating our finance function has been a key part of that.
For example, we’ve been introducing software to speed up the generation of management information to help with budgeting and forecasting; a new credit collection system to increase the visibility of outstanding debts; and e-billing to simplify invoice processing for clients and facilitate automated cheque requests and expenses.
Dunlop: Finance systems that deliver the information partners need to manage their matters and their clients, in a user-friendly format to desktops and mobile devices, are helping to improve financial management. Arming partners with close to real-time information on WIP, debtors and profitability allows them to make more informed decisions.
Raimbach: I’m not so sure about automation; as with the last question, our partners are pretty hands-on. While we have an effective automated credit control function covering the basics, there is no substitute for the partner calling their client when they need to. They might even organise a lunch at the same time.
But technology does help. All our lawyers have real-time access to the accounting data and can see at a glance how much time is accumulating on their jobs and if a bill has been overlooked, who else in the firm is supporting that client on other matters and to what extent we have helped that client previously. It enables partners to have comprehensive discussions with clients.
Sherlock: Automated and paperless billing systems are now offered by most of the big practice management providers. Mobile and ‘on the go’ technology is likely to be a game-changer for the profession. All our lawyers can now create and approve bills whilst travelling, using their iPads or other mobile devices. Airport stopovers, plane journeys and traffic jams become productive time periods.
What tips can you offer partners who are struggling to get their clients to pay bills?
Sherlock: Spend time with the client at the beginning of the engagement to agree on payment terms. It will make it much easier to get paid when the matter is complete.
Issue the bill as quickly as possible when the matter reaches completion, and ensure you follow up with the client if the bill is outstanding at the 30-day stage. Involve credit control if the bill remains outstanding over 60 or 90 days. If you don’t have an independent and centralised credit control function, consider setting one up. Such functions generally pay for themselves rapidly.
It’s best to address fee disputes head-on and provide as much information on a timely basis as possible. In extreme circumstances offer discounts as an incentive to get their bills paid. For problematic and non-sensitive clients use an external credit control agency to chase the debt.
Hodgson: From the outset of any relationship ensure you work closely with your client and your finance team to agree service levels and engagement terms that suit you both, deliver a high-quality service and no last-minute surprises on costs and they won’t object to paying.
Raimbach: First, pick up the phone as emails are impersonal, open to misunderstanding and can get overlooked. Second, do it now as these things never get any better for being left and generally just fester. Finally, be honest – there’s no point in playing hide-the-ball.