What is the best way to manage accounts receivable for a law firm?
Law firm accounts receivable problems usually start before the invoice goes out. The most effective AR management begins with clear expectations set in the engagement letter, including payment terms, billing frequency, and what happens when invoices go unpaid.
Bill frequently. Monthly billing is the minimum for hourly matters. If you’re waiting until a case closes to send a bill, you’re asking for collection problems. Clients are more likely to pay smaller amounts promptly than large amounts after the fact. For matters with significant activity, consider billing every two weeks.
Make payment easy. Accept credit cards and offer an online payment portal through your practice management software. Yes, you’ll pay processing fees, but getting paid faster is worth more than saving 3% on a receivable that turns into a write-off. Clients expect modern payment options. Friction in the payment process gives them excuses to delay.
Use your practice management software properly. If you’re on Clio, make sure it’s integrated with your accounting system. Time entries should flow into invoices without manual re-entry. Invoices should generate aging reports that tell you exactly who owes what and for how long. Without this integration, receivables slip through the cracks because nobody is tracking them systematically. An LA County bookkeeper for small business who understands law firm finances can help you set up this integration correctly from the start.
Follow up on overdue invoices with a defined process. A polite reminder at 15 days, a phone call at 30 days, a more direct letter at 60 days. Document everything. Most clients aren’t trying to avoid payment. They just need a nudge. The ones who are avoiding payment won’t respond to vague follow-ups.
Track what’s in trust versus what’s been billed. Law firm accounting gets complicated when you’re drawing down retainers, billing additional work, and managing multiple client matters. Your accounting needs to show clearly what trust funds apply to which invoices. Trust accounting and receivables management are closely connected. When trust accounting is messy, receivables reporting is unreliable.
Require retainer replenishment. Your engagement letter should specify that work stops when the retainer falls below a certain threshold until the client replenishes. This protects you from running up receivables on clients who won’t pay. Enforcing this policy is uncomfortable but necessary.
Review your aging report weekly, not monthly. Receivables that age past 90 days have significantly lower collection rates. The sooner you address an overdue invoice, the better your chances of getting paid. A weekly review takes fifteen minutes and can save you thousands in write-offs.
The attorneys who struggle most with collections are the ones who treat AR as an administrative afterthought. Systems matter. Bill promptly, track everything, make it easy to pay, and follow up before receivables get stale.
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