It’s time to talk about every attorney’s favorite part of the workday: analyzing in-depth financial reports to optimize collection practices!
Okay, fine. Maybe the thought of picking through your law firm’s financial reporting and collections data doesn’t make you feel all warm and fuzzy inside. But you know what does feel good?
Getting paid in full and on time.
And whether you’re a solo practitioner, a mid-sized firm, or a larger practice, there’s probably still plenty of room for improvement.
After falling to startling lows in the wake of the 2008 recession, law firm collections have been rebounding over the last few years—in 2021, law firms enjoyed the highest average realization rates they’d seen since 2009.
But that doesn’t mean it’s time to get complacent. The average practice still fails to collect on about 10% of their billable hours, and collection rates are still well below the levels we all took for granted before the recession.
Thankfully, getting a grasp on collections is easier than it might seem (and no, you don’t need to spend several hours manually sorting through reports). With the right practice management platform at your fingertips, you can generate actionable insights into your law firm’s collections and billing practices with just a few clicks.
A better understanding of your firm’s billing and collections allows you to:
- Benchmark your firm’s current collections
- Identify common collections and billing issues
- Implement better practices for the future
Most importantly, it helps you realize the profits your attorneys have already worked for—which really should be one of the highlights of your day.
Three key metrics for more efficient collections
Sure, you may be thinking, I’d love for our firm to waste fewer hours and bring in more profits—who wouldn’t?
But how do we find the time for that? And where would we even start?
These are both valid questions with straightforward answers. At the end of the day, it all comes down to:
1) Finding the right software tools
2) Keeping tabs on a few key metrics
3) Applying what you find to streamline collections
Here are three key metrics your firm should be tracking from month to month, as well as the software features you’ll need to track them without wasting hours each week.
Allocation: Who’s collecting what? (And when? And from whom?)
To understand what’s going on with your collections, you need to have a sense of which attorneys and clients are driving your payments.
A practice management software that includes allocation reports can allow you to quickly assess how much revenue each of your attorneys brings in and which clients they’re collecting this revenue from.
You may also discover that some of your attorneys are lagging behind on collections. That could mean that:
- They aren’t spending enough of their time on billable hours, OR
- They haven’t been tracking their hours completely
Either way, having an idea of who brings in what can help your firm foster a culture of accountability and implement rewards for especially productive attorneys.
Understand where your money is through collections
When you examine your collections, you may also find that some of your clients pay their bills consistently—and that others are just as consistently late (or not paying at all). This data delivers key insights into your financials, such as:
- Who are the clients you can always depend on to bring your firm revenue?
- Do you have clients who should be reliable sources but haven’t been paying their bills?
- If so, what can you do to give them a nudge without losing their loyalty?
Billing realization: Making sure you’re actually billing for hours
You won’t be able to collect on all the billable work you do unless you’re actually capturing those hours—and invoicing for them.
And while this may seem like a no-brainer, inefficient time-capture and billing practices can have a serious impact on your law firm’s revenue. As a start, look for legal time tracking software that helps your attorneys capture their billable hours down to the minute (easier time capture = more hours billed = more of that hard-earned $$).
The right practice management software will even offer integrations with other common workplace tools like Office 365, so you can track your time directly from Microsoft Word, your email account, or even your phone while working on the go.
Once you’ve streamlined your law firm’s time-tracking, you can also work on maximizing your billing realization rate—the percentage of time worked that actually got billed to a client. (Here’s a hint: it should be pretty close to 100%.)
A practice management software with advanced reporting capabilities allows you to spot the “lost” hours you worked but never billed for. Knowing how many hours you’ve billed vs. how many hours you captured helps you spot red flags in your invoicing process and quickly resolve them.
Collections realization: And now for the part you’ve all been waiting for!
So far, you’ve taken stock of how your firm brings in its money, streamlined time-tracking and billing, and (hopefully) left all those hours-that-should-have-been-billed-for-but-weren’t in the past.
Now it’s time to take the final step: boosting your collections for invoiced work.
That means analyzing your collections realization rate, which isn’t nearly as daunting or as complex as it sounds. Your collections realization rate is just the percentage of revenue you collect vs. the total revenue you worked, tracked, and billed for.
Tracking these numbers manually by combing through files and spreadsheets is a pain, but the analytics tools included in a legal practice management software can effortlessly generate detailed collections reports.
If you find that your firm’s collections rate is under 90% (or really, anywhere under a perfect 100%), it might be time to run some more in-depth analytics and think about your firm’s collection strategy.
You might find that you haven’t been sending invoices in a timely manner—or that some of your clients simply aren’t great at paying their bills and might need several follow-up reminders in the future. Either way, these problems can be solved. All it takes is a lot of data, some powerful software tools, and a little bit of strategy.
Looking to boost collections? Rocket Matter can help you work smarter, not harder
Rocket Matter’s legal practice management software offers your attorneys the tools they need to bring in more revenue.
With a wide range of law firm billing, time tracking, and reporting tools at your disposal, your practice can capture more hours, bill more consistently, and gain deep insight into the bottlenecks holding back your collections.
To see how we can help your law firm start collecting more revenue, try our free demo today!