Thursday, July 14, 2005

Clients & Cash Flow

When it comes to revenue & cash flow, most law firms follow what is known as the "80/20 rule": 80% of your revenue should come from 20% of your clients. Put another way, 80% of your clients are either paying you peanuts or just not paying their bills on time/at all.

It's a dirty, but not so little secret among small and solo practitioners that deadbeat clients are a growing problem and one that is a direct reflection of how the public perceives lawyers and the value of their services. A small firm can implement all the ambitious marketing and business development plans it wants to cultivate a client base that soars into orbit. However, it will still be bankrupt inside of six months unless the partners can effectively collect on fees and expenses.

Steven Chambers is an attorney in Utah that works for Zion Bank in Salt Lake City. In March 2001, he wrote an article for the Utah Bar Journal that was intended to serve as a financial primer for solo and small practitioners. In it he addresses the 80/20 rule, its application and how law firms can become more actively engaged in billing and collections by learning more about their clients. Some of the sage advice that Chambers shared was:

"Find unprofitable clients and get rid of them! Obviously, ethical considerations may prevent you from simply sending them a letter telling them you will no longer represent them, but as soon as the matter you've been retained to handle is completed, urge them to go elsewhere for their future needs. Not all of the 80% will be deadbeats. One of the tricks you must master is how to determine which of those 80% can be moved into the 20% category (and, similarly, which of the 20% might slip into the other group). Watch for signs of trouble, such as bills not being paid for longer periods of time. And, watch for signs of growth. Are they growing, stagnating or shrinking their business? Get to know your clients' business. Not only will you be able to see potential trouble or potential opportunities in time to do something about them, you will also build a relationship with your clients that can serve as the foundation for much more business in the future."

How well does your firm handle billing, collections and deadbeat clients?

Does your firm follow the 80/20 rule?

Have you ever worked for a firm that accrued fees, but failed to collect on them? What was the reason behind the failure? What would you have done to correct it?


Blogger efox00 said...

Here in the public sector we generally apply the 100% strategy by collecting taxes in some fashion from most people. However, I can offer a citation (70 A.L.R.4th 827) to a report on retaining client's property through a lien. Enjoy!

Blogger Unknown Attorney said...

Thanks efox00.

Anonymous Anonymous said...

Taxation is illegal! The 16th Amendment was never properly ratified!


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