Business Partners often focus on doing ‘the work’ so much that they take their eye off the lifeblood of their business- Cash Flow. Cash flow forms the backbone of the financial condition of every law firm. Without cash flow, the firm struggles to pay its debts and pay you – the owner. Managing cash flow and driving cash flow improvement is just as vital to a law firm as a clear revenue strategy. You cannot afford to ignore cash flow management.

Lately, due to the emerging COVID 19 situation, law firms need to figure out a way to survive and stay in business. If you are trying to figure out a way to manage your law practice in a more suitable way or if you are wondering why you don’t have more cash in your checking account or are using your business line of credit too often then follow these 5 key strategies to get through your cash flow slump.

1) Accelerate Your Collections

It comes down to getting your customers to pay on time or early, and knowing when a client isn’t worth the stress and hassle. Here are several ways to improve AR collections at your company.

• Invoice Quickly– The best time to send out an invoice to a client is as soon as you finish your project.
• Break Up Your Invoices – Another way to get clients to pay quickly is to divide up your invoices. Instead of waiting until the end of a project to bill a customer, send a series of invoices, every month or every week.
• Send Clear, Easy-to-Understand Invoices
• Simplify the Payment Process– The easier it is for customers to pay you, the quicker they will do it.
• Establish Good Relationships with Your Clients
• Send Payment Reminders– If a payment due date is approaching and you haven’t heard from a client about the invoice, it’s a good idea to send a reminder notice.
• Incentivize Early Payments– one of the more useful accounts receivable management techniques is to give your clients a reason to pay their invoices early. You might offer a small discount to clients if they pay their invoice within 10 or 15 days of receipt, for example.

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2) Collect Payment Upfront

A cash flow slump really is a result of not collecting a retainer upfront. Think about it like this – not collecting upfront or when payment is due is like extending a line of credit to your customers. You aren’t a credit card company, so don’t act like one. It is important to remember that once a client has the completed work that they have commissioned, there is no longer any incentive for the client to pay in a timely manner. Clients lose interest in contracts, find cheaper labor, or get busy with other business or life matters. This is why it is essential to ask for upfront payments especially when the business is going through a cash slump. It will save you from potential conflicts and delays in income.

3) Negotiate and Communicate with Your Vendors

You won’t be negotiating from a position of strength, but you may be able to negotiate for payments to be smaller or later. Be completely honest and show how reducing payments now may allow you to survive a short-term cash flow problem and increase the chances for full payment in the future.

It is important to keep communicating with your vendors. If you’ve missed payments, it’s clear to you and the lender that there is a problem. The lender wants to work with you to find a solution to get paid, and that’s usually by working with you rather than working against you. Stopping communication leaves them with no option but to assume the worse and begin legal collection and foreclosure procedures

4) Eliminate Unnecessary Spending

If your law firm is going through a cash slump, then it is essential that you eliminate unnecessary expenditures that do not necessarily yield a return on your investment and produce new clients.

Check out these potential spots to save money in your business:

• Out-of-town Conferences– Travel is expensive. So temporarily you can do less of it by investing in web conference software that allows you to have face-to-face conversations from anywhere around the world.
• Printing Costs– The cost of paper, ink, mailing supplies, and postage may seem minimal at times, but it can add up to a large business expense. So eliminate as much paper as possible to streamline operations and cut costs.
• Staff– Outsource work to freelancers for specialized tasks and smaller roles instead of taking on a full-time employee.
• Technology– Avoid using energy-wasting technology and switch to green energy. It is not only good for the environment but also good for the wallet.
• Equipment– Buying brand new retail-priced equipment is a big business cost. You can reduce the expense by buying refurbished furniture and equipment that is often as good as the brand new variety but offered by manufacturers at a discounted price.

5) Leave No Stone Unturned

All cases fall in a hierarchy of case values. As you grow your firm, you often stop taking certain types of cases for a variety of reasons. When your cash flow stalls, you may need to revisit these decisions if they are cash-flow friendly. Don’t let your ego get in the way. This is temporary.

Further, you may even reduce your price to close certain important deals. Remember that this is not the right time to have a rigid fee structure and payment plan. You can always raise your fees in future consultations when you are in a position to negotiate but for now, being more flexible to attract clients would be the way to go. This takes a fine touch to figure out in a consultation if you need to drop your fees to get them to sign. But it works.

Conclusion

It comes down to setting the rules. Wherever you are in your practice, however bad your cash flow may seem, right now you can start fixing it by following the above-mentioned strategies. Many of these smart decisions will become second nature and eventually work their way into all of your business decisions. It may seem like this cash flow slump will last forever and you are being told to sacrifice a lot to keep your law firm afloat but a little short term discomfort will pay off for years to come.