Late and unpaid invoices are an accounts receivable nightmare for any business. But in the legal services arena, researchers estimate that up to 14 percent of all hours billed to clients are never paid, according to Clio's 2019 Legal Trends Report.
The industry is no stranger to collections headaches, and according to Clio, an outstanding invoice racking up longer DSO (days sales outstanding) timeframes cannot always blame a client's lack of sufficient funds to pay the bill. Often, a law firm's own behavior in chasing unpaid bills, or strategies in payment acceptance, can hamper invoice payment success.
Another survey from LexisNexis, which questioned more than 300 law firms about their AR practices, found that attorneys and other professionals in the sector struggle with the awkward task of following up on unpaid bills, even though about half of survey respondents say as much as 39 percent of their firm's client base is late on their payments.
And pointing to separate data from Legal Trends, Clio said 50 percent of legal services clients say they are more likely to hire a lawyer if they accept electronic payments — and 40 percent say they wouldn't hire a lawyer who didn't accept credit or debit cards. Further, researchers found, 85 percent of invoices that allow for electronic payment acceptance are paid within a week — and most than half are paid same-day.
But as Vince Arnoldi, president of ClientPay, a payment service provider for the professional and legal services industries, told PYMNTS in a recent interview, though card acceptance is critical to accelerating accounts receivable in this sector, it's not the only factor that the legal services market needs to improve upon in order to ensure more reliable cash flow.
The Power of Data
"We are seeing more and more payments transition from check or wire to card," Arnoldi told PYMNTS. "This is a trend that will continue into the future. Although some firms are reluctant to take on the interchange fees associated with card acceptance, they understand that the reduction in write-offs due to acceptance of cards outpaces the fees associated."
He added that data is at the heart of promoting card acceptance in the law arena, particularly when it comes to the ability of Level 3 data collection to lower interchange fees for law firms. Advancement in corporate card technology is also opening doors to cards, both consumer and commercial, gaining traction in this space and promoting faster invoice payments.
Data plays a larger role in ensuring legal service providers see their invoices settled, beyond lowering interchange costs and promoting card acceptance, however.
"There are numerous reports that [legal services] firms need to ensure accuracy of payment allocation back to the system of record," he explained, pointing to ClientPay's own reporting module that enables automatic data collection, analysis and automation. In short, law firms must be able to understand where they are in order to know where they're going. "The more real-time information our firms have, the more purposeful they can be in executing their collections processes, which are critical to revenue retention and profit optimization," he added, noting, "More data allows for better decision-making."
Of course, it's one thing to have data — it's entirely another to be able to share it, collect it and integrate it across platforms.
ClientPay recently announced several enhancements to its API connectivity capabilities with a focus on elevated analysis and reporting on payments and accounts receivable for its legal services customers, with the updates supporting the ability for firms to report on recurring payment collections.
Collaborating with partners enables the platform to integrate directly with their data, enabling, for example, a legal services firm to automatically collect payment based on stored payment methods, without compromising security. Further, said Arnoldi, API connectivities "reduce the scope of PCI for our customers and offloads the capturing, transmitting, and storage of cardholder data for our partners."
Shifting Payment Habits
With consumer and corporate customers continuing to demand electronic payment acceptance from their legal service providers, the accounts receivable landscape in this market faces greater pressure to digitize, automate and adhere to the wide range of payment habits.
On the client end, this of course means the move from ACH and wire to card payments. But on the accounts receivable side, businesses in this industry are also changing their receivables tactics beyond accepting cards.
Flexibility, said Arnoldi, is increasingly important in this space, with accounts receivable technology now able to support the creation of unique payment schedules with custom terms. Further, service providers of all sizes are beginning to look at technology and emerging payment tools as opportunities to promote revenue and mitigate the risk of non-payment.
"Professional service firms all share the same goal — provide an exceptional service to their clients and create efficient and effective processes for the collection of revenue," he said. "Although mid-[sized] to large firms continue to use standard banking for receipt of funds via electronic payments, we are seeing smaller firms push for more emergent methods."