Archive for January, 2012

How Are Your Receivables?

Friday, January 27th, 2012

In Chinese Astrology, 2011 was the year of the Rabbit.  In my practice, 2011 was the year of the non-payer.  In the 17 years since I first became a lawyer, I have never had to bring more than one motion to be “removed from the record” (that is, approved by the Court to be excused from further acting for a client) in a year – and many years I have not had to bring a motion at all.  Yet, this past year I have had to bring several.  Was I busy last year?  Yes, extremely – and that has continued on to this year as well.  Did all of my clients pay?  Therein lies the rub, because the answer is “no”. 

I have said in the past that the key to good collections is to get deposits or retainers up front and to never extend credit too far.  This is especially true in service industries like law, accounting, consulting, etc.  With that practice, it is still not uncommon, though, to experience a 1 or 2% bad debt level.  But even in 2008 and 2009 I did not experience problems like I did in 2011.  The final numbers aren’t in yet (because it’s too early to talk about collections on December bills for example), but it’s looking like I will have ended the year being stiffed to the tune of about 10% of my invoices.  Thankfully, it’s not all on one or two files, so we’re still talking relatively small numbers.  The problem, though, is that a bunch of small numbers can still easily add up to the equivalent of one large number.

The storm clouds are on the horizon in terms of the economic forecasts for 2012.  I’m not sure that they ever really left the horizon but the issue becomes whether it’s better to keep a tighter rein on your customers’ receivables or to chase after them later to sue for a larger amount.  Alternatively, it might be time to start looking at your contracts with your customers – especially if you are a service-provider.  I have a couple of versions of retainer agreements.  When the economy gets really bad, I have a version that says that if my invoices go unpaid for 2 months or more, then I am fully entitled to stop working and that the client will consent to any motion I bring to get off the record so that I can get out of a bad situation as quickly as possible (although I then have professional responsibilities which always will temper that ability).  What does your contract say?

Something to think about.