In my many travels as a credit risk management consultant, I’d like to share an interesting collection situation that came across my desk.
Several months ago, I was contacted by an Intellectual Property law firm which has been in business for several decades. Their legal team is comprised of many attorneys who also have degrees in a wide range of engineering and biomedical sciences. I was contracted to give perspective to an existing credit, collection, and cash flow situation.
For the record, Intellectual property (IP) refers to creations that are legally protected. These creations can be inventions, literary and artistic works, designs, symbols, names, and images used in commerce.
The law firm has clients that range from small inventors and innovators to authors and artists, to large multinational corporations that include pharmaceutical, technology, manufacturing, and entertainment companies. Some of their larger clients use more than one IP firm to handle their ongoing IP needs, and so my client is always concerned that a competing law firm may be getting more business, or even attempting to take all the business from one of their clients.
My client employs one of the most conscientious and hardworking credit and collection managers I have ever met. In addition to her deep and extensive credit risk management knowledge, she has a unique ability to navigate the complex human relations that often accompany interacting with sensitive and creative types.
One of the most challenging parts of her position however is trying to collect past due invoices. Under normal circumstances, a credit and collection manager might make several calls in a day and very politely request payment. If payment continues to be delayed, the credit manager would impress upon the customer/client the urgency in fulfilling their payment obligation. Eventually, as the past due account reaches a delinquency threshold, services would cease and the next steps, such as using a third-party collection provider, would be considered.
However, in my IP law firm client’s case, the credit and collection manager has been instructed to call their client only once. If the client pays with that one call, wonderful. If they don’t pay, then the account is passed to the partner in charge for them to follow-up as needed. The long-standing thinking is that the partner is better apt to deal with a client’s payment situation.
With about 75 partners at this firm, the credit manager finds herself in the position of managing the collection efforts of the partners. If she gives a past due account to the partner, she sends a reminder after about one week as a follow-up to see if they were able to speak with the client. Unfortunately, the reality is that the partners are so busy with day-to-day IP client issues that they neither have the time nor volition to call on past due accounts.
In addition, even when a partner can find the time to make a call to a client, it doesn’t always mean that they have the collection skills to push for payment, resolve disputes, or effectively grapple with other problems impeding payment.
As a result, the firm is constantly having a terrible cash flow problem, with a DSO at 105 days. It’s not unusual for law firms and other professional firms to have a DSO at around 60 days, but 105 days is way over the top. Moreover, the firm ends up writing off many invoices or giving significant credits when they don’t have to.
After getting the lay of the land with this firm’s collection situation, I spent some time with the credit manager and listened to her telephone collection voice and style. She was not only smooth and polite in her delivery, but also easily established a wonderful rapport with each client.
Subsequently, I proposed to the law firm executives they let the credit manager manage the entire collection function for the next three months and evaluate the results. After the test period was over, it was no surprise that she managed to collect a huge number of past due accounts and practically overnight, brought the law firm into a stable cash-flow position.
What’s the moral of this story? When you hire smart and capable people, let those people do their job fully so that they can effectively contribute to the success of the organization.
Your comments are most welcome.
Nancy Seiverd, President
CMI Credit Mediators, Inc.
All Rights Reserved
Image by freepik.com
