All banks and businesses have to manage their cash flow effectively and need to stay up-to-date with the best cash management practices. Law firms are no different. Cash flow management is an essential aspect that lawyers need to consider to run their law firms.
We face uncertain and challenging times because of the COVID-19 pandemic. Many businesses and law firms tend to experience cash flow problems. It is vital to ensure a healthy cash flow in and out of the company or firm to survive and thrive in the market. In this article, we will discuss how law firms can ensure a healthy cash flow and also find ways to improve it.
How Law Firms Can Improve Their Cash Flow
Proper financial planning
It is crucial for law firms to set proper and realistic financial goals. These goals must be developed after careful consideration. A good budget goes a long way in ensuring the future of the firm is secure as many bills and employees have to be paid promptly.
Invoices
When it comes to the clients, law firms can use billing software to set themselves reminders for managing the payments and their due dates. It helps to track the billable hours and ensure healthy invoicing.
It is also important to rush with paying the many bills. You need to have a smart approach to paying them off. Always make sure that you pay for your bills at the very end of their due dates. The idea is that you need to retain the money with yourself as long as you possibly can. This is especially important for the uncertain times that we now find ourselves in. However, if you find that paying off the bills and invoices early on will benefit you by way of, say, discounts, then you should go for it.
Use Key Performance Indicators (KPIs)
You can consider using key performance indicators for your cash flow. With KPIs, you can get a better understanding and deeper insight into the workings of your law firm, and you will be able to ensure a much healthier cash flow. Auditing your current cash flow is important.
Negotiation
Make sure that you are on good terms with your creditors. As lawyers are already quite skilled in negotiation, it will not be any trouble to negotiate one’s way around asking for an extension of the date of payment of the loan. It is important to ask for better and more suitable payment options and get lower interest rates. It is also vital to always go for favorable loans with good terms and, more importantly, no one’s repayment capacity.
Negotiation can also be conducted with the many service providers who provide telephone and internet services to the law firm. Efforts must be made to get good service rates from these providers and get the best options from them as well.
Accounting
Legal accounting can be quite a daunting task. It certainly requires a professional who knows how to handle it with great care and attention. Hence, law firms should consider hiring professional services to meet their accounting,
Healthy accounting will ensure that the bills and debts are cleared in a timely fashion. It will also ensure a healthy balance sheet. Financial reports prepared by accountants can be instrumental in the decision-making processes of the firm.
Funds
The Government is now offering many funds and program benefits for businesses and firms that have experienced a huge setback and suffered losses in the COVID-19 pandemic. Make sure to check whether your law firm meets the criteria and are available for receiving these funds and benefits.
Technology
Financial technology, also simply known as “Fintech”, has been a huge boon to banks and companies when it comes to cash optimization and security. Fintech service providers offer the best technology and smart solutions that can boost your firm’s productivity and ensure a healthy cash flow. It is a lifesaver.
There are many innumerable options out there in the market when it comes to fintech. Be sure to discuss with a fintech service provider, and they will be able to offer packaged solutions or even tailored solutions that can meet your needs effectively. You will be able to manage your cash much better, become aware of your areas of improvement and easily cope with events of cash scarcity which can otherwise be quite stressful.
Payment options
Law firms should now more than ever provide their clients with many payment options. This convenience will make for a better client experience and save you from the trouble of delayed payments. It will be a huge sigh of relief as you won’t have to deal with as many overdue client invoices.
In Conclusion
There is no doubt that a healthy cash flow is an absolute necessity to maintain the position of a law firm and ensure that there are no liquidity problems. Hence, it is important for law firms to make proper cash forecasting and ensure effective cash management.
