Law firms looking to weather the Covid-19 economic storm are throwing some cash-strapped clients a lifeline while trying to avoid steep discounts and pushing to ensure that bills go out on time.
“In limited circumstances, we’ve abated fees, agreed to deferred payments of certain amounts, and alternative fees to try and help some clients,” Rich Benenson, managing partner at Brownstein Hyatt Farber Schreck said. The firm has so far avoided “rogue discounting” on lawyers’ fees and rates, he said.
Firms have been forced by the pandemic to conduct their own cost-cutting measures, such as furloughs and reducing partner draws. But their worst-case predictions for delayed payments have in many cases failed to materialize. That has provided some unexpected relief, helping firms respond more positively to clients who are requesting help in the form of alternative fees.
Still, firm leaders say the ongoing crisis will likely force companies to tighten spending on legal services as the economic slowdown continues. Law firms in turn are honing their billing practices and leverage technology to speed up their side of the process.
“This has shown to firms the benefit of a more rigorous approach around how they bill and how they collect,” Gretta Rusanow, head of advisory services for the law firm group at Citi Private Bank, said of the current crisis.
Brownstein Hyatt began receiving floods of calls and emails from clients at the beginning of March, Benenson said. Those inquiries made clear that clients were likely to experience some distress and a cash crunch.
The firm began working with clients and tried to be more creative in ways that “positively impacted their cash flow,” Benenson said.
Brownstein Hyatt isn’t alone. A wide range of companies have been seeking to shore up cash as the coronavirus pandemic continues to stall the U.S. economy.
“Cash is important to clients in an uncertain economy,” said Kent Zimmermann, a law firm management consultant for the Zeughauser Group. As companies grow more concerned about their earnings, he said, edicts will go out to legal departments to spend less.
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Clients haven’t so far demanded the same steep discounts on billing rates as those forced during the Great Recession, said Toby Brown, chief practice management officer at Perkins Coie. Some clients have requested temporary rate relief, others have asked for one-time discounts on invoices, Brown said.
Some have also begun to more actively manage the type of work they are allowing firms to perform—sending it outside on only the highest priority matters. Brown said that could be the beginning of a more foundational change in how clients handle matters.
“We are seeing a wave of these Covid-related fee relief requests,” Brown said. “And after that starts to subside, the demand on our pricing team will not drop to a former level, it will stay there. This is awakening clients to the issue and the need to address it more proactively.”
Citibank has collected data about the changes in cash flow management since March, surveying law firms every two weeks on a broad range of Covid-19 related topics.
First quarter collections were strong for the industry, which gave law firms a good inventory heading into April, but one of the top concerns heading into the second quarter was the lengthening of collections cycles, said Rusanow.
Law firms initially projected an 11% lengthening in collections for the second quarter, Rusanow said. They later reduced that projection to an 8% lengthening in collection after seeing a 5% lengthening in April.
Even if billing cycles haven’t expanded as much as originally expected just yet, firms are still taking a more rigorous approach to their billings and collections in anticipation of further change.
They’re taking steps to issue bills sooner than later so that they’re at least at the front of the line for payment when clients’ finances improve, Rusanow said. That means ensuring that attorneys track their hours and update billing information in a timely manner.
“We as a firm as not going to be tolerant of simple things like late time submission,” Benenson said.
Brownstein Hyatt also switched over to an electronic delivery system, which it now uses for 95% of its invoices to increase efficiency, and encouraged clients to pay their bills via wire transfer. The firm has shortened its look sequence at accounts receivable and work in progress, a move designed to shorten the overall billing cycle.
“We really haven’t seen an erosion so far of our billing and collections speed,” Benenson said.
DLA Piper’s management team says it also thought ahead. The firm had been preparing for a recession for the last two years and, as the coronavirus’ economic impact became imminent, it accelerated the implementation of cash conversion tools, said chief operations officer Bob Bratt.
One analytical tool dug into production, another is provides a daily review of cash flow and client payment or non-payment. But the biggest improvement, according to Bratt, was the creation of a billing dashboard.
Launched earlier this year the dashboard gave billers and supervisors “a new level of visibility” into where bills are, he said.
“Data is absolutely what you need and should be managing from—in all aspects of the cycle through production, through billing, through collecting,” Bratt said.
-With assistance from Roy Strom