3 More Keys to “Recession-Proof “ Your Law Practice

3. Tap Your Line of Credit...Before the Bank Cancels It.

With the current credit crunch and the reluctance of banks to lend money, many small businesses are finding it harder to obtain a line of credit. I have heard of law firms who have had their business lines of credit cancelled or their credit card lines reduced to nothing, for no reason and with no warning. Unless you have 6 months of cash in the bank, consider drawing down on your line of credit and placing it into a savings account. This can be good insurance just in case the bottom really falls out.

If you don't have a business line of credit, obtain one ASAP, if you still can. I urge all of my clients to have at least $100,000 to $250,000 available in lines of credit (preferably with two different banks). I have heard anecdotally that smaller community banks and federal credit unions are currently more open to extending credit than the large, international banks. Remember the old saying, the only time when banks refuse to lend you money is when you really need it. Obtain one before you really need it.

4. Immediately Start Working on Reducing Your Accounts Receivables.

I could tell he was embarrassed. He just finished showing me his accounts receivables-they were the better part of three quarters of a million dollars and they accounted for over half a year's gross revenues. Staggering numbers for a small law firm, but not as uncommon as you would think. In our work with clients, we regularly come across law firms with $50,000, $100,000 or more in accounts receivables.

If you suspect your receivables are out of control, here are some proven strategies for getting back on the right track.

Document, document, document - Talk with your bookkeeper to be sure you have an accurate statement of every overdue account
Call your client, personally - Give people the benefit of the doubt, but be clear in your expectations.
Give incentives - Offer them a percentage off if they pay in full or pay within a certain time frame.
Set-up a payment plan - Offer to accept regular monthly payments by credit card.
Require a larger retainer - It will send the price shoppers and tire kickers scurrying for the door.
Require an evergreen retainer - Each month you deduct from the original retainer for services rendered and then require the client to bring the total back up to the original amount.
Be skeptical of any client who requires a payment plan for your $5,000 retainer - If they cannot afford to pay it in full now, how will they afford to pay your monthly bills?
Do not let a client's A/Rs get out of hand - If a client owes you more than $10,000 or is 30 days or more late on a payment, its time to have a direct conversation with them.
Decide ahead of time - Ask yourself if it's more important for you to keep the client or get paid? That way, if push comes to shove you know where to draw the line.
Help your business manager help you - Send your manager to a class on how to improve collections.
Use honey, then vinegar - Be nice at first for as long as you can. You can always take an aggressive stance later, but once you start using the hammer, you generally cannot go back.
Clearly communicate payment terms - Be clear with your clients when payment is expected.
Charge interest - Include interest rates in your fee agreement for non payment.
Take it to collections - consider using a collections agency or attorney sooner rather than later.