The Zen of Work: ACCOUNTS RECEIVABLE

With “Holly” on a mission to take control of her work situation – aiming to instil a feeling of Zen in her workspace – she has come to us seeking answers.

And we are happy to oblige Holly. As always.

Holly has made a promise to herself to get things well and truly up and running in the next coming months – determined to see her law firm soar in 2023.

In an effort to do just that, Holly has once again, started to focus her attention inward. Looking more closely at how her law firm is operating. Better still – how it should be operating.

And there is a lot to take in where the optimal operating of a law firm is concerned.

Take accounts receivable as an example.

As a single practitioner, Holly needs to understand the fundamental principles of business. This is true whether she is going to confidently run her own practice or when (confidently) advising her clients.

So, let’s chat about all things account receivable and put Holly’s mind at ease.

What is an account receivable?

Investopedia defines accounts receivable as follows –

“Accounts receivable (AR) are the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivable are listed on the balance sheet as a current asset. Any amount of money owed by customers for purchases made on credit is AR.”

And a law firm is not really any different.

For law firms, “accounts receivable” represents the value of work done for a client on a particular matter and for which payment has not yet been received.

In a way, and while no goods are purchased, lawyers and law firms provide credit to clients from the time they undertake the work, until the day payment for the work is received.

Accounts receivable will be made up of fees for work done as well as any reimbursable expenses and disbursements incurred on behalf of the client – such as Advocate fees and Sheriff costs.

The total value of accounts receivable represents an asset on the balance sheet of the law firm, which is why it becomes crucial for these accounts receivable – which are all well and good as “assets” on a balance sheet – to be converted into cash as soon as possible (De Rebus).

How to convert accounts receivable into cash?

Well, it seems obvious, doesn’t it?

Once a law firm has done the work (or completed a matter) the client must be informed of the cash equivalent (or value) of the work undertaken on their behalf. This is usually done by means of a request for settlement of an account.

And a “request for settlement of an account” is quite simply done through invoices (which Holly discussed in a previous blog).

It seems pretty straightforward enough but it’s worth setting out that when invoicing a client for work done (and in order to convert accounts receivable into cash in the law firms bank), all line items or transactions must be accurately and sufficiently narrated.

That’s just common sense.

A little bit of a “three bears” scenario – too little information and fees owed for work done becomes unclear and confusing. Simply stating “fees” (as an example) is meaningless to a client who would most likely have more questions than answers, resulting in them being far less inclined to pay money for something described as a “fee”. On the other hand, too much information and the law firm could risks exposing confidential information.

The “just right” scenario is to accurately and succinctly set out (for example) – “MS Teams consultation with client and advocate (45 minutes)”. Why you are billing a client for that fee becomes clear and settling the account becomes a simple administrative process.

Accounts receivable may sound quite a “technical” term on the face of it. But, as far as Holly can tell, it’s pretty straightforward with very little technicality, strain or stress involved.

To summarise – accounts receivable is an asset on the balance sheet of a company representing what is owed to them in the short term. Accounts receivable refers to the outstanding invoices that a company has or the money that clients owe to the company. The phrase refers to accounts that a business has the right to receive because it has delivered a product or service (Investopedia).

It’s worth noting that AJS is able to assist Holly with all her invoicing and accounts receivable needs. Especially since Holly is able to automate her invoices with AJS’ full-stack legal accounting and practice management software.

And that’s it. Simple right?

With that, Holly can tick off one more thing on her “to-do list” in optimising her practice.

There are many attorneys who have the software packages in place but are just not sure how to fully use them, what everything does and how they can optimise their practice to ensure that it is performing with accuracy and reliability.

But, with the help of AJS, your practice (regardless of its size) can (and will) succeed.

We will continue going through tips, answering your FAQ’s, and providing you with information that will better equip the everyday user of legal tech, like you and like Holly, to achieve a state of Work Zen.

It’s all easy. If you know how… Just ask us.