Law firms get paid late, too

Law firms do not get paid for up to 14% of all the hours they bill to their clients, according to Clio’s 2019 Legal Trends Report.

According to the report, this could mean that clients are just not able to afford their legal bills, or that law firms do not do a good job of following up on their invoices.

As we approach the end of the year, when most companies are facing a collections crunch, another report is painting a picture of difficult collections. According to Citi Private Bank’s Law Firm Group and Wells Fargo Legal Specialty Group, the inventories of unpaid bills at law firms in the United States have grown by 6.7% and 9%, respectively, compared with last year, in the first nine months of 2019.

One factor in the high inventory rate and the lengthening collection cycle is the time it takes clients to pay their bills. Spokespersons from Citi and Wells Fargo both said clients are taking longer to pay bills, with a 30-day payment cycle stretching out to 45 or 60 days.

The problem could also lie with the law firms – according to the report they tend to be tardy in invoicing their clients. Citi found that across the US, the amount of time that has elapsed between law firms first recording their billable hours to getting paid has increased by 1.5%.

And law firms say they can only do so much because the law is a relationship-heavy business. Jay Benegal, Senior Vice President of Citizens Commercial Banking, said it is difficult for partners to chase for payments because they do not want to spoil the relationship with their clients. In the end, they tread carefully around the collections process, “to the point where partners don’t want to engage clients on the collections effort,” Benegal was quoted by The American Lawyer as saying.

Benegal does not believe clients are paying later due to their fear of a coming recession. He thinks it is because their business cycles have slowed down, which in turn leads to them paying their vendors, which includes their legal counsels, later.