In The Corner Office, we ask Managing Partners at law firms across Central and Eastern Europe about their backgrounds, strategies, and responsibilities. Shifting our focus to the financial aspects of legal work, we asked: What percentage of your issued bills end up being overdue, what percentage end up never paid, and what is your firm’s/office’s standard methodology to handle both cases?
Kostadin Sirleshtov, Managing Partner, CMS Sofia: Indeed, there are several stages before the bill is paid. The first step is the WIP (work in progress) – it shows the hours on the clock as recorded by the fee earners. The WIP gets turned into bills (billing process) and during this process law firms incur the first losses, i.e., write-offs (the time that is actually lost/written off and never billed to clients). Naturally, every law firm is trying to minimize the write-offs, but nevertheless, they stand at about 5-15%.
Once the WIP is turned into bills, there are two scenarios: the bill gets paid within a reasonable period (i.e., 60 days) or it is not paid. There are also situations where the payment of the bill is significantly delayed, which affects the profitability and the results of the firm.
These days clients very often ask for the verification of the WIP before it is converted into bills and therefore, we experience a small percentage of bills that are not paid. These less-than-5% situations get escalated to the Client Relationship Partner for the client and addressed at the highest possible level.
We seldom litigate clients, but – especially with clients who are testing our nerves – this is a possibility. So, the standard methodology is: i) try to avoid situations where the bills are not paid; ii) escalate; iii) decide whether to sue the client; iv) sue and collect.
Nenad Cvjeticanin, Managing Partner, Cvjeticanin & Partners: The percentage of overdue bills can vary widely depending on the types of clients, and their billing practices. Our law firm generally has a low percentage of overdue invoices (around 14%). Essentially, we maintain proper billing and accounting procedures to minimize overdue bills.
The percentage of bills that end up never being paid also varies. While most clients intend to pay their bills promptly, some may face financial difficulties or dispute the charges. The percentage of invoices getting unpaid is also low, reaching 2.5% of gross income. In general, we aim to minimize the number of unpaid bills through clear communication, ethical billing practices, and effective collection strategies.
These procedures for handling overdue bills are i) reminder notices: sending polite reminder notices to clients with overdue bills, often in the form of letters or emails, to request payment and provide details of the outstanding balance, ii) phone calls: if reminders do not yield results, we may follow up with phone calls to discuss the overdue payment and address any issues or concerns the client may have, iii) negotiation: in some cases, we engage in negotiating payment plans or discounts for clients facing financial difficulties to facilitate the settlement of overdue bills.
Still, when bills remain unpaid, we may take additional steps, such as i) dispute resolution: in cases where the client disputes the charges, we may engage in mediation to resolve the issue, ii) debt collection: as a last resort, we may initiate legal action to collect outstanding debts. This is considered when internal efforts have been exhausted.
Istvan Szatmary, Managing Partner, Oppenheim: Oppenheim closely monitors the life-cycle of its invoices. The work begins even before the signing of an engagement letter: from publicly available sources we put together a kind of SWOT analysis of the future client relationship from all perspectives, including financials. The pre-engagement standard process includes not only considering the client’s ability to pay the invoices but also the projection of the expected sales revenues and the mapping of the potential invoicing periods.
Once we come to invoicing, our dedicated debt collection team takes over the management of the invoice and makes sure that we prevent situations where our receivables do not get paid. The team works along the lines of standard processes, however, we put much emphasis on individual treatment of the various situations. One of the fundamental principles of debt collection is the involvement of the Client Relationship Partner, who is in regular contact with the client anyway. Since the legal services industry is a trust-based business, we always listen to the words of the Partner in charge, particularly in a potentially sensitive situation like non-payment. By combining the standard processes and the individual approach we are quite successful in minimizing the amounts that become overdue or non-paid.
Mojmir Ostermann, Managing Partner, Ostermann & Partners: We are fortunate enough to experience almost no problems collecting on issued invoices. The core of our business is servicing long-term corporate clients, Croatian and international ones. We have had splendid cooperation with all of them – with some from the establishment of our or their business. We also work with international law firms and their clients. All in all, these are established and respected businesses that care about doing business the right way.
We do have some overdue invoices from time to time (around 30% of all invoices), but this is usually not a cause of great concern for us since these invoices end up being paid. Our gentle yet persistent accounting department is probably to be thanked for this. We don’t really mind waiting a bit, sometimes it’s a matter of a complex invoice approval procedure with the client company that is causing the delay, other times maybe something else, but it is never really too long before the invoices are actually paid.
Bernhard Hager, Managing Partner, Eversheds Sutherland Slovakia: The percentage of your issued bills that end up being overdue is 15.8%. In our firm, we always try to resolve the debt recovery process by mutual agreement with the client. There are very few situations when our invoices end up as a write-off in the accounting system. Percentage-wise, we are below 2%.
Our firm checks payments every day. The reporting of outstanding receivables is carried out by our billing department, which sends to the project managers at the beginning of each month an updated list of outstanding receivables to their projects, classifying the receivables by number of days overdue. The billing department then prepares a reminder to the client as instructed by the project manager.
Borivoj Libal, Co-Managing Partner, Eversheds Sutherland Czech Republic: The standard due term is 30 days. Approximately 15% of our bills are overdue but only 1.5% of them have been never paid. We are using both standardized and personal reminders on a regular basis. If we have a new client, we often use retainers.
Radan Kubr, Managing Partner, PRK Partners: The vast majority of our clients are good payers and we do not experience any significant difficulties in getting paid.
This article was originally published in Issue 10.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
