Advice from the Banks
The banks have responded to a request from the Society to provide guidance to the profession as to how they should deal with their banking needs in the current economic climate. A summary of the bank's advice follows.
1. Relationship with the Bank
Keeping regular contact with your banking manager is extremely important and if you have not met up in the last few weeks to discuss the six month period ahead, this meeting should now take place.
CASH IS KING. Firms, at this time, must be able to, for their own sake and the banks, demonstrate that they can turn their balance sheet assets into cash. Being able to demonstrate good profits through the firm’s Profit and Loss may be insufficient if much of that profit is tied up in Work In Progress (WIP) and Debtor balances.
At any meeting with the bank have an up-to-date set of accounts available, budgets for the coming year and most importantly a cash flow projection for the coming year is necessary.
2. Billing Clients
Review your billing process. Consider whether interim billing should be the norm, and spread throughout the transaction. Terms of Engagement should reflect this.
Consideration should be given to whether it is necessary to issue paper bills to clients with the costs of stamps envelopes etc. and the inherent delay. Consider whether certain clients would accept an email copy of their bill with details of how to settle it, for example, by credit card.
3. Cash Collection
This must be given high priority. Someone in the firm must ensure that once the bills are issued that they are chased rigorously.
Consideration should be given to different collection methods such as credit card and debit cards. While these merchandising methods have some costs attached to them, if firms were to show that clients can settle accounts by phoning up and providing their credit/debit card details, this may assist the client in settling quickly, and the costs maybe outweighed by the chasing and financing of the overdraft over a period of time.
Firms should consider the economics involved in the collection of funds to finance a case, and in particular should review financing clients from their debit balances. This will have a significant impact on their cashflow.
4. Hourly Rates
Firms should review their operational costs and hourly rate/ charging scales to ensure there is a reasonable profit margin on any given piece of work.
5. Accountancy Services
What add on services beyond the preparation of the annual accounts can your accountants provide? Cashflow modelling, tax planning/deferment advice, aged debtor reviews and chasing, key performance indicators for partners, review of individual profit centres and their share of the firms funding costs.
Other General Business Observations from the Banks
Consider the areas of work that the firm should be engaged in at this time.
Work can be broken down into short term, eg conveyancing, medium term, eg executries and long term, eg litigation.
Consideration should be given to whether fee earners’ performance should be linked to efficient WIP management and cash collection.
Consideration should be given to whether firms can outsource work and business functions.
A review of the spread of skills in the office needs to be undertaken, to ensure the correct spread is available to allow the business to move forward.
Consideration should be given to longer term planning about how to use technology to reduce costs for the future even though implementation of these plans maybe deferred meantime.
Is the firm’s debt properly structured? Should terms loans be considered for longer-term management of debt rather than short-term overdraft facilities.
