How to Plan for Zero AR at the Beginning of the Year
12 min read

How to Plan for Zero AR at the Beginning of the Year

Written by Raza Hasan

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12 min read

Providing excellent legal services is great, but it’s not sustainable if you aren’t compensated for your time and energy. At the end of the day, your law firm’s success hinges on its cash flow, so controlling accounts receivable (AR) is crucial.  

What does zero AR mean? 

Accounts receivable (AR) refers to the money clients owe to your firm for legal services that have been rendered but not paid for. When your firm has Zero AR, your law firm has no unpaid outstanding invoices—every client’s account is up-to-date. On the other hand, a high AR can indicate billing and payment issues, such as sluggish payment turnaround times or difficulty collecting from clients. 

Why is achieving zero AR so important? 

There are several reasons to aim for zero AR. Even though your firm’s balance sheet lists AR as a current asset, a high AR rate can be problematic. If you aren’t receiving payment for your services, how will you pay for your vendors, staff, or office supplies?  

Even if the situation isn’t dire, improving your AR is worthwhile because it takes the guesswork out of predicting future cash flow and budgeting for your firm’s growth. But if you hope to improve your firm’s collections, you need a plan.  

How to achieve zero AR 

Protecting your firm’s financial health (and serving your clients better in the process) is simple with the right tools and strategies. 

Legal tools that reduce AR 

When it comes to reducing AR, speed and convenience are king. Consider investing in these four simple tools to make your billing and payment processes run more smoothly and improve your cash flow.  

1. Billing and time-tracking software 

When clients know when and how they will receive their bills, they’re more likely to pay them on time. Billing and time tracking software like TimeSolv can automatically create and send invoices based on the hours you track.  

2. Electronic payment processing  

By allowing clients to review and pay invoices online, you reduce the risk that invoices will get lost and improve the client experience at the same time. 

Consider offering multiple electronic payment options. Some clients might like to pay online with a debit or credit card, while others might find it easier to have money withdrawn from their bank account automatically. Either way, electronic payments tend to have shorter processing times—a huge plus for lowering AR.

The TimeSolv Guide to Better Matter Budgeting

Budgets are the unsung heroes of a successful law firm. Budgets structure business planning, client services, and ultimately help you increase profitability. And an effective law firm budget starts with effective planning.

3. Automatic payment reminders 

Whether sent from your invoicing software or your legal CRM, automated reminders reduce the likelihood of missed payments. Many clients appreciate the nudge to handle their invoices before late fees apply!  

4. Alternative fee arrangements 

Consider whether your clients might prefer alternative fee arrangements, such as payment plans or fixed fees over hourly billing. Many clients find alternative fee arrangements easier to budget for, and therefore easier to deliver payment on.  

5. Financial Reporting 

Many reporting and analytics tools for law firms generate financial reports at set intervals. Use them to monitor your firm’s AR regularly.  

Whenever a payment is overdue, don’t just monitor the due dates. You should also track the reason why clients are running behind on payments. Reviewing these later may help you better understand billing patterns at your company, allowing you to identify bottlenecks that slow down payment and stop it at the source.  

Putting it all together  

Lowering your law firm’s AR can seem daunting when you don’t know where to start. We suggest setting the stage for a smooth and efficient billing and payment process by getting proactive during intake, staying vigilant about invoices, and continuously improving your billing and payment processes.   

Set clear expectations.  

Once you’ve decided which fee structure works best for your clients, make sure they understand your payment terms. People don’t rush to pay bills they don’t understand or agree with.  

Make sure every new client receives your payment terms in writing, either as part of a written contract or in a separate payment agreement. Be thorough. Explain the hourly rates, flat fees, or other relevant charges.  

Specify when and how payments are to be made, including the invoice due date, any agreed-upon payment schedule, and any late payment penalties that may apply. This may help clients understand what they will have to pay and when to prevent disagreements in the future. 

Don’t let unpaid bills go ignored. 

Follow up on outstanding invoices as soon as possible. They can lead to longer payment turnaround times, making achieving zero AR more difficult.  

It’s ineffective to call every client individually to remind them to pay their legal bills, but for clients with persistent nonpayment issues, it may be worth it. We’ve all missed an email or two, but if repeated automated reminders aren’t working, there is likely another reason the client hasn’t paid their legal fees.  

When you contact the client to follow up, you could be surprised by what you learn. Maybe they can’t manage a lump sum of cash all at once, but would be willing to pay you in monthly installments. Maybe the client perceives there were errors on the invoice, so they don’t want to pay it.  

Whatever the reason, ask yourself, “How could this information help me improve my firm’s overall invoicing and payment procedures?”  

Make updates as needed.  

The tools and strategies that work well for your firm now might not be so effective in five years. Review and update your billing and collections processes regularly to make sure you’re using tools and policies that lead to the most consistent cash flow for your firm. 

The Easiest Way to Achieve Zero AR 

Take control over when you get paid—with TimeSolv. 

Our legal time and billing software include a variety of tools and features that simplify the billing process and ensure invoices are paid on time, every time.  

You can leverage TimeSolv to support your mission to achieve zero AR by… 

  • Setting up automatic invoice generation and reminders to ensure that invoices are sent out as soon as possible and that clients are reminded to pay them 
  • Using the integrated time tracking and billing features to accurately track the time spent on each case and generate invoices that accurately reflect the work you’ve performed 
  • Setting up online payment options that make it easier for customers to pay their bills 
  • Reviewing online reporting and analytics features to track invoice status and identify any issues or payment delays 

For more practical, actionable tips about achieving zero AR, check out our free webinar, How to Get Paid Faster & Achieve Zero AR with TimeSolv 

Ready to dive right in? Start your free trial today! 

The TimeSolv Guide to Better Matter Budgeting

Budgets are the unsung heroes of a successful law firm. Budgets structure business planning, client services, and ultimately help you increase profitability. And an effective law firm budget starts with effective planning.

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