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Whipping Your WIP and AR Into Shape

04.05.2013 | Practice Made Perfect

Too often it’s just easier to concentrate on getting your billing out without factoring in the larger picture – your WIP (Work In Progress, unbilled hours) and AR (Accounts Receivable). These key elements are among the surest ways to ensure a smooth operation and maintain the financial stability of your firm. You cannot pay your partner distributions, especially those all–important quarterly tax distributions, if your cash projections are based upon inflated or unrealistic WIP and AR. Here are some firm policy ideas that can whip the lifeblood of your firm into shape.

  • Stress to partners and staff the value of getting their time in promptly, daily for accurate WIP, so the firm can bill. If necessary, send out reminders to those who regularly ignore this rule.
  • Speak with the client ahead of time about any potential billing issues. If you must negotiate discounts, do so before billing so you can collect faster.
  • Bill promptly when the work is completed–bills are typically paid in relation to the promptness in which they are presented. This is crucial since the lag time between when a firm sends a bill and when it receives payment can otherwise be as much as 2–3 months. Use retainers as well as periodic billing during the matter rather than only at the end. This helps with cash flow and can circumvent disputes over a sizeable bill received after the work is concluded.
  • As a bill goes out, in your next conversation with the client let them know that it is coming and touch base on timing of the payment — without making it a primary reason for your call. This may shorten the payment period and help avoid later, time–wasting efforts to collect the bill amount.
  • Set up and adhere to a regular schedule for reviewing WIP and AR for collectability. Be realistic about what is truly billable and collectible. Realism must trump expectations.
  • Write off uncollectible AR and WIP as soon as possible. Let it sit and it may just find its way into a projection.
  • As part of your overall cash management, plan ahead for a year–end slowdown in payments. Some companies exhaust their available cash reserves as the year draws to a close and may not pay as timely as they did earlier in the year. Work this factor into your cash projection.
  • In cases where you’ve sent bills that have passed their deadline and the work is ongoing (bumping up your WIP), it’s time to analyze why the client is not paying. Evaluate the risk of continuing the relationship beyond fulfilling the engagement and talk to the client to see if you can arrange to get partial payments.

WIP and AR are nothing short of your lifeblood. These are just some of the ways you can help keep it flowing smoothly. 

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