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Your WIP May Be Pointing To Internal Problems

Tony Cucci, CPA 04.07.2011 | Practice Made Perfect

While law firm administrators understandably focus on collecting billed receivables, a closer look at the firm’s work in progress (WIP) can reveal conditions equally important to the bottom line. A large WIP on a matter could point to a host of potentially negative conditions. Among them:

Client Dissatisfaction.  Clients may be reluctant to pay if they are not satisfied with the work. This might indicate that you have the wrong people on this particular engagement.  It may be a good time to speak with the engagement partner.

Poorly Written Engagement Letters.  Check that the billing agreements in your engagement letters clearly spell out how you expect to bill and be paid.  This helps you avoid any misunderstandings and disputes down the road.

Inefficient Billing Practices.  Bills are usually paid in relation to the promptness in which they are presented. They should go out continuously during the month as matters progress, not just at month’s end.  Sending a bill promptly also sends a message that you expect to be paid promptly.  The internal reporting of WIP should include both fees and disbursements; and be aged so that you’re alerted to accounts that are overdue.

Lax Time Entry Practices.  Revisit your firm policy for reporting time.  Reinforce the need for all levels of the firm to clearly define the services performed and keep to a regular reporting schedule.

To protect your firm from a ballooning WIP, consider upfront retainers.  They can serve as safety nets in cases where you may have payment concerns going into the engagement.  A retainer can also be used to give you early warning if time charges go past the retainer amount and no additional bills are sent. Whenever you catch a hint of an emerging WIP problem, don’t let it slide.  Even a small WIP that has remained unbilled for several months can be an indicator of a larger problem.

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