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December 6, 2017

With Steadier Collections, Fewer Law Firms Feeling Year-End Crunch

Several Pennsylvania firms said they won't need a December windfall this year to meet collections targets.


Several Pennsylvania-based law firms have said they’re optimistic about year-end results for 2017, and they’re not relying on a windfall of December collections to make that happen.

Leaders of these firms said their lawyers have been aiming to bill more regularly. It’s not a new concept, but it’s something they’ve been emphasizing more in recent years.


“We have found that it’s very important for our attorneys to fulfill our clients’ expectations with both budgeting and timely billing,” said Andrew Kassner, chairman of Drinker Biddle & Reath. “That has for us led to a more even collection pipeline throughout the year.”


Clients want more certainty, he said. So law firms bill regularly and get a steadier revenue stream.


“The general rule is each month, every client gets billed for all the time that month,” said David Pudlin, managing partner of Hangley Aronchick Segal Pudlin & Schiller. “The worst thing to do with a client is to hold off billing for four months then send them a huge bill.”


Nicholas Centrella, of Conrad O’Brien, said his firm doesn’t look “to have a huge December” to meet its goals for the year either. Instead, lawyers stay on collections all year long. But it wasn’t always that way.


“I can remember in the past we were probably worse at doing the collections all year long, and we did make a big push at the end of the year,” he said. “We’ve been much more proactive during the course of the year … making sure the cases we’re working on are for good, paying clients.”


Working with clients on alternative fee arrangements can be helpful too, Centrella said. Those arrangements often allow the firm to continue getting revenue throughout the year, with the potential for a booster once the matter resolves, he said. And even if it represents a discount for the client, arranging those discounts ahead of time is better than scrambling to get a payment at the end of the year.


“We don’t like to give up the realization or revenue from clients by getting into the habit of giving discounts at the end of the year,” Centrella said.


At Ballard Spahr, chairman Mark Stewart said, there has been an effort toward more transparency with clients in how they manage matters, and the response has generally been positive.


“What you’re trying to do is create long-term relationships so that the work you collect for in December isn’t the end of the relationships,” Stewart said. “You do have clients who are thinking about this more and more, and we try to be out there.”


The firm’s efforts toward matter management have extended to clients’ legal departments in some instances. Stewart said clients sometimes ask the firm to come in and create more efficiency.


And of course the type of client has an effect on the collections process. William Sasso, chairman of Stradley Ronon Stevens & Young, said he has heard the horror stories of long-overdue invoices from other firm leaders. His firm has many financial institution clients, Sasso said, who haven’t created many collections problems.


Still, Sasso said, his firm has taken collections out of lawyers’ hands for the most part, relying instead on accounting staff who bill year-round.


“I suspect most firms are doing that. If they haven’t, they should,” Sasso said. “I think lawyers are not good at putting pressure on clients to collect money. … [They] tend to be more cautious when they have the relationship.”


Great Expectations

Even if these firm leaders are not depending on fourth-quarter collections, surveys by Wells Fargo Private Bank and Citi Private Bank found that inventory is up among Pennsylvania-based firms, which bodes well for the end of the year.


Pudlin said Hangley Aronchick experienced revenue growth of 20 percent in 2016, and is on track to see even greater revenue growth for 2017.


At Conrad O’Brien, Centrella said, 2017 was a solid year. The firm has already met its budget, he said, and is projecting a 3 to 5 percent increase in revenue, with greater increases in profits thanks to cost reductions. It’s likely that 2018 will be even stronger, he said, pointing to an uptick in activity in the second half of this year.


At Drinker Biddle, whose fiscal year ends Jan. 31, business and litigation practices have been active in 2017, Kassner said, despite concerns after the 2016 election over whether business activity would be slowed by general uncertainty in politics and the economy.


Sasso said 2017 has been a good year, thanks to his firm’s expansion into New York and Chicago in previous years, which have been “vibrant” markets for financial institution work.


And Stewart, of Ballard Spahr, said his firm is hoping for another year of “modest growth,” but isn’t taking that for granted until year-end has come and gone.


According to the Wells Fargo and Citi surveys, Pennsylvania-based law firms have been largely spared from slow demand growth trends in the legal industry. While their inventory is up, Citi found that unbilled time was nearly flat in the first three quarters of 2017, compared to the same time period in 2016, which means the revenue pipeline could weaken at some firms in the beginning of 2018.


Reprinted with permission from the December 6, 2017 issue of The Legal Intelligencer. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.


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