Billing & Collections 101: Best Practices for Managing Firm Finances

1. Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager

2. Billing & Collections 101 • Inventory Management • Revenue Management • Tracking Time Entry

3. Inventory Management

4. Key Inventory Questions How old are my WIP and A/R? How quickly can I bill/collect that work? What happens if I don’t do so in a timely fashion? How can I quantitatively tell which A/R to go after first?

5. Age Metrics Age of Inventory (Billed + Unbilled) • Age refers to “how old is it in days” • Dollar weighted average ex. Age of A/R = (Amount x Days)/Total Age of A/R = [(Days x Amount) + (Days x Amount)]/ Total

6. Days Metrics Days of Inventory (Unbilled + A/R) • Days is a measure of activity • Lower number indicates activity increasing vs. production • Current Balance / Daily Avg. R12 Periodic Billing Amount

7. Forward Realization Curve Forward Billing / Collection Realization % At Risk Risk Adjustment Likely to Bill / Collect

8. Expected Pay Time Based on a clients history, when we expect payment on an invoice Not dependent on age of invoice but rather past client activity Relevancy An Expected Pay Time is only as relevant as the quality of the client’s history Index of 0 – 9 reflecting “relevancy’ of Expected Pay Time measure 9 = very relevant, 1 = not relevant, 0 = clients with no history Based on the Client level NOT the Related Client/Parent Client level

9. Examples of Expected Pay Time/Relevancy Client ABC Pays invoices every 30 days for 2 years High Relevancy Expected Pay Time = 30, Relevancy = 8 Client XYZ Paid 2 invoices; 1st invoice in 1 day, 2nd invoice in 200 days Low Relevancy Expected Pay Time = 100 [(1 + 200)/2], Relevancy = 2 Client LMNOP Has never paid an invoice (no history) Relevancy = 0, Expected Pay Time = 60

10. Expected Pay Time/Relevancy

11. Balance Statuses Expected Pay Time allows the use of Balance Statuses to define opportunities for collections Timely – Invoices <= Delinquency Date, Not Past Expected Pay Time Opportunities – Invoices Past Expected Pay Time Delinquent – Invoices > Delinquency Date, Not Past Expected Pay Time Potential Charge-off – Invoices > 365 Days regardless of Expected Pay Time Unbilled – All WIP

12. Expected Pay Time / Balance Statuses

13. Track Progress Over Time What can be done to normalize the bill and collection speeds?

14. Revenue Management

15. Key Revenue Questions Where am I losing money from work to collection? How much can I expect to bill/collect in the future? At what speed am I currently billing/collecting? How do I improve?

16. Static versus Periodic Concepts

17. Work Period – 2012 2012 Periodic Bill Amount$123,877,365 Periodic Collect Amount$121,492,854

18. Disposition of an Hour

19. Bill Period – 2012 2012 Periodic Collect Amount$121,492,854 Periodic Write-off Amount$11,412,167

20. Reversals *The effect of a $100 reversal in March based on invoice originally billed in January

21. Disposition of a Bill

22. Work Period Analysis • Discounting • Ability to catch losses in revenue as they occur each month rather than retroactively

23. Maturity Factors in Work Period

24. Maturity Factors in Work Period Unbilled Amount Bill Speed

25. Bill Period Analysis • What happens to the bill? • Ability to view bill (less reversals) and the story of what’s happened to that bill over time – by Billing Attorney, Office, etc.

26. Bill Period Analysis • Bill Maturity Not a Factor • This view, anchored to the bills generated in a given period, allows for true, mature speed metrics

27. Time Tracking

28. Quickly target time entry bandits

29. Is Time Entry Consistent Across Practices?

30. Review of B&C Concepts Inventory Indicates inventory levels/indicators at incremental points in time Use when interested in analyzing past performance and looking for specific trends in inventory, A/R, and WIP Daily Inventory Nightly Build, Invoice Level, Fees & Costs Most up-to-date look at current inventory, A/R, & WIP Use when interested in influencing change now or when you need a recent picture of your firm’s inventory status

31. Review of B&C Concepts Work Period Starting at the hour worked, what occurred to those hours going forward? Use when interested in working attorneys, departments, etc., or when you are interested in understanding factors relating to production Bill Period Starting at the invoice, what occurred to the bill going forward Use when interested in bill attorneys and the performance related to your billing practices

32. Review of B&C Concepts Hours Hygiene Allows for daily analysis of timekeeper hours and trends related to those hours over time. Use when interested in hours entry and analyzing the time gaps that may exist between when work is performed versus entered into the system

33. Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager