I don’t worry about receivables. That’s why I don’t talk about them very much. They’re not on my mind.

That’s not the way it has always been.

Back when I started my firm, receivables were on my mind all the time. I had clients who owed me thousands of dollars, and I lost sleep over whether I’d ever collect the money.

Losing sleep has always been my primary mechanism for deciding which problem to solve. I really like sleeping.

I attacked the problem with a vengeance, knowing that I couldn’t make it through the night with this money (or lack of money) hanging over my head.

My 11-Step Program

Here’s how I attacked the problem and ended up with no receivables at all.

1. Stop extending credit.
I stopped the bleeding by discontinuing my policy of extending credit. If the client didn’t have money in trust by a particular date, we filed a motion to withdraw. We set the date out far enough ahead of the hearing date so we’d have time to get out of the case.

2. Modify client agreements.
We modified our client agreements to reflect our policy of requiring sufficient deposits into our trust account to cover the necessary work.

3. Replenish the trust account.
I required my clients to replenish the trust account by depositing enough money in the trust account to more than cover any anticipated work. If something unexpected came up, then we’d ask for more money immediately. This, of course, led to some difficult conversations.

4. Maintain vigilance.
I assigned someone to watch the incoming time records and keep track of when the trust account balance started to get low. I set a minimum balance for each client and called the client immediately if the ongoing work threatened to take us below the minimum. This required daily entry of time records and the production of daily reports.

5. Collect the receivables.
Then I attacked the outstanding receivables. I called every client who owed money until I got each one on the phone. I worked out a payment schedule with these clients and sent a letter documenting our agreement. I had them sign the letter and send it back.

6. Call the clients.
I had trouble reaching some clients. They were avoiding me, so I hounded them. I didn’t delegate the task; I handled it myself. I called at odd hours until I got nearly every one of them on the phone. I was owed hundreds of thousands of dollars, and I made lots and lots of calls.

7. Monitor the payments.
Then I stayed on top of the payments. If a client was late on a payment, I called the client personally. I received a daily list of calls from my bookkeeper and made sure the payments were made, or the client got a call.

8. Write off the impossibles.
Of course, there were situations where it was clear that I’d never be paid. I offered a compromise and settled the bill if possible. If settlement wasn’t an option, then I wrote off the debt. I knew I’d only be doing this now (and never again), so it was something I could accept. I’ve never looked back at that lost revenue and lost energy. I put them behind me.

9. Maintain the system.
I stayed on top of managing the trust account balances, overseeing the daily billing, and collecting the outstanding balances according to the payment plan. Eventually, the old debts were collected, and the system kept new debts from accruing.

10. Abandon the system.
Once the problem was solved, I did the math to determine what it was costing us to stay on top of the payments. We were spending a fortune on bookkeeping, accounting, and an elaborate software system, plus the daily time required of the attorneys to record and enter their time. The accounting was adding a shocking percentage to the cost of the legal work we were producing. On top of that, the clients weren’t thrilled with the sense that we didn’t trust them.

11. Find a new way.
That’s why I moved away from hourly billing and implemented a flat fee system. Flat fees have been around for a long time. They expose us, rather than our clients, to the risk of something unpredictable happening. That makes sense given that we’re the experts and the clients usually haven’t done this before. It took some time, some testing, and some tweaking to get our fixed fees right. Now we can charge a fixed fee on small matters as well as complex cases.

Now when I sleep, I never even dream about receivables. We took care of the problem and implemented a system that leaves us with no receivables outstanding. Is this the perfect system? Nope. It has its challenges, but they pale in comparison to the old way of doing business.

Regardless of whether you use a fixed fee system, continue to bill hourly, or come up with some other variation, it’s critical that you stay on top of your current receivables, stop creating new debt to your firm, and manage the process like your income depends on it—because it does.