Cash flow. No matter the size of the organisation, these two words are vital to the success of any business.
Major PLCs and micro SMEs all rely on capital to support sustainable growth, yet still businesses of all sizes are blighted by late payments.
The legal sector in particular has been cited as a key sector to support the UK’s economy, yet top UK law firms are relying heavily on borrowing. How has cash flow become such a major problem within one of the UK’s largest sectors and how do businesses ensure faster payments?
David Beech, CEO of Knights 1759, the fastest growing professional services business in the UK, puts the company’s success down to strict cash management.
Since 2013, David has helped Knights 1759 halve its waiting period with a strict payment collecting regime which he says has been ‘instrumental’ in powering the business’ impressive growth.
Knights 1759 has increased its revenue by more than 60 per cent in the last 12 months to achieve a turnover of £33.5m. The 64 per cent hike is the biggest annual increase ever recorded by the company.
He said: “Most businesses in other sectors would never expect to wait so long for a client to pay for work, so why should the legal sector?
“As legal firms find themselves sinking into further debt, improving cash flow should be the first thing businesses look to improve. I’ve known business owners who have paid off substantial overdrafts just by reducing their debtor days.”
Who should be chasing payments?
One of the first things David suggests businesses do is to bypass ‘ineffective’ credit control departments and place responsibility for chasing payments with partners and lawyers.
“If you’re offering a bespoke service, it seems logical that the person chasing payment should be the person who owns the relationship with a client.
“A credit control department will chase clients, but the client will just refer them to the partner dealing with them, who then passes it back on to credit control. It just goes round in circles and it isn’t an effective use of time.”
David emphasises that in order to be effective, partners must come together and stand as one on collecting payments.
“A traditional partnership will always struggle to come together on company-wide issues like this, as partners will try to protect their way of working or the way their clients like things done.
“At Knights 1759 we’ve moved away from a traditional partnership model to a corporate structure, which means that we now have a system for invoicing and chasing payments which is used by everyone in the business.”
Won’t we upset our clients?
Businesses are often afraid that chasing payments may offend or upset clients, but David suggests that in reality, often the opposite is true.
“Lawyers worry about losing clients or looking rude, but more often than not enforcing payment can actually enhance a business’ reputation.
“We’ve been told by many clients that our method of getting payment shows them that we take the running of our business very seriously and makes us look united.
“It’s important that lawyers don’t feel nervous about approaching clients. In order to be sustainable, the relationship between a lawyer and their client should always be equal.”
How can we implement change?
Enforcing change within a legal firm isn’t always straightforward and David stresses the importance of supporting lawyers and partners during the process.
“It’s not just a case of issuing a directive to lawyers and sitting back. To get the very best results, people at senior levels must be relentless in pushing change through. A new system must be fair and consistent – late payment cannot be tolerated from any client, even your biggest.
“Once change is embedded across the business, we’ve found that most lawyers and partners reap a great sense of reward. They enjoy being paid properly and feel more in control. It gives them another reason to engage with clients and that fear soon subsides.”
(Source: Knights 1759)