Billing & Collections 101: Best Practices for Managing Firm Finances
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2012 Redwood Analytics® User Conference Analysis. Insight. Action. Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager
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Billing & Collections 101: Best Practices for Managing Firm Finances. Stuart Allen Product Manager. Billing & Collections 101. Inventory Management Revenue Management Tracking Time Entry. Inventory Management. Key Inventory Questions. How old are my WIP and A/R? - PowerPoint PPT Presentation
Transcript of Billing & Collections 101: Best Practices for Managing Firm Finances
2012 Redwood Analytics® User ConferenceAnalysis. Insight. Action.
Billing & Collections 101: Best Practices for Managing Firm Finances
Stuart AllenProduct Manager
2012 Redwood Analytics® User ConferenceAnalysis. Insight. Action.
Billing & Collections 101
• Inventory Management• Revenue Management• Tracking Time Entry
2012 Redwood Analytics® User ConferenceAnalysis. Insight. Action.
Inventory Management
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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?
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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
Bill Date Today’s Date
Elapsed Days
Amount Age of A/R
Feb 1 Mar 1 28 $100 28
Jan 1 Mar 1 59 $400 59
Total: $500 53
Age of A/R = [(Days x Amount) + (Days x Amount)]/ Total
Age Metrics
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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
Client Avg. Daily Billings Unbilled Balance Days of Unbilled
A $1/day $365 365
B $2/day $730 365
C $20/day $2000 100
Total $23/day $3095 135
Days Metrics
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Forward Realization Curve
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
0 Days30 Days
60 Days90 Days
120 Days150 Days
180 Days210 Days
240 Days270 Days
300 Days330 Days
365 Days
95.3%93.0%
85.5%
76.7%
68.0%
60.6%
52.0%
44.8%
39.4%
33.4%
28.5%23.9%
19.6%
Forward Collect Realization %Forward Collect Realization %
Risk Adjustment
Likely to Bill / Collect
At Risk
Forward Billing / Collection Realization %
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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
activityRelevancy• 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
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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
Examples of Expected Pay Time/Relevancy
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Expected Pay Time/Relevancy
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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
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Expected Pay Time / Balance Statuses
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Track Progress Over Time
What can be done to normalize the bill and collection speeds?
2012 Redwood Analytics® User ConferenceAnalysis. Insight. Action.
Revenue Management
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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?
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Static versus Periodic Concepts
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Hours Worked686,729Std Amt
$136,923,140Unbilled Amt$15,935,928
Billed Amt$110,278,974Collected Amt$94,975,205
Uncollected Amt$13,938,782
Periodic Bill Amount
$123,877,365
Periodic Collect
Amount$121,492,854
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Work Period – 2012
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Disposition of an Hour
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Actual Bill Amt$137,358,623
Write-off Amt$2,057,322
Uncollected Amt$15,950,691
Collect Amt$119,350,610
Bill Period – 2012
Periodic Collect
Amount$121,492,854
Periodic Write-off Amount
$11,412,167
2012
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Reversals
Jan 2012 Feb 2012 Mar 2012Billed Amt. (Actual)
$500 $500 $500
Periodic Bill Amt.
$500 $500 $500
Jan 2012 Feb 2012 Mar 2012Billed Amt. (Actual)
$400 $500 $500
Periodic Bill Amt.
$500 $500 $400
*The effect of a $100 reversal in March based on invoice originally billed in January
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Disposition of a Bill
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Work Period Analysis
DiscountingAbility to catch losses in revenue as they occur each month rather than retroactively
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Maturity Factors in Work Period
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Maturity Factors in Work PeriodUnbilled Amount
Bill Speed
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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.
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Bill Period Analysis
Bill Maturity Not a FactorThis view, anchored to the bills generated in a given period, allows for true, mature speed metrics
2012 Redwood Analytics® User ConferenceAnalysis. Insight. Action.
Time Tracking
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Quickly target time entry bandits
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Is Time Entry Consistent Across Practices?
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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
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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
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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
2012 Redwood Analytics® User ConferenceAnalysis. Insight. Action.
Billing & Collections 101: Best Practices for Managing Firm Finances
Stuart AllenProduct Manager
