billing & collections 101: best practices for managing ... · billing & collections 101:...
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![Page 1: Billing & Collections 101: Best Practices for Managing ... · Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager . 2012 Redwood Analytics®](https://reader030.vdocuments.us/reader030/viewer/2022040116/5f06bd0f7e708231d4197ce0/html5/thumbnails/1.jpg)
2012 Redwood Analytics® User Conference
Analysis. Insight. Action.
Billing & Collections 101: Best Practices for Managing Firm Finances
Stuart Allen Product Manager
![Page 2: Billing & Collections 101: Best Practices for Managing ... · Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager . 2012 Redwood Analytics®](https://reader030.vdocuments.us/reader030/viewer/2022040116/5f06bd0f7e708231d4197ce0/html5/thumbnails/2.jpg)
2012 Redwood Analytics® User Conference
Analysis. Insight. Action.
Billing & Collections 101
• Inventory Management • Revenue Management • Tracking Time Entry
![Page 3: Billing & Collections 101: Best Practices for Managing ... · Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager . 2012 Redwood Analytics®](https://reader030.vdocuments.us/reader030/viewer/2022040116/5f06bd0f7e708231d4197ce0/html5/thumbnails/3.jpg)
2012 Redwood Analytics® User Conference
Analysis. Insight. Action.
Inventory Management
![Page 4: Billing & Collections 101: Best Practices for Managing ... · Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager . 2012 Redwood Analytics®](https://reader030.vdocuments.us/reader030/viewer/2022040116/5f06bd0f7e708231d4197ce0/html5/thumbnails/4.jpg)
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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 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
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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?
![Page 14: Billing & Collections 101: Best Practices for Managing ... · Billing & Collections 101: Best Practices for Managing Firm Finances Stuart Allen Product Manager . 2012 Redwood Analytics®](https://reader030.vdocuments.us/reader030/viewer/2022040116/5f06bd0f7e708231d4197ce0/html5/thumbnails/14.jpg)
2012 Redwood Analytics® User Conference
Analysis. 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 Worked 686,729
Std Amt $136,923,140
Unbilled Amt $15,935,928
Billed Amt $110,278,974
Collected Amt $94,975,205
Uncollected Amt
$13,938,782
Periodic Bill Amount
$123,877,365
Periodic Collect
Amount $121,492,854
2012
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 2012
Billed Amt. (Actual)
$500 $500 $500
Periodic Bill Amt.
$500 $500 $500
Jan 2012 Feb 2012 Mar 2012
Billed 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
Discounting Ability 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 Period
Unbilled 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 Factor This view, anchored to the bills generated in a given period, allows for true, mature speed metrics
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2012 Redwood Analytics® User Conference
Analysis. 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
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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