Billing & Collections 101: Best Practices for Managing ... Billing & Collections 101: Best Practices

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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

  • 2012 Redwood Analytics® User Conference

    Analysis. Insight. Action.

    Billing & Collections 101

    • Inventory Management • Revenue Management • Tracking Time Entry

  • 2012 Redwood Analytics® User Conference

    Analysis. Insight. Action.

    Inventory Management

  • 3

    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?

  • 4

    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

  • 5

    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

  • 6

    Forward Realization Curve

    0.0%

    20.0%

    40.0%

    60.0%

    80.0%

    100.0%

    0 Days 30 Days

    60 Days 90 Days

    120 Days 150 Days

    180 Days 210 Days

    240 Days 270 Days

    300 Days 330 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 %

  • 7

    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

  • 8

    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

  • 9

    Expected Pay Time/Relevancy

  • 10

    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

    • Potential Charge-off – Invoices > 365 Days regardless of Expected Pay Time

    • Unbilled – All WIP

  • 11

    Expected Pay Time / Balance Statuses

  • 12

    Track Progress Over Time

    What can be done to normalize the bill and collection speeds?

  • 2012 Redwood Analytics® User Conference

    Analysis. Insight. Action.

    Revenue Management

  • 14

    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?

  • 15

    Static versus Periodic Concepts

  • 16

    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

  • 17

    Disposition of an Hour

  • 18

    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

  • 19

    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

  • 20

    Disposition of a Bill

  • 21

    Work Period Analysis

    Discounting Ability to catch losses in revenue as they occur each month rather than retroactively

  • 22

    Maturity Factors in Work Period

  • 23

    Maturity Factors in Work Period

    Unbilled Amount

    Bill Speed

  • 24

    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.

  • 25

    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

  • 2012 Redwood Analytics® User Conference

    Analysis. Insight. Action.

    Time Tracking

  • 27

    Quickly target time entry bandits

  • 28

    Is Time Entry Consistent Across Practices?

  • 29

    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

  • 30

    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

  • 31

    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 Conference

    Analysis. Insight. Action.

    Billing & Collections 101: Best Practices for Managing Firm Finances

    Stuart Allen Product Manager