# 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 %

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

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