MANAGEMENT
Practice Advise
Billings Discipline
Builds Good Business
By H. Stephen Grace, Jr., and John E. Haupert
Some services, such as bankruptcy workouts, pose special problems in collecting
fees for services. This serious matter can have very costly results when a
firm has spent a great deal of money providing competent, professional advice
only to find it difficult to be paid for the work on a timely basis, if at
all.
The bankruptcy administrator or other trustee must be careful to make sure
all payouts are legitimate, while holding down costs because of the limited
cash available. Compounding this problem, professional firms are often hired
on short notice and work under severe time pressures. This can lead to poorly
worded contracts, misunderstandings about the scope of the work, and inadequate
or sloppy recordkeeping.
Protection Against Nonpayment
While it is easy to understand why firms sign on for lucrative bankruptcy
work, it is foolish to do so without protecting the firm. The following steps
can help a firm carry out an assignment to the satisfaction of the client
and make it more likely to receive prompt and full payment:
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Make sure there is an engagement letter for the project,
even if it is necessary to prepare it for the client. If working in an official
capacity, ensure that court approval is obtained at the earliest possible
stage of the engagement.
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To enhance the probability of full payment, submit a proposed
budget for the project, describing as clearly as possible the areas to be
examined and how such reviews add value. If this cannot be done in the initial
stages, make sure the client at least understands the billing arrangement
and is aware of billing rates. If associates or clerical staff are to be
used, make this known, and provide a separate rate for their services. Again,
if working in an official capacity for the court, know the administrative
rules for professional work issued in that particular court.
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If not prohibited by the trustee, request an up-front retainer
that will be applied to the final invoice. Guard against unpaid invoices
that exceed the retainer by a significant amount.
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After work begins, conduct regular meetings with the client
as the project progresses. This will ensure that everything stays on track
and will give the client confidence in the firm’s business acumen,
as well as a feel for how much time is being spent on the assignment.
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Arrange to bill promptly for services rendered, and submit
a detailed invoice within 10 days after the close of each month. Have a
senior staff member on the work team review every invoice before sending
it for payment. Problems that arise are usually not accounting problems
or an inability to pay; more often, they stem from a misunderstanding between
the team and the client.
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Make sure that every invoice is supported by adequate documentation
that includes a description of each task completed and the time devoted
to that task. Time should be reported precisely, in fractions of an hour
(tenths of an hour, or as necessary). For all meeting time billed, provide
the subject of the meeting and the names of all participants. For internal
meetings, make sure one person is responsible for keeping an accurate check
on time and sees to it that all participants bill the appropriate number
of hours. If someone leaves before the meeting ends, his attendance should
be identified as partial and his time billed as such.
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Know and understand the client. This may sound trite; in
complex cases with many layers of interested parties, however, it is important
to keep track of who will ultimately pay the bill. This applies not only
to bankruptcy cases but also to any multiparty assignment.
Diligence in administering this aspect of a business can produce concrete
results. Unreimbursed billings, whether in a bankruptcy case or any other
engagement, can balloon overhead and erode margins. Remember, too, that a
firm’s image is put under a microscope in the billing process, so this
subject deserves attention and discipline.
H. Stephen Grace, Jr., PhD, is president, and John
E. Haupert is a member of the board of advisors, both of Grace &
Co. Consultancy Inc. Grace is currently vice-chair of Financial Executives International.
Haupert, a consultant on corporate organizing and financing, was treasurer of
the Port Authority of New York and New Jersey prior to retirement.
