Like any business, the financial health of your law firm depends on three simple concepts: getting the work, doing the work and getting paid. You need to keep a steady flow in all three components and monitor your results to make sure your business is financially healthy and you realize your profit potential.
For law firms, one key metric is something referred to as realization and there are two types of realization rates that come into play in the financial management of a law firm: Billing Realization and Collection Realization. Both of these metrics affect the amount of water that is getting through your pipeline. You can improve the overall health of your firm by increasing realization rates and monitoring expenses.
The collection realization rate is the simplest of realization rates to calculate. Just what is it and how do you use Clio to calculate and track this rate? Your collection realization rate is the percentage of your billed fees which are actually collected.
Billed Fees/Collected Fees = Collection Realization
Once a bill is sent out using Clio’s new billing workflow, there are three possible outcomes:
- The bill gets paid in full in one payment or over time (100% collection realization)
- The bill gets partially paid with eventually a write off of the unpaid balance (Less than 100% collection realization)
- The bill never gets paid and it is a total write off (0% collection realization rate)
Let’s face it, the third one means you’ve wasted your time on a deadbeat client. In Clio, the data to calculate your collection realization rate is in a report called the Revenue Report. With all of this great data at your fingertips, you can calculate the following collection realization reports for different periods of time: monthly, quarterly, yearly.
My suggestion is to create these reports monthly with YTD data by selecting the date range for current year. A monthly snapshot will exclude payments outside of your date range and thus will not be a true picture of collection activity. The key to getting all of this data is sending the report to a CSV file. The CSV file includes more data than is on the report and you can sort the data to produce one of a variety of reports.
- Collection realization for the whole firm
- Collection realization by responsible attorney
- Collection realization by matter
- Collection realization by client
- Collection realization by billing type (flat fee vs. hourly)
- Collection realization by practice area
- Track your trends in each area with a chart