As my lead article was somewhat lengthy, I will keep this short but to the point.
In the first Taming article we looked at a range of strategies and solutions to reducing lock up in particular we focused on billing promptly or billing while the tears of appreciation are moist in client’s eyes! We also looked at a range of KPIs and the importance of allowing staff to draft the bill.
WHY REDUCE LOCK UP?
There is of course a number of answers all revolving around enabling you to extract cash and reducing your capital invested in the firm.
But and it is BIG BUT, and that is concerning the value you are able to deliver to clients. Lock up can be a hindrance to delivering a valuable service.
During Covid, the emphasis in many firms has been to ensure that the right technology is in place to deliver the compliance services. Now, with many countries easing out of the range of restrictions there is, rightly, further focus and emphasis on our service portfolio and how we can better serve clients.
HERE IS THE PROBLEM OF LOCK UP LOOKED AT FROM TWO PERSPECTIVES:
From the firm’s viewpoint: It is likely that your lock up (WIP and any unpaid invoices) will be somewhere close to a peak when completing the audit or preparation of financial statements. I think it is natural for a firm owner to want to complete the job and invoice for work done.
Certainly, most Managing Partners I know stress the importance of finishing and billing. So, the motivation to initiate conversations about additional services are not high on the agenda -unless, of course the client enquires about additional help.
From the client’s viewpoint: It is possible that they have not paid your latest bill and they certainly know that after this meeting there will be another on its way. Now, maybe, is not the time to discuss any further work that will result in another bill.
Here in a nutshell is one of the reasons (and yes, there are way more than one) why firms struggle with selling additional services.
BILL WHAT YOU ARE WORTH AND COLLECT WHAT YOU BILL
My IGNITE course by the title above provides effective and impactful training on how to reduce lock up. If your lock up is in excess of 15% of gross annual revenues, then maybe this course can serve you and motivate your team to downsize lock up permanently. I will share the secret as to how your lock up can be ZERO – or even in credit. How much cash will that put in the bank? How much cash will you be able to extract?
Here are a few more suggestions that you might find of interest.
One useful strategy is to conduct an interim billing routine. Here are two approaches:
- List your WIP from highest to lowest. Select the top ten balances and accept no excuse for not sending an interim bill to at least eight of them. When billing, decide if the next step with the client’s work is in your hands or theirs – and if it is in yours, stop procrastinating and finish the job!
- Repeat this exercise every week for four weeks.
Another approach is to list your WIP by date last billed and where there is work that has not been billed for more than three months – bill it!
Where your credit control procedures have failed to achieve payment after sixty days, the debt should be referred back to the biller who must remain responsible for collection. Call the client and ask for payment!
Manage your 90-day column – including your 90+ day WIP. Has unbilled or irrecoverable WIP brought forward been written off? Take the decision to bill, and if for some reason you decide not to bill today, make a record of the date on which you will.
What payment plan can you agree with your 90-day debtors? Presumably they are paying their monthly mobile phone account, so why allow them to delay your account? Visit the client and collect your fee.
Be committed to the cause. Start your plan and make sure you achieve the intended result.
Reduce your lock up today and release cash into your business. Tame the lion of lock up and become a shrew(d) business owner!