How to Reduce WIP and AR

Source: Monthly Memo from The Rainmaker Consulting Group

The following are excerpts from an article by Troy Waugh, “Be a Bear in This Bear Market.”

The first signs of a client’s financial trouble will begin showing up in your WIP and AR.

Firms that allow their WIP to go unbilled for weeks and their AR to grow to over 60 days are poorly managing their resources.

We have been working with all of our clients to reduce their investments in WIP and AR to less than 45 days of net fee revenue. If you are having difficulty in this area, here are a few things you can do:

• Let all your partners, managers and billers know that you are serious with this plan by setting weekly targets and monitoring them diligently.
• Communicate with slow paying clients about your new policy.
• Insist on an advance retainer and a progress payment schedule for all work done in the new year.
• Ask tax compliance clients to pay in advance or immediately upon delivery. Set up a process in your firm to make sure this happens.
• Have serious conversations with any client whose AR balances are more than 30 days past due and get a note payment schedule in place for the past due amounts. This will enable them to move forward on your new plan of retainer and progress billing.
• Assign a firm administrator or collections person to help with calling clients, working with your billers, supplying copies of invoices, picking up checks, etc.
• Monitor your collections weekly.

We do have clients who have reduced their total investment in WIP and AR to less than 30 days, so we know it is achievable. You will hear all kinds of excuses, as we have heard. Don’t listen to excuses. Expect results and you will get them.

For the complete article, click here.

From Monthly Memo from The Rainmaker Consulting Group, January 2009, www.therainmakeracademy.com.