<b><i>Online Extra:</b></i> Tax-Savvy Clients Motivated in Year-End Collections Crunch

W. Raymond Felton, co-managing partner of Greenbaum, Rowe, Smith & Davis in Woodbridge, NJ, said, “To a lesser extent, it's [to] clean up one's billing towards the end of the year'there's an element of that.”

But “there's definitely a tax motivation on the client side,” he added. “They want to get the tax deduction now, assuming their cash flow permits.”

Indeed, business-related legal fees generally are tax-deductible, and a 2015 deduction might be favorable to paying an invoice in January and waiting around a year.

Even with motivated clients, however, the collections crunch generates some stress.

Greenbaum Rowe can count itself among those who aspire to vigilant year-round billing practices but end up in the thick of it come December.

“Despite our best efforts to collect on a more even schedule…we do tend to see a disproportionate amount of collections” late in the year, according to Felton. “Not only is December a big month, but the second half of December is, particularly.”

“New Year's Eve is usually a long day here,” he said.

Accounting staff rise to the challenge, but can requests for immediate payment be made artfully?

“There are ways,” according to Felton ' one of them is to point out the tax benefits of paying before the calendar hits January.

Institutional clients “are more likely to have a particular schedule ' phone calls aren't likely to change their schedule,” but with closely held businesses, “you have to do something beyond putting the invoice in the mail,” he said.

Just because a client is motivated to pay doesn't mean that the cloud of fee pressure dissipates.

“What comes up is, 'Can you give me a break on this bill, and we'll pay it right away?' Sometimes we do, sometimes we don't,” Felton said.

At Day Pitney, a client might make two payments around the end of its fiscal year, according to Kirk Rossi, the firm's chief financial officer and chief operating officer. But the reason is typically less about tax than it is about budget: General counsel often don't want large surpluses in the outside counsel budget if it means a smaller budget the next year, he said.

At Day Pitney, which has a large Parsippany branch to go along with numerous offices in Connecticut, “we have a year-end push, no question.” Rossi said.

Close to 30% of revenue is collected in the fourth quarter ' compared with 20% in the first quarter, and 25% each in quarters two and three'but some other firms collect as much as 40% of revenue in the fourth quarter, according to Rossi.

“At this point in the calendar, if the bill isn't out, forget it,” he said, noting that many clients close their books as of Dec. 15. “Now it's all about managing the list.”

“It's usually very quiet here post-Christmas … There's no extra hands; there's no overtime worked. If anything, we might step up communication with the billing attorneys,” he said.

Rossi is in charge of a collections unit, but said lawyer-client relationships are most important come December. Some partners won't agree to make a call seeking payment until this time of year rolls around, he said.

“You don't want to hound clients,” Rossi said. “It's always best to have it come from the client relationship manager …. You don't want to knock on that door too many times.”

According to Watkins, the December scramble is at least partly attributable to attorney compensation ' specifically, attorneys making a case for increased compensation by raking in receivables.

At Lindabury McCormick, the fiscal year syncs with the calendar year, but the “compensation year” end was moved to Sept. 30 several years ago, he said.

“To the extent the push is made for that purpose, we see it earlier here,” Watkins said. “It just took one more thing out of the to-do box in December.”

Watkins agreed with Felton that year-end payment tendencies depend on the size and nature of the client. Large companies want payables off the books ' often for tax reasons ' but for smaller businesses, year-end cash might become profit for principals.

“You've got to get your requests in early for those folks, because they might have other plans for the money,” he said.

December doesn't always mean a straightforward money-grab: How much comes in, and when, has tax implications for firms, too. For those organized as professional corporations, like Lindabury McCormick, a large, unexpected payment late in the year could spell tax liability, according to Watkins.

“We have to worry about managing our cash at year-end,” he said. “Cash management is really important to me ' almost more important than getting the things paid.”

Still, there's the matter of making the numbers.

“I have a target in my mind,” Watkins said, though he declined to share it. “I'm hoping people bring in some money.”

An offset fiscal year has taken hold elsewhere. At Philadelphia-based Drinker Biddle & Reath, for example, the fiscal year has for decades ended Jan. 31 rather than Dec. 31, Princeton managing partner Jonathan Esptein previously told the Law Journal.

At Newark, NJ's Sills Cummis & Gross, the fiscal year ends Sept. 30 ' also a long-standing tradition, according to managing partner R. Max Crane.

“In part it was to avoid the year-end craziness. … Even if we're here on Christmas Eve or New Year's Eve, sometimes it's hard to find the client” ' an issue that's “gotten worse over the years,” as holiday breaks seem to be extending, Crane said.

Crane noted that sometimes multiple levels of approval are needed to get an invoice paid.

“You're playing a game, betting that all these people are going to be there at the same time,” he said. “If they're not around, good luck.”

Even if Sills Cummis avoids its own December scramble, Crane said the firm ' and he personally ' has gotten calls from tax-conscious clients asking for an expedited invoice.

“It's a pleasant call to get,” he said ' not least because it saves firm lawyers from making the call themselves.

Some excel at that, while others don't: Like rainmaking, it's a skill unto itself, according to Crane.

“Lawyers who are brilliant and fantastic at practicing law may not be brilliant and fantastic at picking up the phone and asking to get paid for it,” he said.

“It never goes away … I think most lawyers have accepted it,” he said.

David Gialanella writes for the New Jersey Law Journal, an ALM sibling of Accounting and Financial Planning for Law Firms.

If the occurrence of Christmas miracles needs proving, reports of law firms and clients working together on getting legal bills paid makes for compelling evidence.

Raking in receivables before the ball drops is a surprisingly varied experience firm by firm, but motivated clients appear to be a fairly common theme. Often it requires more than just good bookkeeping.

“We have large clients call us and tell us, 'we want you to accelerate the billings, and we'll accelerate the payments,'” said William Watkins, a partner and chief operating officer at Lindabury, McCormick, Estabrook & Cooper in Westfield, NJ. “Some of them have a financial reason … It might also be a tax reason.”

W. Raymond Felton, co-managing partner of Greenbaum, Rowe, Smith & Davis in Woodbridge, NJ, said, “To a lesser extent, it's [to] clean up one's billing towards the end of the year'there's an element of that.”

But “there's definitely a tax motivation on the client side,” he added. “They want to get the tax deduction now, assuming their cash flow permits.”

Indeed, business-related legal fees generally are tax-deductible, and a 2015 deduction might be favorable to paying an invoice in January and waiting around a year.

Even with motivated clients, however, the collections crunch generates some stress.

Greenbaum Rowe can count itself among those who aspire to vigilant year-round billing practices but end up in the thick of it come December.

“Despite our best efforts to collect on a more even schedule…we do tend to see a disproportionate amount of collections” late in the year, according to Felton. “Not only is December a big month, but the second half of December is, particularly.”

“New Year's Eve is usually a long day here,” he said.

Accounting staff rise to the challenge, but can requests for immediate payment be made artfully?

“There are ways,” according to Felton ' one of them is to point out the tax benefits of paying before the calendar hits January.

Institutional clients “are more likely to have a particular schedule ' phone calls aren't likely to change their schedule,” but with closely held businesses, “you have to do something beyond putting the invoice in the mail,” he said.

Just because a client is motivated to pay doesn't mean that the cloud of fee pressure dissipates.

“What comes up is, 'Can you give me a break on this bill, and we'll pay it right away?' Sometimes we do, sometimes we don't,” Felton said.

At Day Pitney, a client might make two payments around the end of its fiscal year, according to Kirk Rossi, the firm's chief financial officer and chief operating officer. But the reason is typically less about tax than it is about budget: General counsel often don't want large surpluses in the outside counsel budget if it means a smaller budget the next year, he said.

At Day Pitney, which has a large Parsippany branch to go along with numerous offices in Connecticut, “we have a year-end push, no question.” Rossi said.

Close to 30% of revenue is collected in the fourth quarter ' compared with 20% in the first quarter, and 25% each in quarters two and three'but some other firms collect as much as 40% of revenue in the fourth quarter, according to Rossi.

“At this point in the calendar, if the bill isn't out, forget it,” he said, noting that many clients close their books as of Dec. 15. “Now it's all about managing the list.”

“It's usually very quiet here post-Christmas … There's no extra hands; there's no overtime worked. If anything, we might step up communication with the billing attorneys,” he said.

Rossi is in charge of a collections unit, but said lawyer-client relationships are most important come December. Some partners won't agree to make a call seeking payment until this time of year rolls around, he said.

“You don't want to hound clients,” Rossi said. “It's always best to have it come from the client relationship manager …. You don't want to knock on that door too many times.”

According to Watkins, the December scramble is at least partly attributable to attorney compensation ' specifically, attorneys making a case for increased compensation by raking in receivables.

At Lindabury McCormick, the fiscal year syncs with the calendar year, but the “compensation year” end was moved to Sept. 30 several years ago, he said.

“To the extent the push is made for that purpose, we see it earlier here,” Watkins said. “It just took one more thing out of the to-do box in December.”

Watkins agreed with Felton that year-end payment tendencies depend on the size and nature of the client. Large companies want payables off the books ' often for tax reasons ' but for smaller businesses, year-end cash might become profit for principals.

“You've got to get your requests in early for those folks, because they might have other plans for the money,” he said.

December doesn't always mean a straightforward money-grab: How much comes in, and when, has tax implications for firms, too. For those organized as professional corporations, like Lindabury McCormick, a large, unexpected payment late in the year could spell tax liability, according to Watkins.

“We have to worry about managing our cash at year-end,” he said. “Cash management is really important to me ' almost more important than getting the things paid.”

Still, there's the matter of making the numbers.

“I have a target in my mind,” Watkins said, though he declined to share it. “I'm hoping people bring in some money.”

An offset fiscal year has taken hold elsewhere. At Philadelphia-based Drinker Biddle & Reath, for example, the fiscal year has for decades ended Jan. 31 rather than Dec. 31, Princeton managing partner Jonathan Esptein previously told the Law Journal.

At Newark, NJ's Sills Cummis & Gross, the fiscal year ends Sept. 30 ' also a long-standing tradition, according to managing partner R. Max Crane.

“In part it was to avoid the year-end craziness. … Even if we're here on Christmas Eve or New Year's Eve, sometimes it's hard to find the client” ' an issue that's “gotten worse over the years,” as holiday breaks seem to be extending, Crane said.

Crane noted that sometimes multiple levels of approval are needed to get an invoice paid.

“You're playing a game, betting that all these people are going to be there at the same time,” he said. “If they're not around, good luck.”

Even if Sills Cummis avoids its own December scramble, Crane said the firm ' and he personally ' has gotten calls from tax-conscious clients asking for an expedited invoice.

“It's a pleasant call to get,” he said ' not least because it saves firm lawyers from making the call themselves.

Some excel at that, while others don't: Like rainmaking, it's a skill unto itself, according to Crane.

“Lawyers who are brilliant and fantastic at practicing law may not be brilliant and fantastic at picking up the phone and asking to get paid for it,” he said.

“It never goes away … I think most lawyers have accepted it,” he said.

David Gialanella writes for the New Jersey Law Journal, an ALM sibling of Accounting and Financial Planning for Law Firms.