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Clients have lately taken more of a heavy-handed approach to minimizing legal costs, contributing to a longer collections cycle that developed during the first six months of this year, but some regions including Texas may be bucking that trend.

Citi Private Bank Law Firm Group noted the slowdown in collections industrywide in its report on the first half of 2019. The trend goes beyond clients delaying payment because of a question about a line item on a bill.

"Some firms talk of their clients unilaterally changing payment terms as a primary driver of the longer collection cycle," Citi advisers recently wrote in their first-half report. The report noted that e-billing systems and "greater scrutiny" overall on invoices has led to less money coming in during the first half of 2019.

Marcie Borgal Shunk, president and founder of The Tilt Institute, said it's true that legal departments seem to have been tougher lately in managing outside counsel billing by looking hard at bills to ensure that firms are following their guidelines.

"Unfortunately, there are law firms that don't do a very good job of managing it. Each client has a unique set of guidelines," Shunk said.

As to the Citi suggestion that clients are changing payment terms, Shunk said that may be a further step as clients become more proactive managers of their outside counsel and legal spend.

"They have the buying power," she said.

Companies typically revise or revisit their outside counsel guidelines on a yearly basis, which may lead to new obligations and rules for outside counsel, she said.

According to the Citi report, which was based on survey responses from 161 firms around the country, the collection cycle lengthened by 1.6 percent for the industry as a whole during the first six months of 2019. In Texas, by contrast, the cycle shortened by 3.8% at the 11 Texas firms in the survey. Pennsylvania law firms also saw the collections cycle shorten slightly, by 0.8%.

Collections: Bigger in Texas

Leaders of two Texas firms reported that they are not seeing any slowdown in collections.

"We haven't really seen any pressure on payments at all," said Mark Sloan, managing partner of Thompson & Knight, which is based in Dallas.

Lee Kaplan, a founding partner of litigation boutique Smyser Kaplan & Veselka of Houston, said his firm has been extremely busy this year, and collections are on the same pace as last year or even ahead of 2018.

He said he has not noticed any situation lately involving a client wanting to change payment terms. He does recall, however, that during the Great Recession, some clients moved to a 90-day pay cycle.

Kaplan also recalled one extraordinary instance around late 2017, when a client was having financial difficulties and said that, if the law firm didn't reduce each lawyer's billing rate by 25%, it would take its files elsewhere. Kaplan said the firm's response was to continue to work for the client, but only because it was a limited discrete matter that did not materially result in a financial hit.

"That's pretty unusual," he said of that situation.

In general, according to Kaplan, institutional clients agree to pay at around 60 days—some later, some earlier—and the firm generally knows what it's getting into when it begins a representation.

Kaplan said most clients fulfill their side of the bargain, except when there might be a question on an bill that delays payment, or when a client "gets in a pickle" and asks for some relief.

Growing Pain?

Lisa Smith, a consultant at Fairfax Associates in Washington, D.C., said questions on electronic bills can indeed lead to payment delays. That's not a new trend, but it happens, Smith said.

"One good practice is to make sure the submission on electronic billing is accurate the first time. Firms have found, if they spend more time on the front end, it gets into the payment system faster," she said, noting that another best practice is to move collections out of the hands of the responsible partner to the firm's collections experts.

Smith said that, while some clients do take advantage of their firms, sometimes firms are just not that aggressive in collecting money.

Shunk said slower pay is perhaps less of a trend than a growing pain, as law firms adapt to changing norms within legal departments looking to streamline.

"As more clients bring in professionals and put attention to these details, law firms will adjust, and as they adjust [collection cycles] will go back down," she said.

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