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Inventory Management

By Bo Yancey

As many of us are painfully aware, the credit crisis in the financial markets has resulted in downstream effects for almost all businesses, both in the United States and abroad. Law firms have not been shielded from the downside. Not only have clients provided less work as the economic slowdown has worsened, but they have also been more reluctant to part with cash, and some have increasingly used vendors and accounts receivable as sources of financing. None of this is good news for law firms that measure both their income and profitability on a cash basis. Clients withholding payments directly impacts partners' bottom lines. As such, law firms are always focused on billing and collecting as much as they can in the last quarter of the year. The current crisis has trumped even the most diligent efforts of law firms to bring in cash, and it illustrates the importance of having sound inventory management practices that are followed throughout the year.

Just how much of an impact was felt in 2008? At Redwood Analytics, we routinely collect and analyze data to monitor firm inventory management trends. At a high level, our benchmarking output does not appear to indicate anything to worry about. Collect speed, or the number of days between the date of billing and the date of collection, was stable compared to the prior year (57 days). The same goes for bill speed ' both 2007 and 2008 reflected 55 days between date of work and date of billing. But analytics need to be taken past this high-level review. There's more to the story.

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