I know that you are glad that we are finally out of the area of "accounts receivable." We are still talking about the area of "billing" which is one of the five areas that make up every business in the world. The other four parts of every business are : "Clients" or "customers"; "Administration"; "Getting the work done"; and "Collecting.

This week we are going to talk about "accounts payable list." You are probably wondering what "accounts payable" has to do with "billing," the answer is simple, whenever you spend any money on behalf of the client, you want to always see if there is a way that you can recapture that cost from the client. Oftentimes you will be in a situation where you have utilized a court reporter, an expert, a consultant, an accountant, a supplier, and other type services on behalf of a client. The first question that you have to ask yourself is, "can I pass this on to the client, or is this an expense I have to eat?" I highly recommend that you pass on everything to the client that is a cost with regard to their case or their matter that you possibly can.

Just because you have billed your client for this expense that you have incurred in their matter, does not mean that you have actually paid the supplier. You must keep track of the expenses that you bill to your clients, and you must keep track of those people that you owe money to on behalf of your client's matter.

Of course, you will have other accounts payable in your firm, and I highly recommend that you put together an accounts payable system that includes both firm expenses that are not to be passed on to a client, as well as expenses that can be passed on to a client.

Remember, "happiness is a positive cash flow!" If you pay off all of your accounts payable, you are likely to get stuck in a cash bind. Oftentimes, you will incur the expense on behalf of the client, but the client doesn't pay you right away, also you can incur the expense in a contingent fee case, and there is technically no money on that case to pay that expense until you recover at the end of the case. Some people will wait for their money, and others won't! Obviously, if you want to get a reputation for being a good person to do business with, pay all of your bills immediately.

What we have tried to do in or office is to pay every bill as soon as we can, but in some instances we have not been able to do that, and then we sometimes talk to these people who we owe money to, and ask them if they would be willing to work with us and pay them when the matter is resolved or when the clients pay the bill. In any event, it is absolutely imperative that all of these people get paid their accounts payable at the time that the case is resolved, or at the time that the client pays you for the expense, whichever is first!

I have set out in this article a copy of a form that I utilize in my office with regard to accounts payable. You can see that this form is called "accounts payable overview." I think that all of the categories are self explanatory.

The firm operating expenses can be determined from the next form that I will talk about in this article. This is also true as to the firm operating expenses that are past due and also case expenses and other non-firm expenses.

If you look at filling in the blanks on the form that I have set out here, you can see that if you have firm operating expenses for the current month that you have not paid yet of $5,000.00, and then you have firm operating expenses that are past due of another $2,500.00 and then case expenses and other non-firm expenses that you haven't paid yet of $10,000, you can then add those three amounts together and you will obviously be instantaneously aware of the fact that your total amount of your accounts payable for that particular month at that particular time are $17,500.00.

Also, you can see that, as you are taking that amount of money and showing it over a month-to-month basis, you can see whether or not you are making progress on your accounts payable. Also, on this quick overview sheet, you want to look at the short term liabilities and long term liabilities so you can see what your total liabilities are, and again, are those going up or are they going down?

Then what I try to do is also look at these things on a year-to-year basis, not only the accounts payable, but the short term liabilities and the long term liabilities, and of course, the total liabilities, and then ask myself the question "over a period of time, has my law firm been doing better, has my law firm been doing worse, am I making progress or are things not going in the direction I want them to?" I can take a snapshot of this at any time and I can tell you at any given time where I am at with regard to that, and I have to tell you that generally it's good news that we seem to be making progress all the time.

Next week we will continue to talk about the area of "billing" with regard to "accounts payable."

Talk to you next week!

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.