Law firms spend a lot of time analyzing profitability through billing and accounts receivable. Did our lawyers record all their time? How much was written down before the bill went out? Did the client pay the full amount, and how long did it take to collect? But accounts payable rarely gets that same attention:
Few firms stop to ask whether a different way of paying their bills could keep cash available longer, reduce what those payments cost the firm, or save their finance team time. But for firms looking to increase profitability, a closer look at accounts payable may reveal ways to make better use of cash and credit facility while keeping more revenue.
Most firms think about “working capital” as cash in their operating account plus the amount available through a line of credit, but how and when the firm pays its bills also determines how long cash remains available and how quickly its line of credit is used.
Different sources of credit should serve different purposes. For example, a commercial card can provide shorter-term credit for eligible operating expenses while saving your line of credit for payroll during a slow collection period or funding a larger investment. Strategically using cards preserves a firm’s borrowing capacity for larger needs and reduces the firm’s interest payments.
We recommend starting with a clear picture of how the firm pays its expenses today:
Most firms use cards primarily for travel, entertainment, and other employee expenses. The larger missed opportunity is often vendor payments; software subscriptions, filing fees, and other recurring expenses paid by check or ACH may also be eligible.
Webster Bank can review your firm’s accounts payable file and identify which vendors accept card payments and how they accept payment, including card-on-file, point-of-sale, and virtual card transactions, showing the firm which of its existing payments could potentially move to a card.
But eligibility is only the first question; firms still have to determine whether changing the payment method makes overall financial sense.
Once your firm identifies which payments are eligible for commercial card payment, you can compare the impact of using a commercial card against paying directly from cash. Benefits include:
Paying through a commercial card program can keep cash in your firm for another 45 to 60 days. Vendors are paid when transactions are processed, but your firm doesn’t pay the card balance until its billing date. The exact amount of time depends on when the purchase falls within the billing cycle. Webster’s commercial card accounts are paid in full each month without interest charges, and firms can select a billing date that fits their accounting cycle and check runs.
Law firm collections rarely arrive on time, every time. But payroll, rent, and other expenses continue on schedule even when clients pay later than expected. If your firm would otherwise draw on its line of credit to cover that timing gap, using a commercial card for eligible expenses may delay that draw, reduce the outstanding balance and related interest expense, and preserve more of the line for other expenses.
When lawyers use personal cards for firm expenses, the firm reimburses the charges and the lawyers keep the points. Webster’s corporate commercial card program pays your firm a cash rebate based on its annual spending and deposits it directly into your Webster Bank account.
Checks must be prepared, approved, issued, and reconciled, and personal card reimbursements require the finance team to collect and review receipts, code expenses, and enter them into the accounting system. Moving your eligible spending into a commercial card program usually reduces a firm’s staff time.
The firm still needs to run the numbers for each vendor or category of spending; for example, some vendors may charge a surcharge for card payments. Webster helps firms compare the surcharge with the rebate, the additional time before cash leaves, any interest expense avoided, and the reduction in administrative work. A card may make financial sense for one vendor, while a check or ACH works better for another.
Cost isn’t the only consideration when it comes to comparing payment methods. Firms should also consider how much control they have over spending, how quickly they can spot problems, and how much information they get once a payment is made.
Most spending policies are enforced after the fact. But by the time your accounting team reviews expenses, the money is already long gone. Commercial cards allow the firm to apply some of those rules when the transaction is attempted instead. Webster’s program allows law firms to:
Your program administrator can set monthly and per-transaction limits for each cardholder and change them in real time through Webster’s portal. The firm can also restrict the types of businesses where a card may be used.
A lawyer traveling for work, for example, could use the card for airfare, hotels, and meals while retail purchases are blocked. Each person can receive the spending authority required for their role, so the firm doesn’t have to choose “one size fits all” limits and permissions for the whole firm.
Eligible virtual card payments create one-time card numbers for specific payments, reducing risk of fraud. Moving vendor payments away from checks also reduces how often the firm shares its bank account and routing information.
Webster’s program is based entirely on corporate liability, so individual lawyers and employees don’t have to provide Social Security numbers or undergo personal credit checks. Visa also provides Webster’s firms with up to $100,000 per card in employee misuse coverage, subject to the program terms, with up to 75 days of protection for terminated employees.
Webster provides transaction- and statement-level information through the same system used to manage the cards. Program administrators can see spending as it occurs, managers can review expenses online, and reports can be sent automatically on the firm’s schedule. Cardholders and administrators can prepare and review expense reports sooner. The firm can also see spending by cardholder, vendor, department, and expense category. That makes it easier to spot unusual charges, rising recurring costs, and opportunities to consolidate vendors, negotiate better terms, or adjust your budget.
Filing fees can be assigned to the appropriate matters and clients, while subscriptions can be assigned to the correct departments. In fact, Webster can create a daily file feed that mirrors the firm’s accounting requirements and sends it directly into its accounting or ERP system. For spending moved into the program, the firm receives one consolidated invoice rather than issuing separate checks or processing individual reimbursements. That means your finance team spends less time entering information, allocating expenses, and reconciling payments.
The right setup will depend on what your firm spends, who needs purchasing authority, and how you organize your accounting function. We treat every commercial card implementation as a customized project, with specialists who help the firm design its controls, reporting, and data feeds.
The broader opportunity is to get more out of your firm’s banking relationship. A firm should have enough cash available to operate, access to the right credit when it needs it, and payment processes that help rather than burden the finance team. You should also be able to see where money is going, reduce unnecessary costs and fraud exposure, and spend less time processing and reconciling transactions.
Webster’s dedicated law firm team can look across your financial operations and bring in the right specialists across the bank as needed. Because our team understands how law firms earn, collect, spend, and manage cash, we can help you build a working capital strategy around your firm’s specific needs.
If you’d like to talk through what that could look like for your firm, our law firm banking team is ready to connect. Contact us.
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