a usually commercial or mercantile activity
engaged in as a means of livelihood.”
No business willingly allows a customer or client to obtain goods and services without paying their bill. Our economy operates on a model based on trust that everyone will pay all of their financial obligations in a timely manner. Banks, insurance companies, hospitals, certainly the IRS, and even the local dentist are examples of entities with whom all of us do business. Yet, there are agreements that dictate when those bills are to be paid, and often there are automatic penalties and serious consequences when that does not occur.
Attorneys should not expect anything less than full payment based on the terms of the retainer agreement and bills sent to the client. After all, a legal practice is ultimately a business that takes on significant overhead and risk on behalf of clients who often face dire circumstances of their own. Yet, there many reasons why attorneys believe they lose more revenue than they would like due to non-payment or reductions of balances owed.
“Our client will sue us if we try to collect.”
“Our insurance carrier will raise our rates.”
“You cannot legally bill a finance charge.”
“The court will limit us on how much we can collect.”
“The client had or has no financial means to pay our bill.”
In some circumstances, an attorney may be legally or ethically restricted as to what is permissible in regards to collecting balances owed from a particular client. However, there are steps that can be taken early on to accelerate collections, reduce the total amount of write-offs, and minimize the chances of fee disputes.
1. Change your client’s way of thinking during the initial consultation.
Set the expectation before each client engagement that full and timely payment is expected in consideration for the quality services and representation that is about to be provided. All clients need to realize that to run a successful law practice that provides expertise, resources, and dedication to every case is ultimately a business that has financial commitments of its own.
2. Remind your client of their monetary obligation to you in the retainer agreement.
Many law firms have provisions in their retainer agreements about the use of finance charges and other legal consequences when clients do not pay their bill or pay late. Imposing finance charges and other financial penalties is one of the most effective tools that business entities use to encourage clients to pay their bills on time. Credit card companies, banks, and the IRS are examples of institutions that motivate us to pay our obligations on time because the balance owed will continue to increase. Law firms, who simply re-bill the same balances month after month without financial and legal consequences, are using a poor motivator for a client to pay in a timely manner. Many time and billing systems have finance charge capabilities built into the software, and can be an effective tool to manage delinquent clients.
3. Collect a sufficient retainer.
There is no time like the beginning of a client relationship to ask your client for money in advance of services for hourly or flat fee work. Your retainer should be sufficient to cover most of the fees and costs based on comparable work that you have performed in the past. You should be able to get this type of information from your billing system, by analyzing billable and non-billable time spent on similar cases. A client who will not pay your retainer may not have any intention to pay you at all.
4. Keep detailed time records, case notes, and a complete case docket in an automated fashion.
Maintaining a comprehensive record of time and costs spent on each case is critical to heading off collection issues and fee disputes in the future. Time capturing activities need to occur daily and simultaneously as work on each case is completed. Some billing and practice management systems have features built in that give you the ability to manage multiple timers and log case notes, maintain a complete case docket, and store emails and documents by case for easy retrieval. A good system will make it easy to create billing entries as you are performing those tasks. Managing the caseload in this manner will help capture additional revenue by being more precise with your timekeeping efforts.
5. Bill as often as the case type allows.
Attorneys sometimes take too long to submit bills to their clients after time and costs have begun to accrue. Submitting a series of bills on a regular basis provides an opportunity for clients to see the work completed to date and, if necessary, an opportunity to contact you if there is a concern. Clients are more likely to pay a series of smaller bills rather than a larger single statement for services after the work is completed. This practice may help you further in the event of a fee dispute or if you decide to sue your client for payment.
6. Make it easy for clients to pay you.
Attorneys should submit billing statements with the remittance information on each bill. Consider including a return envelope for the payment to make it easier for the client to process your payment and get it in the mail. Accepting credit cards are another payment option to consider given their popularity. The few percentage points paid to the credit card company is a small cost of doing business, if it means you can shorten the collection cycle.
7. Stay on top of the accounts receivable report.
The accounts receivable report is a critical document that requires review on a weekly or bi-weekly basis to review client balances owed. Clients falling into the 30 to 60 day column of accounts receivable report should be red-flagged early on. Once a client’s balance starts heading toward the 90-day plus column, your chances of collecting easily diminish greatly. Call clients directly to see if there is a reason for the delay in payment. Perhaps they have a concern or a question about their bill. In either case, document their responses and include the date as to when you can expect payment. If a client cannot pay your balance in full, then they should agree to and sign a payment agreement. Clients owing money should be re-billed every month with finance charges included as an incentive to pay you as soon as possible.
8. You did first class work, documented it well, and provided every opportunity to get paid. Should you sue your client?
Several years ago, a senior partner at a mid-sized law firm was showing me around his firm. He seemed particularly proud of one area with several people working in it and referred to it as the Law Suit Room. He said, “I give clients every opportunity to pay their bill. I will agree to payments of $5 dollars a week if circumstances warrant it. But if they refuse to pay, we sue; it’s just that simple.”
Treating a law practice as a professional business entity with good business and client relationship practices at the start of the engagement is worth the effort. The steps outlined here can help you collect balances owed faster and significantly increase revenue that may have been previously lost due to write-offs and fee disputes.