Billing 101

By Allison C. Shields

The attorney-client relationship relies on trust. Certainly, clients must trust in your legal skills, but they also must trust in your everyday interactions with them—especially when it comes to billing and fees. Every lawyer wants clients who are happy and loyal, who refer business, and who pay in full and on time. The way you approach billing can have a profound effect on whether you are blessed with these kinds of clients.

To establish a relationship of trust when it comes to billing, you must ascertain and manage the client’s expectations, set an appropriate and client-friendly fee, and establish good procedures. Exploring these matters from the client’s perspective will greatly improve your chances of having a satisfied, well-paying client.

Ascertain and Manage the Client’s Expectations

There are many ways to calculate your fees, but no matter what method you choose, it is imperative that you have an in-depth discussion with the client at the beginning of the engagement. This initial discussion can set the tone for the entire relationship. Under-informing clients about costs and fees or over-stating the likelihood or amount of anticipated recovery risks damaging the client’s trust.

No two clients have identical expectations, even clients who appear to have identical legal problems. It’s your job to determine each individual client’s expectations and work with the client to determine the appropriate course of action.

The initial consultation should define the scope of the engagement, identify the results the client wants to accomplish, establish the value of the engagement to the client, and eliminate any objections or misconceptions. During this meeting, asking questions and listening to the client’s answers are crucial.

Define the scope of the engagement. No matter how eager you are to get started or jump in to help a new client, you must be clear with the client about the scope of the work you are going to perform. Is the client retaining you for purposes of attempting a settlement only, or does she expect you to commence a lawsuit on her behalf if settlement discussions fail? What about an appeal? Does the engagement to prepare a will include preparation of a trust document, living will, and power of attorney as well? Are there other services included in the engagement, such as a review of current documents or policies, or will such services require an additional fee?

The client may not know what a typical engagement of this type usually involves. Therefore, it is important to clearly state the scope of the engagement during the first meeting. Include the anticipated length of time of the engagement and the steps or stages involved.

Identify the desired result. What is the client’s ideal outcome? Consider the client’s needs, wants, and expectations and discuss your services and your fees in those terms. Does the client require a specific selling price in order to afford the new house he intends to purchase? Will the failure to take action on a breach of contract require the client to default on other obligations?

If possible, have clients quantify their desired outcome. If the desired outcome can’t be easily quantified in a “hard” number or dollar figure, ask questions to establish what the engagement means to the client. Is there some intangible emotional attachment to the outcome? Perhaps the client wants to proceed with the engagement out of some sense of fairness or justice, and the monetary outcome is secondary or even unimportant. Maybe the client wants to protect his reputation or to make a point in his industry. Perhaps the client wants to take advantage of a business opportunity.

After the desired result has been identified, discuss the likelihood of reaching that result with the client. This is the time to explore alternatives and define the ideal versus the acceptable outcome—as well as those results that will be entirely unacceptable to the client.

If a client’s desired result is unlikely or unrealistic, it is imperative that you explain why. It is always easier to deal with these issues at the beginning of the engagement than to explain them to a client after work has commenced.

Establish value. Now that you know what the client wants to accomplish, you must determine the value of the representation to the client. Establishing value takes the client’s desired result one step further. It requires you to explore the far-reaching implications of the outcome of the matter and of the process itself.

What is it costing the client to do nothing? What will it cost if the client delays taking action? What opportunities might the client miss? What would it mean to the client to reach his objective? How will the result achieved affect the client’s business or personal life? As with desired outcome, value may be intangible. Each client’s circumstances, background, goals, and perspectives are different. These factors will affect what the client values and the course of action the client wishes to pursue. And, of course, all of these will affect the fee.

Establishing value also requires that you differentiate yourself and your service using the client’s values and priorities. Make yourself irreplaceable and create loyal clients by taking the time to ascertain the key elements that are important to them and focus your services around those key elements to set you apart from others. Articulate the benefits your clients will receive as a result of working with you. Keep in mind that what you’re really selling is your expertise and your ability to help clients reach their goal or eliminate or reduce their problems—you aren’t selling the time it takes to reach those goals. The more valuable the client considers the representation and the outcome to be, the less price-sensitive the client will be.

Dispel the client’s objections and misconceptions. Clients come with preconceived notions about their case and the legal process, and objections or misconceptions about lawyers, their services, and particularly their fees. Explore these ideas with clients at the outset to correct any misconceptions and address any underlying objections or fears that the client may have.

Sometimes discussing the client’s expectations in depth leads to a determination that these expectations are unrealistic or don’t align with your way of practicing law. Early identification of problem clients or issues allows you to avoid entering into a relationship with a client who cannot be realistic, won’t let go of inflated expectations, or doesn’t value your advice.

Client-Friendly Fees

Take the client’s priorities and values into consideration when quoting the fee. Communicate your fees in terms of the value the client will receive rather than the cost of providing those services or the number of hours required to complete the matter.

Fee structure. In a successful lawyer-client relationship, both sides will feel that they got a fair deal at the completion of the case—the client will feel that she received good, solid legal representation in exchange for the fee paid, and the lawyer will feel that she received fair compensation. How effectively is your pricing tied to the attributes the client most highly values?

Many pricing strategies put you at odds with your clients, interfering with the relationship of trust between attorney and client. Clients are concerned with the overall cost of the representation, not just a billable rate. Merely because most lawyers in your practice area use the same method of calculating fees doesn’t mean that you can’t devise a different system that comports more with your clients’ wants and needs. Offer an alternative fee structure, or quote a fee up front for the entire engagement.

No matter how you calculate your fees, provide an estimate or budget based on the client’s desired outcome and realistic expectations of what will occur during the engagement. Explain how your fees are calculated and give the client an opportunity to ask questions.

Set a fixed fee based on your experience and the information available at the beginning of the engagement and then use “change orders” when circumstances change or unforeseen issues arise. It is not always possible to anticipate all of the costs or fees in a particular matter. There may be factors outside your control that will affect the fee. Although you may not be able to predict the actual cost of these items, be sure to advise the client of potential factors that would change the outcome, the fee, or the time it will take to conclude the matter.

Even if you can’t quote a fee up front for the entire matter, you may be able to offer the client a fixed fee in stages. At the beginning of each stage, quote a fee for that stage based on what has already occurred and what you anticipate for the next stage. When the scope of the work and the fee are agreed on before the work is performed, the client won’t be surprised by the bill later.

Consider providing the client with options. Package some services together at a different fee than the services would be priced separately, or provide additional services to the client at a premium fee. Try establishing a minimum fee with the basics of your services, as well as more aggressively priced premium options that provide higher value. Consider incorporating unlimited access to you within your premium package, thereby reducing the client’s anxiety about additional fees or expenses for each communication. Options give the client some control over the amount of services and the level of the fee.

Explaining the fee. The time to discuss fees is at the beginning of the engagement, when the need for your services is greatest. Your services are always more valuable to the client at the outset of the engagement. After the matter has been completed and the services have been performed, the balance of power shifts to the client—who becomes much more price sensitive. Clients who start off unwilling to pay for your services when their problems have yet to be solved and opportunities might still slip through their fingers will not become more willing to pay in the future. A client who feels he has been blindsided by unexplained or unanticipated fees or expenses will begin to lose trust in you. It’s much better to under-promise and over-deliver than it is to over-promise and have to explain later.

Some resistance to fees is normal. But if the client understands the scope of the engagement and the necessary steps involved, and if the fees are based on the value of the engagement as articulated by the client, that resistance should dissipate. Pay attention to that gut feeling if clients are pushing back too much—if they don’t value your services or the anticipated outcome, it may signal a problem. Keep in mind, however, that if you never perceive any resistance whatsoever to your fees from any of your clients, your fees may be too low.

No matter how you price your services, you must review with the client:

  • Your rates and how they will be calculated (hourly, flat, contingent);
  • Whether there is a maximum or upper limit to your fees;
  • Whether the fee is tied to results;
  • The frequency of bills and when payment is due (upon receipt, within 15 days, etc.);
  • The format of bills and what they will contain;
  • The scope of services to be provided;
  • The circumstances and variables that may affect the fee;
  • Additional costs and expenses that may be incurred, such as expert witness fees, filing fees, and appraisal fees; and
  • Information about withdrawal for nonpayment or other consequences, including interest fees to be charged for late payment.

Each of these points should be covered in writing in your engagement agreement. As you explain the fee agreement, have the client initial the fee provisions in the agreement.

Guarantees. Providing a guarantee gives the client a reason to contact you at the first sign of discomfort, rather than after the client is so dissatisfied that the relationship is beyond repair. Most lawyers already effectively guarantee satisfaction by reducing the fee, writing off or writing down the bill, or discounting or foregoing collection if the client complains or fails to pay. But those “guarantees” are given after the client is already dissatisfied or has failed to pay. By then, it is usually too late to salvage your relationship with the client. Guaranteeing service up front increases the client’s level of trust without changing the practical effect on your services.

You can only guarantee what you can control. Never guarantee results—they’re outside of your control (and such a guarantee would likely violate your state’s ethical rules). You can guarantee a certain level of service and commitment to your clients.

Good Billing Practices and Systems

Whenever possible, get paid up front, or use evergreen retainers in which the client replenishes the original retainer as work is performed (subject to your jurisdiction’s ethical rules).

If you must bill hourly, meticulously track your time. Record your time as you perform the activity, rather than trying to recreate it later. Your bill should reflect all of the activities you performed and all of the time expended, even if you decide not to charge the client for some of those services. The client should be aware of all of the work you perform.

Use billing as an opportunity to communicate and reinforce the value you provide to your clients by detailing the work performed and what it means to the client. Even if you receive payment up front, you should document your services and the status of the retainer fee. Don’t wait until the retainer is exhausted before alerting the client that additional payment is due.

Your bills should be readable and understandable. Review the bill as if you were the client and had no knowledge of the matter or the practice area. Is the entry written in language that your clients can understand, free from legal jargon?

A good billing entry itemizes who performed the work, what was done, when, and why. For example, instead of an entry, “Research,” say, “Research current case law in support of motion for summary judgment on issue of homeowner’s exception to the labor law.” Rather than “telephone call to client,” say, “telephone conference with client regarding scope of work to be performed pursuant to contract.”

Bill while services are fresh in the client’s mind, particularly at the end of an engagement; don’t wait until your regular billing cycle is completed. Include the balance, due date, and preferred payment method on every bill. Tell the client who to contact with billing questions and how to contact them.

If you haven’t communicated with your clients directly about the status of their matters in a while, it is a good idea to do so before the bills go out—nothing is more aggravating to clients than the impression that their lawyer has time to bill them but not to communicate directly with them about the case.

Collectibility declines over time. Create a system for following up on accounts receivable. Send a follow-up letter a few days after payment is due. If no payment is received, follow up 15 days later in writing. Call the client once bills are 30 days past due.

Your billing practices, fee structure, and the way you communicate the value of the work you perform can all reinforce the attorney-client trust relationship—if you keep the client’s perspective in mind.

Allison C. Shields, Esq., president of Legal Ease Consulting, Inc., helps lawyers attract and maintain high-value clients and improve their productivity and profitability. Read her blog at www.legaleaseconsulting.com or visit her website at www.lawyermeltdown.com. She may be reached at 631/642-0221.

Copyright 2008

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