Top 5 keys to getting paid
Sadly, getting paid isn’t always that easy. But it’s also not that hard if you follow the steps below from a recent edition of GPSolo magazine. These tips come from Ann M. Guinn, principal of G&P Associates, a practice management consultancy in Kent, Wash.
- Get your billing rate right.
Set your fee too high and you risk pricing yourself out of the market; set it too low and you’ll struggle to make ends meet. Luckily, there is an easy-to-follow formula to help you calculate your minimum hourly rate: Minimum rate = target revenues ÷ (realization rate x billables goal).
To perform this calculation, you’ll need to know your:
- Annual target revenues: the total of your compensation and benefits, share of firm overhead and contribution to firm profits.
- Realization rate: the percentage of fees billed that you actually collect.
- Billables goal: the total billable hours you expect to work this year.
Plug these numbers into the formula above and the result is the minimum you need to charge per hour to meet your needs.
ABA Model Rule 1.5(a) states that your fee must not be “unreasonable.” The rule also offers other considerations in setting fees, including the complexity of the issues involved, the length of time it takes to perform the work, the going rate for similar legal services in your community, your particular skills and expertise, and more. Check your state’s ethics rules as well as the ABA rules to ensure you are in compliance.
Considering flat fees? Attorneys who think flat fees eliminate the need for timekeeping are wrong. You can’t know what to charge if you don’t know how much time the work requires. To make this determination, start by faithfully capturing all your time on each flat-fee matter. Multiply hours worked by your minimum hourly rate. Then, factor in the additional considerations listed in ABA Model Rule 1.5, and you’ll have your rate. Guessing isn’t fair to either you or your clients.
- Talk money with your clients.
During the initial consultation, frankly discuss the costs associated with the proposed work as well as your expectations of payment. Use your written fee agreement to explain your fees, billing practices, advance fee deposit, policy regarding past-due accounts and the scope of the work.
Remember that clients don’t want to be surprised by a large bill. Phone to alert your client in advance, and offer a short-term payment plan if the client is unable to pay the whole amount at one time.
- Always get money upfront.
An advance fee deposit is a demonstration of your client’s commitment to the work, and it helps protect you from a nonpaying client. Ask for at least the first two months’ worth of expected fees and costs. If your client can’t or won’t provide this deposit, understand that you may end up working for free.
An evergreen or replenishing deposit helps you get paid. Place the advance fee deposit into your IOLTA (Interest on Lawyers Trust Account) as usual, but bill every month for fees and costs incurred. Tell the client when payment is due (e.g., 10 days after receipt of your bill). If a timely payment isn’t received, pay yourself from the trust account. When the client’s check finally arrives, deposit it into the trust account to return the balance to its original level. Near the end of the matter, send bills with the notation “Do not pay” and instead use the funds in the client’s trust account. At the conclusion, the client either receives any remaining funds on deposit or owes you a final payment for unpaid fees. This system is a great way to ensure full and timely payment every month.
- Get full value from your billing statement.
Clients have trouble understanding an invoice that is short on detail. “T/C w/opp couns” doesn’t really tell the client anything. “Telephone conference with Mr. Brown regarding equitable division of the investment portfolio” does. Give clients a complete description and they’ll have less reason to question your bill.
Your billing statement serves three purposes. It helps you to:
- Communicate what you’ve been doing during the billing period.
- Market your services by demonstrating the benefit of your work to your client. (This is a great way to remind your client why you were the best choice for the job.)
- Collect money owed to you for legal services and out-of-pocket expenses.
If your bill isn’t serving all three purposes, you’re missing out. When your clients can understand the benefit of your work, they are more likely to pay without a fuss.
- Maximize your billing cycle.
When you bill also plays a major part in getting paid. Ask your clients for their billing preference, and they’ll have no excuse for not paying. To even out your cash flow, send out half your bills on, say, the fifth of the month and the other half on the 20th so that your bill arrives a few days before payday. Knowing when you bill will help your clients to budget. Bill regularly and promptly, especially when a matter concludes. Clients are more likely to pay quickly when they can still remember the value of your services and your attentiveness.
For five additional tips, see the full article online.
GPSolo magazine is a publication of the ABA Solo, Small Firm, and General Practice Division.
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