1. Get Your Billing Rate Right
Deciding what to charge is nerve-wracking. 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’s an easy-to-follow formula to help you calculate your minimum hourly rate:
Minimum Rate = Target Revenues ÷ (Realization Rate × 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 your fees, including the complexity of the issues involved, the length of time in which 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? Clients love them. Many attorneys also love them—but attorneys who think that 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.
Combining several different fee arrangements into a hybrid fee makes sense when certain parts of the case are predictable (e.g., filling out the initial forms, preparing the complaint, etc.), and others aren’t. For instance, you might charge a flat fee for preparing a buy-sell agreement but switch to an hourly rate if you participate in the negotiations between the buyer and seller. Provide for some billing flexibility in your fee agreement in case something unforeseen should arise.
2. Talk Money with Your Clients
Start the attorney-client relationship out right. 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. I know of one attorney who made the mistake of starting work without a signed fee agreement. Her client conveniently “forgot” to bring the fee agreement to every one of their meetings. When the matter was resolved, the client refused to pay the attorney, who—lacking any written proof of an agreement regarding fees—was out $27,000.
Finally, 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.
3. Always Get Money Up Front
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 advance fee 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., ten days after receipt of your bill). If payment is not received timely, 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 and costs. This system is a great way to ensure full and timely payment every month.
4. 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 actually serves three purposes. It helps you to:
- Communicate what you’ve been doing during this 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 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, you will be more likely to get paid without a fuss.
5. Maximize Your Billing Cycle
When you bill 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 in advance of a payday. Knowing when you bill will help your clients 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.
6. Choose the Right Clients
One of the most critical keys to getting paid is accepting the right cases and clients. As a lawyer, you’ll meet the good, the bad, and the ugly clients repeatedly throughout your career. The trick is to spot the potentially problematic folks right up front. Learn to trust your gut instincts and you’ll be a lot happier—and, hopefully, properly paid.
Develop an “Ideal Client Profile” listing specific characteristics that are important to you (e.g., gender, age, geographic location, income level, credibility, or reasonableness). Compare each potential client to this profile. During the initial consultation, ask yourself questions that relate to the client’s ability to pay, including:
- Who will win this case (from the judge’s point of view)?
- Does this case make economic sense? Will my potential client come out with money—more money than he/she will owe me?
- Can this potential client pay the advance fee deposit or flat fee up front?
- Does the potential client have the financial fortitude to pay the bills and costs in a worst-case scenario?
- If the client doesn’t have the money to pay the costs, am I in a position to advance the necessary costs so that justice is served?
- Is my need for money right now influencing my decision on this client?
When in doubt, say “no.” You can’t afford to work for free, and you aren’t serving your potential clients’ best interests by helping them incur huge debts they can’t afford. Refer them to a legal clinic or a low-bono attorney and make room for a client who can pay your fees.
7. Keep Accurate Time Records
It’s pretty simple, really—record your time and get paid for your work, or fail to record your time and give away your work. Contemporaneous timekeeping is the only way to ensure that you are billing your clients fairly and getting paid for all time worked.
Get in the habit of recording all your time, including administrative and other non-billable time. The information gained will help you make the best choices on how to use your time, as well as show you whether or not the cases you are taking are profitable. Use your timekeeping software timer or write down your start and stop time for each task during the day. To develop this discipline, set a kitchen timer to go off every 15 minutes to remind you to enter start and stop times. This way, the most you’ll lose is a few minutes—but, even that is problematic. Consider this: If you charge $200 per hour and fail to capture just six minutes of billable time per day, you’re losing about $4,800 per year. If you aren’t recording time contemporaneously, you’re losing more than this. What could you do with that money?
Charging a flat rate of, say, 0.2 hours for a phone call or for reading and responding to an e-mail (regardless of the actual time involved) eliminates the nuisance of tracking little bits of time. Just make sure to explain your billing policy clearly in your fee agreement.
8. Keep Accounts Current
Unlike a good cabernet sauvignon, your accounts receivable do not improve with age. Take action immediately when the account first becomes past-due. Personally phone your client to determine if there is a problem with making a payment. If so, work out a payment plan that will get the client caught up before the end of the next billing cycle, if possible. (“Would it help you to pay half of the bill this Friday and the other half in two weeks?”) If that doesn’t work, try a strongly worded letter with a deadline for payment. If still nothing happens, consider temporarily stopping work or withdrawing from the case, if allowed—and file the lessons learned for future reference.
If all else fails, consider sending your seriously aged accounts to a reputable collections agency. (Note: Most malpractice insurers, and some state bars, prohibit suing clients for unpaid fees but do allow the use of a collection agency. Check your local rules and insurance policy before proceeding.)
9. Make It Easy for Clients to Pay
Offer your clients a choice of ways to receive and pay your bills. Adding a private client portal to your website will save the time and costs involved with mailing bills. Provide a personal access code and a click-through “pay here” button for convenience. If your clients prefer to receive bills via e-mail, include a link to your payment portal or credit card processing service. And remember, some clients still prefer a paper bill.
Take credit card information up front (with the client’s signature on file) and secure written permission to charge the card if a payment is not timely received. The easier it is for clients to pay, the less reason they have to pay late.
10. Always Do Your Best Work
The last key, and the most important, is simply this: Do your best work every time for every client. Your services come with a price, but your reputation is priceless. Become known for honesty, integrity, client care, and excellence, and lots of great clients will gladly pay for the privilege of having you represent them.