In my experience obtaining clients and getting paid are the top challenges for attorneys in private practice. These problems are more critical for attorneys who practice as sole practitioners and in small law offices because it takes staff and systems to attract clients and get paid.
There can be a relationship between getting paid and attracting new clients. Clients who feel you have accommodated to their needs with a tailored billing plan often will refer new clients to you.
Getting paid has not gotten any easier; it requires communication, accommodation, systemization and determination. It also requires you to be nice but professionally clear and firm about your payment expectations, and to implement billing methods that reinforce your payment agreement.
The economic collapse of 2008, the following recession and the painfully slow recovery has not helped; but getting paid was not that easy for sole practitioners and small law offices before 2008.
The financial collapse and the very slow recovery are due to the debt overhang. In short, too many people owe too much money and they have fewer assets of value such as homes from which to draw. In this environment you have to be realistic. You will not get paid in full by every client every month, but you can set up minimum monthly payments so you can get paid something by every client every month. Clients who pay are invested, and the more they pay the more they are invested in paying.
That said, clients have to feel like they are paying for something of value. Here, most transactional attorneys have a disadvantage called “no deliverable” at the time when you ask for payment. The best you can do is create a bill that communicates value for payment. To clients who usually are not present for 90 percent of the work you do for them, the bill is often your only documentation of value.
Learning how to communicate value is tricky. “Attempted phone call $10” is not billing for value. “Six attempted phone calls and one successful phone conference during which we discussed Barkers proposal and Connors counter proposal” is value. Incorporating descriptive summaries of your accomplishments will communicate your value to your clients.
Accommodating to your clients’ payment abilities will improve your chances of getting paid. Once you learn how to create a bill that communicates value for requested payment there are six rules I have developed for maximizing your chances of getting paid on time and in full.
I suggest that you meet with every new client and talk frankly about projected fees and costs and how the client may be able to pay. If you and the client can reach an agreement you both can accommodate, you will want to put this agreement in writing. If you use a Representation Agreement you can integrate the Representation Agreement and the Payment Agreement, but in that you might have to redo the latter, I prefer a separate agreement. Also, in a couple of paragraphs I will talk about referencing the agreement in your statements to the client.
The most popular payment plan is the minimum monthly payment, but if the client can afford to pay a retainer the next most popular plan is the Evergreen Retainer where the client pays a retainer and agrees to maintain a certain retainer balance which is billed automatically to the client when the retainer reaches a certain minimum balance. Example: The client pays upfront a $3000 retainer, and when the retainer balance reaches $1500 the client agrees to pay another $3000. To support this system, it is best to have the ability to bill the Evergreen Retainer by email the minute the client’s Retainer Balances reaches the minimum.
I recommend calendar billing. If you or your staff need to discuss bills with clients, it is easier to talk about January, February or March instead of some date range that is not a month. Of course, not every bill like a closing bill should wait until the end of the month, but for ongoing matters monthly billing is the clearest and the most client-friendly way to communicate value and ask for payment. This does not mean you have to send out bills on the last day of the month. Everyone needs time to get the bills together. A bill send on the 5th of the month can document at least all services performed for the previous month. Sometimes bills for costs take a while, but these are less important to be substantiated during the month in which they occur. Your professional services however tell a story or should tell a story and the story is best documented month by month.
Some firms also send out a cumulative statement at the end of a matter showing all fees, costs, payments, trusts and retainers and the ending balance. This is an excellent idea. For court approved fees history statements are often required.
It is important to bill like clockwork. If you usually bill between the 5th and the 7th for the prior month, keep that up and do not let bills go out days later. A late billing for one month can affect your cash flow for months following. Businesses with good cash flow are very serious about billing on the same business day every month. Take heed.
Your bills to your clients should look like bills, not correspondence. They should clearly display an amount due and a “Payment Due Date”. A bill that says, “Pay upon Receipt” will not help you to be paid in a timely manner. Your bills must have a payment due date so you and your client know when the client’s payment should reach your office.
Another element of the statement format I referred to earlier is the reference to the Payment Agreement. You want to make sure every statement for which there is an applicable special payment agreement that the agreement is annotated on the statement. I recommend the reference be placed before the list of fees and costs charges. The statement should clearly, summarize the agreement, such as “Per Your Payment Agreement, you will pay a minimum of $300 a month if you cannot pay the balance in full”. Or, “Per Your Payment Agreement, you will replenish your retainer with a $1,500 retainer payment when our retainer balance is less than $2,000.”
You must be prepared to notify your client at once by email and mail when you have not received payment by the payment due date. This can be a very friendly reminder but it should be professional and the wording should relate to the amount overdue. If you received partial payment (not the minimum) the reminder should thank the client for the partial payment, request full payment and offer another payment plan. Do not get in the habit of taking partial payments that are not included in your payment agreement.
Emailing bills is done as a matter of course today, but do not expect the same level of payment as mailed bills. People do not yet handle emailed bills with the same discipline as they handle mailed bills. Emailed bills often get bypassed and disappear in the clutter of the email inbox. Unless clients print them out they do not tend to be very effective. Emailed bills work much better with business clients than non-business clients. If you really want to email bills, try it, but the minute a client misses a payment notify the client you think mailed bills will work better. Emailed bills work much better if you have a link to a payment site, but not all clients are prepared to pay legal bills by debit or credit card.
If you have a minimum payment plan set up with your client, be sure to bill the full amount and the minimum payment amount, just as credit cards companies provide bills that allow customers to make a minimum payment or pay in full. Unlike credit card companies, you cannot charge interest on the unpaid balance. You can charge a late charge but the late charge only can be computed on the amount the client had agreed to pay you or the minimum payment amount. A late charge is a charge for not paying on time; it is not a finance charge. If you are going to charge a late payment charge I suggest a flat amount not a percent so there is no confusion that you might be charging interest on an unpaid balance. I have witnessed legal complaints over late payment charges.
In my experience, however, late payment charges are not the best way to encourage clients feel good about paying you, and although our company offers them I do not recommend them.
Bill format and paper suggestions:
Be sure to post the payment due amount on the right hand top of the bill and the bottom. To make the bill look more like a bill I suggest using perforated billing paper which is available at most office supply stores of any size.
Phil Paisley is President of attorney billing service and software company Interbill. Paisley was the Co-founder of WordStar the first word processing system for personal computers and the first word processing system co-developed with Microsoft for DOS and Windows. Before WordStar, Paisley worked for Lex Systems installing and developing billing systems for larger and mid-size law firms. Paisley is a recognized expert on lawyer billing.