GPSOLO October/November 2007
How to Improve Your Financial Health When Clients Don’t Pay
Admit it, you hate getting your clients to pay your bill. This knot develops in your throat and you can barely get the words out. “Ah, ah, yea, doing great, no, no, there’s no problem. Ah, ah, ah, what? Oh no, I don’t have a sore throat. Heck yea, I’m fine. I was just wondering if you had a chance to look at my bill.” And it’s all downhill from there.
The Five Stages of Paying a Lawyer’s Bill
In 1969 Elisabeth Kübler-Ross wrote the ground-breaking book On Death and Dying. Kübler-Ross theorized that there are five stages of death: denial, anger, bargaining, depression, and acceptance. It has been my experience that the slow-paying client goes through similar stages when faced with a legal bill, as follows:
Denial. “This couldn’t be my bill. The charges are way too high. You couldn’t possibly have done that much work for my little matter (a $500 million real estate development project).”
Anger. At this stage you’ve already explained the bill to your client (on your time, of course), so there’s nothing left for your client to do but get angry at the situation. “Lawyers are too expensive! What a setup! They’ve got a scam going and there’s nothing anyone can do about it!”
Bargaining. I don’t think I have to explain this one. “Okay, okay, so couldn’t you take a little bit off? Come on, you’re making a lot of money here, what’s a few thousand dollars less?”
Depression. You don’t hear from your client. For weeks. Finally, you work up the courage to call your client. “What do you want?” he asks, as though you were the enemy.
Acceptance. You’ll know that you’ve reached this stage when there is a check on your desk (and it clears once you’ve deposited it into your bank account).
So what can you do about this?
Begin at the Beginning
The first steps to take are those that should be followed before you even take on a client. That is, don’t take on a deadbeat client in the first place. How do you know that you have a deadbeat client when she hasn’t even hired you yet? There are a few warning signs:
• You’re not the first lawyer that they’ve hired. They might give you a great story about why they dumped their last lawyer (and the lawyer before that), but you should speak to the lawyer(s), if possible, to see if you can find out more.
• They try to haggle with you on the retainer payment. They may give you a very sympathetic story, but beware; behind that story may be someone who will dump you when they run up a bill beyond the retainer and hire another lawyer, starting the process all over again.
• It’s a terrible case. Run if they say “it’s not about the money.” It’s more than likely that you’ve got an emotional basket case on your hands.
In the Soup
It’s too late for the pre-hire advice? You have my sympathy. But keep in mind that you can reduce the potential for problems if you bill at least monthly. In fact, you should be advising clients whenever you feel that certain activities will add up to more legal time than they might expect. This way they can decide whether to hold off or perhaps modify their strategy to reduce the work that needs to be done, if possible. If it’s a litigation, this might be the time to settle the case instead of running up an additional $10,000 of legal fees.
The worst thing that you can do is wait months before sending out your first bill, or any other bill for that matter. The clients have already forgotten what you did months ago and are mystified by a long list of charges. In their minds they’ve convinced themselves that this couldn’t be costing them much because months have gone by and they haven’t received a bill. Imagine their surprise and annoyance when they find out that they were completely wrong about this.
But let’s say it is way past that. The bill has gone unpaid for more than 60 days and your client has given you various reasons for not paying it, ranging from not having the money to claiming that the bill was excessive.
There are times when a client can raise legitimate issues about a bill, and there may a good reason to reduce a bill. But if there isn’t a good reason, then you should feel no reluctance to stand firm on what you are owed. It certainly depends on the type of practice that you have as to whether or not your client’s cry of poverty is likely to be real or not. But apart from that, the biggest factor is your reaction to your client digging in his or her heels when asked to pay up for your services.
Believe in Yourself . . . and Your Law Practice
Do you let your client’s resistant attitude toward paying your bill shake your confidence? Too many attorneys are swayed by this. No matter how powerful an advocate they may be for their clients, these lawyers still allow their clients’ complaints to create self-doubt in their mind. Before you know it, these lawyers believe that they’ve overcharged even though this isn’t the case.
You must be clear and confident about your bill. This starts with confidence in the quality of your services. You must believe that your clients are receiving good value for what they are paying. If you do not believe this, your clients will sense your lack of faith in yourself, leading to an increase in the number of your nonpaying clients and increasing your difficulty in getting good results when following up on the slow payers.
What are some of the issues that would lead you to believe that you don’t “deserve” what you are charging your clients? My guess is that you probably are not overcharging for your services, but a little-discussed issue for solos is that many feel intimidated when charging hundreds of dollars an hour for their services.
Face it, most solo lawyers did not grow up in millionaires’ households, and charging $300 an hour for their time can seem outrageous. “My goodness, $300 per hour means I’m making five dollars for every minute I spend on this case! Am I really worth that much?”
Yes, you are. You also overlook several things. First, you are not making $300 per hour. You have to deduct your overhead costs for running your solo practice. How do you do that? Just divide your total annual overhead costs by your total average number of hours billed in a year. So if your total overhead cost, including rent, staff (secretarial and/or paralegal), professional malpractice insurance, phone, travel (commuting and business trips), computer and computer services, office supplies, and other expenses amount to $70,000 per year, and you bill annually approximately 1,000 hours for which you actually get paid, then you divide $70,000 by 1,000 hours, which equals $70 for each hour that goes to office overhead, leaving you with a net earnings of $230 per hour.
But you don’t earn $230 for each hour spent at work, because a significant portion of your time at work is spent on administrative duties, marketing, and other non-revenue producing activities such as pro bono work. If you spend 40 hours a week at work (and many lawyers run up a lot more time than that), that’s 2,000 hours a year of work-related activity, both billable and non-billable, assuming 50 weeks of work and two weeks of vacation each year. So that means that you don’t earn $230 per hour for 1,000 hours at work, but instead you earn $115 per hour for 2,000 hours at work.
Suddenly $300 per hour doesn’t sound so incredible. Then there’s the other side of the story: Are the clients getting value for what they are paying you?
I think of that question every time I send out a bill to one of my business clients. If I bill a client $3,500 for drafting and negotiating an agreement for a transaction that will be worth several hundred thousand dollars to my client in revenues, then I’d say that my client got a pretty good deal, especially when you consider that I made sure that the contract had the correct provisions drafted the correct way so that the transaction goes smoothly, and if it doesn’t, my client has a considerable number of tools that I’ve provided in the contract to help manage problems that may arise. Sometimes my drafting and negotiation skills even result in creating additional revenue in the transaction equal to several times my legal fee. A lawyer as a profit center—who would have thought that such a thing was possible?
Each practice is different. Family lawyers would have to do their valuation analyses a completely different way, but I have no doubt that they would reach the same conclusion. Lawyers provide valuable services for people, often at the most critical times in their lives. Never forget that when presenting a bill to a client, no matter what your client’s attitude might be.
The AnswerSo you’ve read this far and you are wondering, when am I going to tell you the magic words or techniques that will get a reluctant client to hand over the greenbacks? There are no magic words. But if you skimmed the last few paragraphs hoping to find the answer here, I suggest you go back and reread those earlier paragraphs because that is where your answer will be found. Once you solidly believe that you deserve to be paid, you will know what to do. If you do not have confidence that you should be paid what you are owed, then no amount of direction from me can help you.
David Leffler is a member of the New York City law firm Leffler Marcus & McCaffrey LLC, which represents clients in business matters and litigation. Prior to that he was a solo attorney for more than a dozen years. In his spare time he blogs at staringatstrangers.com. You may write to him at email@example.com.