Getting clients to pay starts with client selection and onboarding. Communicate about legal fees and costs from the very beginning and stay consistent. Invoices should never be a surprise. This consistency comes from having clearly defined policies and procedures around billing and collection.
Set requirements and time frames for each step. Your procedure could be:
A law firm that charges an hourly fee should bill monthly or, at a minimum, bimonthly. You must bill timely, at key moments in the case or at regular intervals. If you have large billing cycles that take too much time to do once a month, split it into two sets; for example, do names starting with letters A through R the first week of the month and do names starting with S through Z the third week of the month. But don’t send bills for de minimis amounts. No one wants to get a bill for $2.53 for copies. Save it for the next month.
Invoicing should be uniform and fully itemized. Don’t send clients an invoice that looks like a list of acronyms and confusing time increments or blocks. It should clearly show the activity and the actor, the rate each is billed at, and instructions on how to pay. Consider using a legend for any acronyms if your practice area is acronym heavy. (Or just eliminate acronyms. Spell out what you did.)
State when the bill is due. It doesn’t have to be longer than ten to 14 days—too long and clients put it off until they forget it. The bill gives them a reminder, but it won’t be the only time they get to pay if they don’t follow through.
You have to decide if you will send bills electronically, by snail mail, or both. Clients pay bills that are easy to pay. There is ample evidence that accepting credit cards and sending electronic bills results in lawyers being paid faster. Accepting credit cards is no longer a cutting-edge practice but a norm. If the credit card rates pinch your budget too much, either raise your rates or consider implementing an ACH (automated clearing house) option. ACH is an automatic transfer from a client’s bank account, which is lower in cost to the business and has the benefit of not expiring like a credit card. (The client could still close the bank account or stop payment on an ACH.) If you are putting clients on long payment plans, consider the administrative burden of expiring credit cards.
Every firm should have some collection procedure, as well. The procedure doesn’t have to result in a collection agency or action. Many law firms will refuse to collect on unpaid fees because they want to avoid the hassle of unwarranted bar complaints or malpractice actions. Design your practice the way you want. But, for goodness sake, don’t tell the client you won’t collect unpaid fees. That’s just asking to be stiffed by unscrupulous clients. If you don’t plan to collect, be silent on the topic in your fee agreement. But if you are serious about collection, lay out the terms of collection in your agreement so the client knows what to expect and so both you and the client are on the same page if things go that way.
Your process could look something like:
Work out such details as: Who will call the client first? Will you set up a payment plan for clients who have difficulty paying? When will you send them a letter? Who will make the next call? And when do the chances to pay run out? Put specific time periods for each of these.
It’s important to be realistic about who will make the phone calls. An escalation of who calls may be helpful, as clients may be more inclined to pay when they hear from the lawyer than from the bookkeeper. However, if you dread talking money with clients or you are wildly busy, better to have a professional take this for you so you don’t have cash flow problems because of your own avoidance or sheer busyness.
Once enough is enough, do you take the client to a collection agency? If you do, prepare yourself for a bar complaint as a response. If you decide to go with collection, seriously consider using a collection firm.
Remember to put all this in your fee agreement. It doesn’t have to be in granular detail, but it should be an easy point of reference for both you and the client about what will happen next. State the name of the collection firm, how long clients have until their unpaid bills go to collection, and the interest rate they will be charged after their bills enter collection.
If you decide not to pursue collection or you are unable to collect when you do, have a formal process for giving up on that fee; keep a record of fees you have decided will never be collected. You should check that your collection rate is at least 90 percent. There is still room to improve here—you could always aim for a 100 percent collection rate. But if your collection rate falls below 90 percent in any given year, you want to start evaluating when and how you select and collect from clients. This is a key performance indicator or common benchmark in measuring the health of a law practice.
To minimize the possibility of nonpayment, some lawyers ask for a larger fee before they start work. Some will go as far as requiring the entire fee up front. These are usually flat-fee cases. The downside of flat fees is that they don’t allow for unforeseen expenses in unpredictable cases, and sometimes lawyers price their services too low, so the firm loses money. The upside here is that it’s clear the client has bought in, and the firm needs only do the work to get paid.
Another common procedure is to bill clients half of the fee up front and half at signing or final preparation of filings. This still requires clients to show they are committed, but it allows them the time to collect the funds by the agreed-upon date.
Finally, consider third-party lenders for the fees if the client struggles to come up with the amount and the firm doesn’t want to do an administratively burdensome payment plan. Not all clients will qualify, but if they do, the lawyer will be paid in full quickly by the lender. Here’s a list of some of the third-party lenders that may work for your clients:
