Every lawyer struggles with nonpaying clients at one time or another. It’s probably the #1 law firm management headache. A few years ago, a LexisNexis survey indicated that almost 40% of a typical law firm’s client accounts were past due — and of those past due accounts, only about half were likely to be paid.
Here are 10 law firm management tips that will help you get paid:
- Vet clients carefully.
Yes, you need clients to operate a successful law firm. But let’s qualify that: you need clients that can and will pay. Before you agree to take on a new client, talk to them about your billing process and let them know about your expectations for payment. Do a Google search of your client’s name for any red flags. With their permission, you can also run a credit check on them. This is commonplace for many things these days, so they will probably not protest — and if they decline, consider that a red flag as well.
- Educate your client about your fees.
Don’t assume that your new client understands your fee structure. Talk to them upfront about the services you will likely be providing for their case and let them know how much it will cost. In fact, ABA rules require you to establish an understanding of your fees and expenses with your clients. If you fear that a client may flee from sticker shock, don’t. If they don’t want to pay what you charge, you do not want them as a client.
- Consider other options.
If you have not already instituted an alternative fee arrangement in your practice, you may want to consider it if you are running into consistent resistance from new clients and prospects. Clients today want to know how much legal representation will cost them. They prefer fixed fees. You may also want to offer legal services that are limited in scope — for example, providing representation for an arbitration but not for litigation. Just make sure your client understands exactly what the limitations of your representation will entail.
- Offer discounts for prompt payment.
In other industries, it is not unusual for companies to offer a discount for payment within a set, short period of time. You may also want to consider charging interest for late payments — if nothing else, it can give you some extra leverage if you have to negotiate terms for payment of past due bills.
- Ask for a commitment.
Asking your new client for their commitment to pay gives you a psychological advantage, as most people who make a commitment like to stick to it. Ask them if they have a certain date on which they routinely pay their bills and send your invoices accordingly.
- Ask for prepayment.
Ask your new client for a prepaid retainer equal to what you anticipate billing in the first 60-90 days that you will hold to secure future payments. Asking for this requirement will give them the message that you expect payment and will demonstrate they have the capability to pay at least part of your fees. And if they don’t pay your first invoice promptly, you still have payment on hand for that invoice.
- Deliver value.
Clients are more reluctant to pay if they don’t feel any progress has been made on their case, so be sure your client knows you are busy on the case and making progress. Before you begin the engagement, be sure they understand the value you are providing in helping them navigate the process and be sure you have agreed on the ultimate goal. While you cannot assure an outcome, you can assure them you will be working hard toward achieving their goals.
- Communicate often.
Failure to communicate is the #1 reason for client complaints to the bar. It can also be the #1 reason you aren’t getting paid. Even if you are making good progress on the case, if you don’t communicate what you are doing on a regular basis, you have failed to maintain a good client relationship.
- Bill regularly.
Some attorneys make the mistake of waiting several months before sending invoices and then send clients a big bill. And nothing seems to make a client madder than this practice! Send your bills out on a regular basis — at least monthly — even if they are for niggling amounts at times.
- Eliminate the nickel-and-dime charges.
Don’t bill a client for a lunch when you are already charging him or her thousands of dollars in time and travel. If you discuss the case over the phone, roll up that time charge into the casework itself and not as a separate line item on your invoice. There’s a reason that there are sarcastic jokes about lawyers charging for phone calls — clients hate it!
Remember: the better relationship you form with your clients, the better the odds are that they will pay your bills. If they know what to expect in terms of fees and expenses and feel that you are delivering value, chances are pretty good your invoices will get paid.