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FROM THE PBA Solo and Small Firm Section Newsletter

Practice Management: Ten Tips For Collecting Your Fees

By James P. Miller

Times are tough, and, the current economic downturn finds many firms struggling to get their clients to pay their bills.  Solo and small firm lawyers are asking themselves, “What can we do to collect fees?” If you came to the recent Section Retreat in Gettysburg, you might have seen a presentation I made on this very subject. Someone suggested that I turn it into an article for the newsletter, so here it is.

1. Your firm culture must support collection. Make it a firm priority to have, and follow, a policy on how to manage your accounts receivable. It’s important that everyone in the firm buy into the policy. Encourage a mindset that getting paid in a timely manner is a priority that helps serve your clients and grow the firm. A good practice is to remind everyone (including yourself) that if collections suffer, EVERYONE suffers.

2. Collection starts with the first client consultation. In your very first meeting with a potential client, make a detailed inquiry not only about the client’s legal problem, but also about the client’s ability and willingness to pay for the legal services the problem may require. This inquiry isn’t just about the ability to pay an initial retainer, it’s about the potential client’s future ability to pay for the legal services required. That’s not to say you should turn someone who has limited means away; it merely means you have to be clear up front, both to yourself and the potential client, of the payment expectations.

Where an existing client brings you a new matter, before proceeding with any work, review the client’s past payment history with the firm. Even if the payments have been timely and consistent in the past, confirm the client’s ability to pay for the work the new matter will require.

3. Having a detailed fee agreement up front makes collection easier down the line. What should be in your fee agreement with your client? Here are some of the questions the agreement should answer:

— If your billing is time-based, are there any minimum charges or minimum time regardless of actual effort? If you bill as a fixed fee, is the fee due in stages?
— What’s the scope of services to be provided? Are there potential services that are not included?
— Is any of the retainer/fee non-refundable?
— How and when will withdrawals from the retainer be made?
— When, and under what circumstances, will you require a retainer to be replenished?
— How do you handle payment of costs and expenses?
— How, and under what circumstances, will the firm terminate representation?
— If payment isn’t made within a defined time, do you add late payment charges? If so, how are they calculated?

There are also important ethical considerations in drafting your fee agreements. Particularly, consider the following:

— Rule 1.5 addresses fees in general,
— Rule 1.2(c) discusses limiting the scope of a representation,
— Rule 1.15(i) covers withdrawals from trust/IOLTA accounts, and
— Rule 1.16 governs terminating representation.

Another helpful resource is Ethics Opinion 95-100. That opinion discusses retainers, including nonrefundable retainers. I recommend that you obtain the largest retainer your client can afford that is commensurate with the legal services required.

4. Deliver timely services and timely billing. Timely service keeps clients happy, and happy clients are more likely to pay your bill. If you set a consistent example for your client, collecting payment becomes easier on both of you. Provide a detailed billing statement so the client can see the work you are doing (this can also be a secondary way to keep your client informed about the case).

Bill regularly. Timing your billing to the individual client’s payment cycles can be very helpful. Sending out all bills at one time each month is easy for the firm, but your clients may not be receiving bills at the time of the month when they have the funds to pay you.

5. Send a “Second Notice” on day 31. Assign a staff member to track the date the bill was sent (or put a reminder on your calendar to alert you if you are a one-person shop). If your client hasn’t paid within 30 days (or whatever period your statement requests), and there has been no contact from the client about the bill to alert you to a delay in payment, get a “second notice” out to the client on the next day.

6. Make sure you have personal contact with your client when payments are missed. If you don’t get payment after 60 days, contact the client by phone and make a polite inquiry about whether the client received the bill and/or the “second notice”. If you have staff, a staff member can do this.

There’s a remote possibility that the client didn’t receive your bill and/or the “second notice”. Less remote is the possibility that your client misplaced the bill. If either of those is true, send another copy of the bill immediately, by fax or e-mail if possible. Then follow up by phone to confirm receipt.

If, however, your client acknowledges receipt of the bill, inquire as to whether there are any questions or problems, and ask when your firm might expect payment. Then make a note of that date and follow up again if you haven’t received payment. If there’s a problem with the services provided, the attorney involved should be immediately alerted and must personally address the problem.

7. Charge the late fee. Late fees get your client’s attention. If your bill remains unpaid after 60 to 90 days, and there are no circumstances that you would consider to excuse the delay, assess your late fee in the next client bill. If the client responds by paying the bill in full without the late fee, consider whether you want to waive the late charge. After all, at that point you’ve received the original agreed amount for your services.

8. Use frequent followup. You made a personal contact on Day 61, and the client promised payment but did not follow through. In this situation, immediate telephone followup is a must. Keep the bill in your client’s mind! If a client doesn’t think the bill is a priority for your firm, paying the bill will not be a priority for the client.

If there’s an indication that the client is having financial problems, you might want to give the client the option to make partial payments over time. If the client agrees to make partial payments, send a statement with the new (remaining) balance immediately on receipt of each partial payment.

If you’re not going to do any more work for the client, consider offering a discounted lump sum settlement. If a staffer is doing this, you’ll have to give that staff member the authority to make these offers when following up with the client about the unpaid bill.

9. Step up with attorney involvement. If staff members have made the original client contacts requesting payment, personal phone contact by the attorney involved (if that hasn’t already occurred), should happen no later than 90 days from the original billing date. Ask the reason why the bill hasn’t been paid.

If the reason for nonpayment is that your client is unhappy with either the attorney or the services provided, immediately address these concerns in a constructive manner. However, if the billing was appropriate and you provided services in a timely manner, you should clearly explain that you still expect payment. If the client refuses or ignores your bills and you are in an ongoing matter, this would be the time to consider giving notice about terminating representation, or perhaps refusing or limiting future work with the client because of the payment problem.

10. Don’t be afraid to terminate the lawyer-client relationship. My definition of a “good client” is one who pays the bill, or who contacts and actively works with you when there is a problem in paying, not someone who is perceived to be a “good client” simply based on the amount of services that client requires. Remember that your services performed are just receivables; they’re not income until you’re paid. Generally speaking, the collection rate on receivables 120 days or more past due is below 50%. So do you want to compound your shortfall, or do you want to cut your losses?

An accounts receivable management policy that keeps these considerations in mind should help your firm increase collections and make it through the current recession.  Once the economy recovers, having such a policy, and acting as a prudent businessperson should, will also help your firm weather any future economic storms.

 

James P. Miller maintains a solo practice in Smethport, McKean County, concentrating on criminal defense, civil litigation, workers’ compensation, social security disability, insurance bad faith, and real estate. Jim is a past Chair of the Section and continues to serve on the Section’s Council. He can be contacted at jpmiller@jamespmillerlaw.com