One of my colleagues, corporate attorney Stephen Furnari, hates it when his clients refuse to pay his bills. I mean really, really hates it. In one of his blogs, Steve examined some of the reasons lawyers give for their failure to pursue collection from clients more aggressively and found those reasons to be lacking.
In this article, I offer some thoughts on the reasons for this reluctance, together with my suggestions for minimizing the risk of non-payment, so that collecting your fees becomes a non-issue.
Inherent Difference Between Lawyers and Small Business with Collections
While every business has collection issues with their customers, the nature of the attorney-client relationship raises several issues unique to a law practice when seeking to collect a debt from a client.
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- Lawyers are fiduciaries.
Unlike a typical business transaction or contractual arrangement, the attorney-client relationship is a fiduciary one. An attorney owes his clients duties of loyalty and utmost care which are not present in a standard commercial transaction. Accordingly, there are a host of legal and ethical restrictions affecting an attorney’s decision to terminate the relationship and pursue collection activity. From a psychological standpoint, the attorney’s transition from being his client’s zealous advocate to his adversary is not an easy one.
- Limitations on Withdrawal.
Unlike a standard commercial transaction, an attorney cannot always end a client relationship for non-payment whenever he chooses. In litigation, for example, an attorney of record must seek permission from the court to withdraw as an attorney, which may not be given if the withdrawal will result in a material, adverse effect on the client.
- “Are My Services Really Worth It?”
One of the unspoken reasons attorneys may be reluctant to aggressively pursue all of the sums they are owed may be some doubt that their services are truly worth the amounts billed. If you don’t have the utmost confidence in the value of your services and the accuracy and legitimacy of your bills, you’ll be a pushover for clients who simply demand a discount because they want to keep more money for themselves.Once you have established the basis for your fee with the client, and have scrutinized, and if necessary, adjusted your bills to account for any inefficiencies or inappropriate billing (this happens before you send out the bill), you should never reduce a bill. Doing so only makes all your bills seem arbitrary and will inevitably lead to more demands for discounts.
4 Steps to Eliminate or Minimize Collection Issues
Here’s how you eliminate collection issues once and for all. In my personal experience, following these steps minimizes client collection issues. Since beginning my firm in 2002, I have never had to discount my services, never had a client demand a discount and never had to sue a client to collect outstanding bills.
- Make Sure You Obtain and Maintain An Appropriate Retainer.
Unless the client is one you have already done business with, or one whose ability to pay is beyond question, require every client to pay you a retainer and to maintain a certain minimum amount in your attorney trust account throughout the representation. The amount of the retainer should be sufficient to cover fees likely to be incurred in a heavy month.Sounds simple, doesn’t it? However, attorneys are far more resistant to this idea than clients. The most common objection from attorneys is that if they demand a substantial retainer, they just won’t get the work. This fear is baseless.
If you have fully outlined to the client the likely costs a particular matter will require, a reasonable client will understand the basis for the retainer and will not object. If a client balks at this requirement, or is incapable of providing a retainer, there is no reason to believe he will be able to pay you in 30 days, after he has received the benefit of your work. Don’t waste your time on clients who can’t/won’t pay you — move on to clients who will.
- Send Out Bills Monthly.
Your engagement letter should state that you will submit bills on a monthly basis, and that payment is due within fifteen or twenty days after receipt. Make sure you follow through by billing consistently and without exception, preferably on the first of the month (clients are used to paying bills at the beginning of the month). You can’t expect your clients to adhere to this requirement if you don’t.By sending bills out regularly, and requiring payment before the next bill is rendered, both you and the client are able to monitor legal fees closely and will enable you to address payment issues before being faced with a large receivable. I am convinced that a lot of collection issues are caused by infrequent or irregular billing, which results in a client receiving a massive bill representing several months’ work.
- Maintain Good Communication Regarding Ongoing Costs.
A legal bill should never come as a surprise to a client. It is essential to keep the client fully informed of the ongoing work, and to let them know to the fullest extent possible when fees will be substantial in any coming month. The time to address any problem that the client may have with the bill or the work required is before you do the work.
- Accept Credit Cards.
Your doctor does. So does your dentist. Why shouldn’t you? Give your clients the option to pay by credit cards if their cash flow is low in a given month. Remember, you are not a bank, and if a client wants you to do work for them, they will have to find a way to pay you. How they do that should never be an issue for you.
I welcome your thoughts and comments on the solutions suggested here, awell as strategies you have employed to eliminate collection issues.
