Don’t Be Afraid to Get Paid!
Seriously, it might be the best and most relevant article I’ve ever read in a legal publication! It includes great advice from legal consultant Ellen Freedman about the most critical issue for legal services business owners: getting your customers to pay you.
Billing early and consistently is critical.
Freedman proceeds to look at receivables that have aged for just three months. At that point, she says, studies show that about 30 percent of those monies will never be collected. Allow those accounts to age as much as a year, and you can expect to collect only around thirty percent.
“If you had a prospective client that walked in your door and asked you for a 70 percent discount on your bill,” she rhetorically asks, “how many of you would be inclined to say yes?” You wouldn’t, of course, she answers herself. “But by allowing that receivable to get to be a year old, that’s what you’ve done. You’ve effectively accepted 30 cents on the dollar.” At two years, collections fall to a measly 12.5 percent - not even enough to pay for the postage for a reminder letter, she sniffs.
Make it part of your initial client meeting.
Freedman advocates that lawyers make an inquiry into their clients’ financial status and treatment of their prior lawyers a standard part of the initial client interview. To that end, she recommends, lawyers should ask clients some direct and specific questions.
“Tell me how you are going to pay me” is a good way to start, she suggests. In addition to finding out where the client works, find out about the client’s cash flow and assets, she urges. Will a third party be providing the client with the initial retainer fee? If so, find that out - and inquire further how the client can be assured of obtaining the funds necessary to pay the lawyer’s bills once the retainer fee is used up.
Maybe the best tip: Freedman suggests having clients execute an authorization to charge their credit card if their unpaid balance reaches a certain level at the same time they sign the retainer agreement.
Learn your client’s billing cycle
Most businesses, she notes, pay their bills on a designated day of the month, so that all bills that come in by a certain day each month are paid on that day. Bills that come in even a day later are normally set aside for the next payment cycle. Well-organized individuals - Freedman included - may pay their bills in a similar fashion, perhaps setting some aside the day after their paychecks are deposited.
What if a client has legitimate financial problems?
Even good clients sometimes encounter misfortunes that render them unable to pay their bills, Freedman notes. When that happens, she says, it’s up to lawyers to present those clients with options, including payment schedules. “Have your antennae up. Don’t wait for your client to ask you.” The lawyer’s ability to accept credit cards, together with an appropriately crafted provision in the engagement agreement, can come in very handy when these circumstances occur, she observes.
Revenge can be sweet
Despite your best efforts, some clients may never pay their bills. So, “When all else fails - REVENGE IS SWEET!” reads one of Freedman’s presentation slides. Explaining, she suggests, “Wait until the statute of limitations for malpractice claims has passed, and then wait until November 15th.”
Then, she continues, you can send your debtor client a letter saying it’s clear that, despite your pleas to discuss the matter, that the client has no intention of paying your bill and, therefore, has left you with no alternative but to forgive the debt. “We will be sending you a 1099 for the value of the services and the costs that we are removing from our books.” On receiving such a letter, she says, many people will be so scared that they will actually send the lawyer a check.