As a law firm or attorney diligently working to represent clients and win their cases with the highest ethical standards, nothing is more frustrating after a case has settled to hear from accounting that your trusted client stopped paying their legal services invoices.
Because you are the originating attorney on the case, you discuss the steps accounting has taken to collect payment on the outstanding invoices. Only to find that the client, without any explanation or discussion, has ghosted your law firm. You also try to contact the client but to no avail… they have ghosted you too.
After all the late nights, weekends, and hours of dedicated hard work you and your law firm put into litigating and winning their case, and upon settlement, the client appeared very satisfied with the outcome.
So why now are they not paying the invoices? What did our law firm or attorneys do wrong? No one complained as work was diligently being done to achieve a winning result by settling the case in your trusted client’s favor, which leaves you baffled and confused.
As you ponder over the positive outcome of the case results step-by-step, reliving the entire case backward and forward, you question your associates what went wrong, as you lay awake nights trying to determine why? Why has my trusted client ghosted me and turned into a deadbeat?
In addition, clients get this unrealistic mentality and often think “wow rich attorney—they can wait for payment. I will pay legal bills last.” Clients are not even thinking that handling their case is work for the attorney, just as most of the clients receive their paycheck.
And sadly enough, after settlement, clients are well aware they owe legal fees and costs advanced to your law firm. In most cases, clients will often try to turn the tables and circumstances around to blame the quality of work or outcome of the case on the law firm or attorney.
With this problem becoming more prevalent, what can a law firm do to avoid problems in the future and collect the legal services fees and costs advanced when the money is owed?
The following are guidelines your law firm can implement to establish procedures to define retention terms, ethically bill, and provide detailed accurate invoices to get paid.
Define Terms of Attorney-Client Fee Agreement at Initial Consultation
By providing terms of retention up front, your firm will be in control of the financial agreement, be touted for ethically billing, and avoid spending hours on cases for deadbeat clients!
Keeping your client paying their legal services invoices timely starts at the Initial Consultation with the potential new client. At the first meeting, you must describe in detail how your law firm bills for the work they will perform, and the costs associated with representation.
The attorney-client fee agreement must accurately define all the financial terms of representation to ensure your firm will get paid for the legal services and costs for each case. These financial terms must be clear, concise, and set in stone at the on-set of the retention of the client, which puts the law firm in control of getting paid on time.
Hourly rates must be defined based on the level of staff that will perform work on their case and line item the initial and anticipated costs. Depending on the complexity of the lawsuit, any unforeseen charges must be discussed upfront to cover all the bases.
Delegate Financial Discussions
In larger law firms with accounting resources, it is best practice to delegate all financial discussions to the accounting manager. By having the accounting manager handle the initial financial discussion, they become the main point of contact for any future financial discussions. When law firms handle finances in this fashion, it eliminates tension on the attorney-client relationship.
In addition, the communication with an accounting manager when the client missed paying an invoice or falls behind on payment arrangements will determine if your law firm needs to substitute out.
Require Clients To Have Funds in an IOLTA Trust Account
Managing partners and law firm administrators agree that the key to successfully collecting receivables is to not have any!
Require all clients upon retention and executing the attorney-client fee agreement to deposit and keep funds in a client trust account with a replenishment requirement.
By requiring client trust funds on retention, the monthly legal services invoices are automatically paid in full at the time of invoicing. The invoice details all fee charges and costs advanced, along with a detailed client trust account transaction activity. In addition, the invoice will calculate a trust account replenishment due based on the amount required for the case, or when the balance is low or exhausted.
Hourly Billing Rate or Flat Fee Amount Based on Practice Area
The factors determining what is an appropriate hourly billing rate or flat fee charge is based on the level of experience and practice area knowledge, which is pretty standardized in the legal industry. Most law firms in the same geographical area, in order to earn business, will stay competitive and charge market value.
However, law firms or attorneys that are “touted” as boutique or specialize in certain practice areas can often demand and bill at a higher hourly rate well above industry standards. These higher billing rates require a very specific skill set or practice area knowledge to justify the higher billing rate.
Detail Costs Advanced for the Representation of the Case
During the initial consultation with a potential client, it is important to provide the detail of the initial costs to file and serve the lawsuit and collect those initial costs upfront.
As the factual investigation and analysis move forward, it may be determined an expert witness is required to testify or provide factual investigations. It is important to discuss these unforeseen costs upfront and advise their defense may require knowledge or expertise, above and beyond the expertise of the law firm.
Lastly, if a third-party must be retained, which is outside the scope of the attorney-client fee agreement, ask the client to pay the fees directly. If the client does not feel comfortable, get the client’s approval in writing to retain the expert and get the funds in the client trust account immediately.
Provide Detailed Accurate Invoices and Include Perks
Not only do attorneys dread capturing time and managing expenses, but they also despise the entire month-end billing process. And, to top it off, clients do not like getting legal services invoices, even in the most positive of cases.
Learning to bill your clients as an attorney is an art form all its own. Writing fee descriptions for casework performed takes practice and must be accurate and in an easy-to-read invoice format.
Consistency amongst all timekeepers working on a case entering time is imperative and writing fee descriptions with the same language is key to billing success! Having abbreviations for the standard legal terminology is a must to cut down the time spent on the pre-bill revision process.
Clients must be able to understand what work was performed and receive an accurate, clear, and concise invoice providing detail that is easy to read. Accurate invoicing leaves no room for client questions to stall the payment, and your law firm will get paid faster by providing a link for payments on invoices.
When a client receives an inaccurate invoice with one description that is inaccurate, or has an error, a huge red flag goes off in their mind that they have been ripped off or mis-billed during the entire case. An error on an invoice will cloud the client’s mind and they will question the fairness and accuracy of all prior invoices.
It is also important to include a No Charge or a Professional Courtesy Discount on invoices instead of simply deleting time or writing up or down. This will inform your client that work performed on their case was not billed and they received a perk – after all, who does not like to get work for free!
Invoice Clients Consistently
Law firms must bill their clients consistently, and best practice is to invoice the same time each month for consistent cash flow on both sides. This seems obvious, but is not the case, especially in small law firms. In particular, a solo attorney can easily fall behind and forget to send out the bill because of staff resources, which leads to collection problems and client billing disputes.
To Sue for Legal Fees or Not To Sue
As an attorney, your first thought is to sue the client. However, if your law firm moves forward and sues, the case hardly ever provides a positive outcome and sucks up hours that could be billable.
In addition, if you move forward and file a case against your client, the client will most likely file a counterclaim alleging that the legal services rendered, and costs advanced were unreasonable or cannot be justified. The client’s counterclaim may be a simple tactic to leverage and negotiate to get the law firm to lower the outstanding balance due.
This situation is not good for the law firm because any suit filed by or against a law firm or solo attorney, must be reported to their malpractice carrier, creating an added stress level to just to get the invoices paid for the ethical legal services provided.
Economic Issues Out Of Your Control
Complicating this situation even more are the current economic times and financial struggles the entire nation is facing. Unpaid legal invoices are spiraling out of control and law firms are not the only professional services firms rendering services and not getting invoices paid.
Not only are national statics reporting that receivables are aging longer, but some reports also show invoices are just not getting paid. This has forced many professional services firms to either close their doors, halt hiring, lay off staff, cut budgets, and devise creative strategies to reduce overhead costs and frivolous spending.
Now more than ever, it is important to have procedures in place to seamlessly track outstanding receivables and collection efforts. It is mandatory for accounting to document all collection efforts and communication in case your law firm has to sue the client and provide the back-up collection efforts.
To sum up steps for billing ethically to get paid on time, your firm must have a rock-solid attorney-client fee agreement, communicate case status, and any unforeseen circumstances that arise immediately. And, keep your clients happy by ethically billing with the terms defined in the attorney-client fee agreement.
About the Author
Rosemary Kupfert is Product Expert, Core Legal at BQE Software. She has more than 30 years of experience as a firm administrator and then a consultant to over 1,000 law firms nationwide, helping to improve their workflow and administrative efficiency through business and technology.