How to get your clients to pay without having to break legs? We have all had bad clients: those clients who are on their third or fourth attorney, who can’t pay the retainer or who claims there is no need for a retainer or who tries to rewrite the retainer, and those who flat out refuse to pay. You all know who I am talking about. Collecting fees is not nearly as easy as the swipe of a credit card. For big law firms, a failure to pay can result in severe losses. For small and boutique firms, failures to pay can result in the bankruptcy of the firm. This is why some people wonder how to get consulting clients that are consistent and you have good relationships with. Money makes the world go round and that stands true whether you are the client or the attorney. You can always hire a collections attorney if you have the resources to do so, but if you take some simple precautions you can better prepare your firm to be paid in full.
You should always do your due diligence on potential clients. If the client was a referral, contact the person that made the referral and ask about the clients reputation and ability to pay. Check public records for any liens or judgments against the client which will negatively affect their ability to pay and do a Google search to see what you find. If it seems that the client is going to be unable to pay their bills, do not take the case. However, if the client is defending fraud, misrepresentation or breach of fiduciary duty claims, you can still accept the client but you should increase your retainer fee to ensure you are paid in full (and of course, you will always return any unused amount). You should get in the habit of taking the right clients – those who have the ability and who are the most likely to pay their bills in full.
If you are not using a formal retainer agreement, you should be. Retainer agreements should be in writing and must comply with your State Bar Association guidelines. You should include a provision regarding how a client protests the bill; the agreement should express that the client certifies they accept all charges. This precaution is taken in case of litigation, if the Court finds the fee is high, the client will still remain liable to pay the agreed upon amount. Remember to look over every bill to ensure accuracy, avoid looking back only once the client is protesting the charge.
You should use a retainer agreement for each matter that a client requires your services. If they are hiring you for more than one matter, add a clause to the agreement stating your additional responsibilities including the increase in price. The retainer agreement should also express the things you won’t do and things that the agreement does not cover; it is always better to be safe and include an extra provision.
When billing your clients, you should always include enough information and detail so the client knows exactly how their money is being spent. You should always be prepared for a third-party to review your bills, especially in the case that the client does not pay the bill and it is to be reviewed by the Court. A bill provides a status report about how your time is spent, so you want to be as accurate as possible. A client will feel better about paying an itemized bill than a large, lump sum.
While many attorneys believe you can only bill the client by the month, critical event billing is a way to stay updated on larger payments and avoid increasing the total amount to a scary number for the client. You can (and you should) bill your client when something big happens and a large chunk of money has been earned/billed by the firm. You may also opt for charging a flat fee or a fixed some of money to do something very specific for the client. But avoid taking on any new matters for a client if they have outstanding fees. It is a red flag if you keep billing the client and they stop paying; you should then stop paying any fees for that client until they have paid their outstanding bill.
Stop mailing paper bills and update to digital billing! Sending billing statements via email saves money on stamps and saves time. You can also set up a direct deposit payment system to avoid the need to deposit checks with the bank. These are easy ways for your firm to save time and money.
Did you know you can call FedEx and send them to any location to pick up an envelope? The next time a client says, “I have your check ready” tell them FedEx will be there to pick it up the following day. This avoids the whole back and forth, “Maybe it got lost in the mail?” or “I just have to buy stamps…” or “I must have had the wrong address…” between you and the client. I once had a client claim she sent two checks in the mail before I insisted she use PayPal… and I never received either of the alleged checks that “must’ve gotten lost in the mail.”
There are some common red flags that may signal that the client has no ability or intention to pay: they are a bad credit risk with the bank, they have something big happening “soon” and then they will have the money, they hired a new attorney and no longer need your services, there was a change in management since you were hired. In these situations, stop working on the case immediately. Until the client can pay the outstanding amount in full, you should no longer bill against the account; just put the file aside.
If you practice long enough, you will run into clients who refuse to pay and inevitable collection issues. If you take some of these initial precautions you will have a better chance of being paid in full for your time.
How To Earn CLE Credit on this Topic
For additional information on this topic, Attorney Credits offers a course titled “Getting Paid and Staying Out of Trouble.”
The course is available for CLE credit in the following states: Alaska (AK) | Arizona (AZ) | California (CA) | Colorado (CO) | Connecticut (CT) | District of Columbia (DC) | Florida (FL) | Georgia (GA) | Illinois (IL) | Maryland (MD) | Massachusetts (MA) | Michigan (MI) | Missouri (MO) | Nevada (NV) | New Jersey (NJ) | New York (NY) | Oregon (OR) | Pennsylvania (PA) | South Dakota (SD) | Texas (TX) | Washington (WA).