Structuring payment arrangements: How to ensure you get paid
October 29th, 2012 by Briana Cummings
As I mentioned in a couple of my postslast week, my firm recently had to dissociate with a case as a result of a dispute between a client and our co-counsel over the fee agreement. Fee disputes can be very delicate and dangerous territory — and, I imagine, are probably very common — so it’s best to think ahead about how to prevent them from occurring. Here are some tips:
Carefully craft — and communicate — retainer agreement
Put everything related to the scope of representation and the fee structure — and any changes to these — in writing. Explain your billing policy in your engagement agreement explaining your billing policy, including
- how frequently the client will receive statements,
- what you expect the client to pay for (costs, expenses),
- whether the client is expected to maintain a certain minimum balance in trust form with which to pay you (and whether you intend to halt work immediately if the trust balance falls below a certain amount), and
- how long the client will have to pay after receiving an invoice (and whether the client can pay in monthly installments).
If your jurisdiction permits, advise your client in the retainer letter that you will seek to withdraw from representation if the client fails to adhere to your firm’s policies.
Review all these contents of the retainer letter in person with your client at the time they sign it. Also gather from the client as much of their personal information as possible: home and work address and contact info (cell phone, home phone, office phone and fax, email address), bank, employer, driver’s license, etc. Determine what and how your client wishes to hear from you.
Get paid up front
If you can, get paid up front, either in cash or with a credit card. Charging a flat rate is attractive to the client as well, as it shifts financial risk from the client to the lawyer. If you are billing by the hour, Lawyerist.com contributor Sam Glover suggests demanding an advance payment for at least half the amount you think the representation will cost.
Standardize billing practices
In your office, maintain a policy for how often staff should record their billable time. Also have a system for keeping track of costs (photocopies, postage, faxes, etc.). Use case management and billing/accounting software to record billable events simultaneously with when they happen. [See post on Technology suggestions.]
Bill your client consistently and periodically. Even if you are working on contingency, bill your client monthly for costs incurred. (Then there will be no great surprise at the end of the case when you present a statement with extensive costs built up.) Don’t be afraid to politely remind the client that payment is expected during your regular communications.
Always ask for a second contact to use when sending invoices. Establish a definitive due date.
Be specific on invoices
On invoices, don’t use the same phrases over and over or the client will get the impression that you double-billed or had to repeat an effort to do the same thing. Also try to show not just hours worked, but the specific dates on which you worked — also try to show them the work you did in chronological order. The more specific you can get in how you spent your time, the less the client will feel that you are padding the bill. Mention not only what you did, but the results (whether the motion was successful, an agreement was reached, a document was drafted, etc.).
Make payment easy
Set up a merchant account so you can accept credit cards or debit cards. Check your jurisdiction’s ethics rules on taking credit and debit cards.
Some billing software has built-in credit card processing. Square allows allows you to accept credit card payments right through your iPad or smartphone. (Square includes a merchant account as part of the service, which means it charges a slightly higher fee.)
Send clients invoices via email with a link to click to allow them to pay directly from the email.
The last payment
Once a file is completed, send the bill out immediately. The more time passes between the completion of a file and the rendering of a final account, the less the motivation to pay the account. Call the client to come in for a final meeting and present the bill in person. Discuss the bill and ask for payment in full now. Consider a small discount if they pay within 7-10 days. Also consider charging interest on outstanding bills.
Once a bill is overdue, give warnings (in person or, if the account is small, on the phone — collection letters are not terribly effective) and, if those don’t work, take action quickly, consistent with your retainer agreement.
If an account is truly uncollectible, write it off and go on to new matters. See my post on what to do if a client fails to pay.