What if collection problems prevail across your entire clientele – not just a few accounts? It may be time to turn a critical eye toward your current fee structure and billing practices:
Switch to AFAs – Alternative Fee Arrangements
Combining flat and hourly or hourly and contingent fees may solve at least some of your cashflow problems. In litigation it’s easy to dismiss flat fees as unworkable: “I just can’t do it because the nature of the case is too unpredictable.”
Is this really true or is it an excuse not to change?
Let’s take dissolution. I would expect nine out of ten lawyers to reject flat fees outright, but wait a minute. Fees aren’t “all or nothing.” More accurately, they’re anything you want them to be (almost). Therefore, it is perfectly doable in dissolution to flat fee at least the first stage of the case: initial client interview, client follow-up, preparing and serving the petition, initial mandatory discovery. Go hourly thereafter, but look for other opportunities (stages/discrete tasks) where you can propose flat fees. In short, be more flexible. Done right, an AFA could mean collecting a flat fee up front for the initial stage of the case with a requirement for an evergreen retainer once hourly billing kicks in.
Do a Better Job of Educating Clients
As I’ve noted before, many a collection problem can be traced back to the initial client interview when the lawyer failed to adequately discuss billing practices. If you don’t have an honest, open discussion about fees, costs, and billing practices, reform now!
- Reinforce what you tell the client by using billing brochures enclosed with your fee agreement.
- Or if you don’t like the brochure idea, attach a one page bullet list of your billing procedures.
- Prefer to be paperless? Send clients to a private web page that serves the same purpose. Consider requiring clients to read and accept your web-based billing procedures before eSigning your fee agreement.
Why am I suggesting brochures, lists, and web pages? The brutal truth is that even the shortest fee agreement is probably too long for the average client to digest. But we can make billing more understandable!
When you separate and reformat billing details using brochures or bulleted lists you improve readability. [Much like what I did in the preceding paragraphs.] Improving readability increases comprehension and understanding. If you go the Web page route, use the same or similar formatting techniques.
Change How You’re Paid
It’s hard to imagine a law firm that doesn’t accept credit cards, but I know you’re out there. If you’re part of this group, and you’re also experiencing collection problems, start taking credit cards. Yes, there are a few things you need to know – for example – how to pick a merchant to process payments and what to do about merchant fees (aka credit card surcharges or transaction fees). But I’ve got your back. Read the hyperlinked posts included above and you’ll get the answers you need.
Not convinced? Statistics reveal that 43% of consumers prefer to pay by debit card, 35% with a credit card. Granted, legal fees are not a typical consumer purchase, but still: why would you disregard what many consider a preferable payment method?
Credit cards can be an ideal solution for collecting flat fees earned upon receipt or the cost of an initial consultation. Many a family law lawyer has shared that clients would not be able to afford their services without the ability to put their bill on a credit card…
Be More Like Bugs Bunny
Yes, this is the carrot/stick metaphor. It’s this simple: discounts are a client motivator. If you want to collect a retainer, up-front fee, or take care of an outstanding balance give the client a financial incentive to pay you.
Here are some examples:
- Your rate is $250 per hour if the client is invoiced, but if the client establishes a retainer, your rate is reduced to $200 per hour. [Establishing a retainer triggers the lower hourly rate.]
- You offer preparation of a complete estate plan at $2,500, due and payable upon completion. If the client is willing to pay up front before work begins, your flat fee is reduced to $2,000. [The earned upon receipt fee triggers a $500 savings to the client in return for being paid now. Remember to comply with earned upon receipt payment rules and get your fee agreement in writing.]
- You offer 10% off your bill if the client remits payment within 10 days (instead of the usual 30 or more). [Your early payment discount saves the client money and allows you to collect the outstanding receivable in one-third the usual time.]
There is no magic wand in collections, but a willingness to start over and shake things up can make a difference.
All Rights Reserved – Beverly Michaelis – 2017.