How many times have you heard, “If you want to avoid collection problems, get your fee up front?” Good advice, but how exactly do you make it happen? Here are four sure-fire techniques:
Use Evergreen Retainers
In this type of arrangement, the client agrees to maintain a specified retainer balance at all times. Your bill should reflect the initial retainer deposit, fees and costs incurred during the month, total funds disbursed from the client’s retainer, any balance remaining, and the amount needed to replenish the retainer.
Keep a careful eye on the client’s balance at all times. If the client fails to replenish the retainer as required, be prepared to enforce the terms of your agreement (including withdrawal).
Discounts can be a great motivator for clients to give you a retainer, pay your fee up front, or promptly take care of an outstanding balance. 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.]
- 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.]
Tinker with the math to make discounts work for you.
Practice Tip: If you intend to charge a “fixed fee earned upon receipt” read and understand Oregon Rules of Professional Conduct 1.5 and 1.15-1 and OSB Formal Opinion 2005-151. These arrangements must be in writing and must contain specified disclosures.
Collect Last Month’s Rent
Inspired by a common practice in landlord-tenant agreements, the “last month’s rent” approach requires the client to pay a security deposit into the lawyer trust account. Each month the client is invoiced and expected to pay. At the conclusion of the matter, the security deposit is used to pay the client’s final bill. Alternatively, the deposit can also be used if the client fails to pay a monthly invoice.
As with all fee agreements, put your “last month’s rent” arrangement in writing. Keep in mind that if the client’s funds can earn net interest, you are required to establish a separate interest-bearing account for the client or obtain a waiver of the client’s right to interest. See OSB Formal Opinion 2005-117 for additional details.
Accept Credit Cards
Avoid bookkeeping hassles by using a private credit card processor who will take merchant fees only from your business account, not your lawyer trust account. Be sure to read and comply with OSB Formal Opinion 2005-172. Credit cards are a great way to collect retainers when clients can’t otherwise come up with the funds.
[All Rights Reserved 2016 Beverly Michaelis]