Doubling Down on Your Bill When the Client Doesn’t Pay

 

We’ve all been there.  Non-paying clients can be incredibly frustrating, especially if you went out of your way to offer a reduced rate or special payment plan.  But before you resort to punitive measures, take a moment to think it through.

  • A literal doubling of your fee is likely to be challenged as excessive.  Review Oregon RPC 1.5.
  • Consider whether the proposed punitive action will make a difference.  Do you truly believe that doubling your fee will motivate the client to pay?
  • Collections can be a landmine of legal traps and pitfalls.

What Should You Do If the Client Doesn’t Pay?

In the case of non-paying clients, it may be appropriate and necessary to withdraw. If so, take care to abide by your ethical responsibilities.  If you represent the client before a tribunal and must file a formal Motion to Withdraw, read and understand Oregon Formal Opinion No. 2011-185 – Withdrawal from Litigation: Client Confidences.  If you have any doubt about what you can or cannot tell the court, seek advice from the Oregon State Bar General Counsel’s office or contact a lawyer colleague who specializes in ethics defense.

You should also consider ordering one (or more) of the free CLEs offered by the PLF on managing law firm finances:

  • 50 Shades of Green: Building a Profitable Solo or Small Firm Practice
  • Building and Maintaining a Profitable and Efficient Law Practice 
  • Increasing Revenue: Updated Strategies for Attracting New Clients and More Effectively Managing an Existing Client Base 
  • Money Matters 

These CLEs will help you to:

  • Banish personal habits that cause you to under earn
  • Identify profitable practice areas
  • Analyze overhead, liquidity ratios, budget, turnover, and realization rates
  • Establish effective billing practices
  • Reduce accounts receivable
  • Develop case and client selection skills to eliminate payment problems

Visit the PLF Website for details.  Select CLE > Past CLE.

[All Rights Reserved 2016 Beverly Michaelis]

 

February is Finance Month

February 2016 is finance month at Oregon Law Practice Management.  We are going to revisit and update some “oldie but goodie” posts on law firm finances: money-tree

  • How to get paid
  • Bartering for legal services
  • Adding surcharges if the client fails to pay
  • The seven golden rules of collection
  • The five C’s of hybrid fee agreements

We start off tomorrow with Four Sure-Fire Ways to Get Paid in 2016.

See you on February 1!

[All Rights Reserved 2016 Beverly Michaelis]

 

Your Engagement Letter is Not a “One Size Fits All” Bucket

What a Good Engagement Letter Can Do

Engagement letters are an essential tool in the lawyer’s toolkit.  Done correctly, they set the stage for the lawyer-client relationship, provide clarity, and minimize misunderstandings.

The best engagement letters follow a predictable formula:

  • A specific description of the legal problems the lawyer will handle
  • A specific description of the legal problems the lawyer will not handle
  • Steps the lawyer has taken already on the prospective client’s behalf
  • Steps the lawyer will take, once engaged
  • Steps the clients must take for engagement to commence
  • Future or ongoing client responsibilities

Combine Your Fee Agreement and Engagement Letter for Maximum Effect

Ideally, the terms of engagement are wrapped into the lawyer’s fee agreement.  This simplifies the process – the client need only review a single document to know what the lawyer will do, how much it will cost, and what the client’s responsibilities are.

Create Templates for Efficiency

Practitioners can streamline the engagement process fairly easily. While some terms will vary, most of these letters contain enough boilerplate for a lawyer to benefit from creating forms or templates.  [Rewriting an engagement letter/fee agreement for each client is a real time-waster.]

Don’t Fall Into the “One Size Fits All” Bucket

Some lawyers attempt to use their engagement letter as a one size fits all bucket.  For inspiration, they look to every case where a transaction or engagement went awry and proceed to add disclaimers to ward off future problems.  For example, lawyers who handle matters where property valuation is an issue may add language to the initial engagement letter forewarning the client of the need to obtain an appraisal.

How Could this be a Bad Thing?

  • Multiple disclaimers make for longer, more complicated engagement letters and fee agreements.
  • The longer and more complicated your letters are, the more likely the client will miss the key points:  what you are going to do (or not do) and what it will cost.
  • In the end, it could all be for naught if the goal is to avoid a potential legal malpractice claim….

Which Approach is More Effective?

Lawyer 1 incorporates a disclaimer into his engagement letter forewarning the client: if property value becomes an issue in this case it will be client’s responsibility to obtain an appraisal.  Without an appraisal, client assumes the risk of under (or over) valuing said property.  Lawyer 1 proceeds with representation, relying on the disclaimer in his initial engagement letter.

Lawyer 2 limits her engagement letter to the usual points discussed at the beginning of this post.  When the value of property becomes an issue in the case, lawyer informs the client of client’s responsibility to obtain an appraisal and the risks of failing to do so.

Keep it Contemporaneous

This is a no-brainer.  Disclaimers given at the beginning of representation don’t have the same value as disclaimers given contemporaneously.  Clients need context to make sense of your warning.  At the beginning of the case, there is no context.  Even if the client nods and understands, the disclaimer in your engagement letter will be long forgotten by the time the property issue arises.

Parting Thoughts

A well-written engagement letter and fee agreement is all about balance.  Include sufficient information about the scope of your work, division of responsibilities, and what your services will cost, but don’t fall into the trap of trying to disclaim or forewarn of everything that could ever go wrong.  If helpful, consider developing a client handout that addresses common issues or questions that arise.  Give specific disclaimers and warnings contemporaneously when the client can put the information into context.

[All Rights Reserved 2015 Beverly Michaelis]

 

 

Are Click-Through Fee Agreements Ethical?

If you are working to establish a paperless or virtual practice, you may have struggled with the issue of how to transform your paper-based fee agreements.  Oregon Rule of Professional Conduct 1.5(c) provides, in part:

A lawyer shall not enter into an arrangement for, charge or collect:

* * * (3) a fee denominated as “earned on receipt,” “non-refundable” or in similar terms unless it is pursuant to a written agreement signed by the client …   OSB Formal Opinion 2005-151 [Revised 2011].

There is no doubt that a printed fee agreement signed by the client fits the definition of a “written agreement signed by the client.”  But what if you and the client arrange to sign the fee agreement electronically using DocuSign or a similar service?  Or perhaps you’ve set up a virtual law practice and intend to use clickwrap or click-through fee agreements.  Is a click-through fee agreement a “written agreement signed by the client?”

To answer this question, take a look at Rule 1.0(q) of the Oregon Rules of Professional Conduct (RPCs):

(q) “Writing” or “written” denotes a tangible or electronic record of a communication or representation, including handwriting, typewriting, printing, photostatting, photography, audio or videorecording and e-mail. A “signed” writing includes an electronic sound, symbol or process attached to or logically associated with a writing and executed or adopted by a person with the intent to sign the writing.

The rule tells us that:

  • Written fee agreements can be tangible (paper) or electronic
  • Signatures include a “process attached to or logically associated with a writing and … adopted by a person with the intent to sign the writing.”

Therefore, a clickwrap or click-through fee agreement is “a written agreement signed by the client” provided the click-through process is adopted by client with the intent to sign the fee agreement.  To ensure that your clickwrap or click-through fee agreements are ethically compliant, incorporate a step requiring the client to agree or consent to the click-through process.  I also suggest you discuss the click-through process with your client over the phone if possible – give them a heads-up so they know what to expect.  More importantly, make sure they understand they that the click-through agreement is a legally binding contract with the same enforceability of a printed fee agreement signed in ink.

Copyright 2013 Beverly Michaelis

Can I Double My Fee if the Client Doesn’t Pay?

Some of you will answer:  Absolutely Not!  Others may think:  Not a bad idea!

We’ve all been there.  Non-paying clients can be incredibly frustrating, especially if you went out of your way to offer a reduced rate or special payment plan.  But before you resort to punitive measures, take a moment to think it through.

First, a literal doubling of your fee may be considered excessive.  Review Oregon Rule of Professional Conduct 1.5.

Second, consider whether the proposed punitive action will make a difference.  Do you truly believe that doubling your fee will motivate the client to pay?

Third, collections can be a landmine of legal traps and pitfalls.

What Should You Do If the Client Doesn’t Pay?

In the case of non-paying clients, it may be appropriate and necessary to withdraw. If so, take care to abide by your ethical responsibilities.  If you represent the client before a tribunal and must file a formal Motion to Withdaw, read and understand Oregon Formal Opinion No. 2011-185 – Withdrawal from Litigation: Client Confidences.  If you have any doubt about what you can or cannot tell the court, seek advice from the Oregon State Bar General Counsel’s office or contact a lawyer colleague who specializes in ethics defense.

You should also consider attending Building and Maintaining a Profitable and Efficient Law Practice on March 16, 2012.  Hear Ann Guinn, a nationally known speaker, author, and consultant discuss:

The Keys to Assessing and Increasing Profitability

  • Personal habits that cause you to underearn
  • Identifying profitable practice areas
  • Analyzing office overhead, liquidity ratios, budget, turnover rate, and realization rate
  • How to establish effective billing practices
  • Reducing accounts receivable
  • Developing case and client selection skills to eliminate payment problems
  • How to manage your time and law office effectively and develop efficient office systems

Also featuring:

Richard Slottee, Professor of Law and Director, Lewis & Clark Legal Clinic, who will talk about the Fair Debt Collection Practices Act and other collection issues.

In addition, the Practice Management Advisors of the Professional Liability Fund will review Fee Agreements: Do’s and Don’ts.

Building and Maintaining a Profitable and Efficient Law Practice will be held at the Oregon State Bar Center.  Attend live or via Webcast.  Cost:  $10.  Register now at the PLF Web site > Upcoming Seminars.