One of my readers asked for advice on how to get clients to pay their bills. Cash flow is important to the success of every business, yet many lawyers do not design their practice to assure that collections flow in smoothly and regularly. The measures appropriate for your firm may depend upon the size of your clients, the type of clients you serve, and the types of matters you handle for them.
As you read through the suggestions below, think about how you might experiment with some of them or adapt them to your needs. Some may be new ideas for you, and others may be familiar ones that you have just gotten out of the habit of doing.
- Get a retainer in advance. Hold a retainer equal to one month’s fees in trust until application against the final invoice. Invoice the client each month for the current work. If the client has not paid the first invoice by the time you are sending out the second invoice, notify the client that work will be suspended until the account is brought up to date. Certain practice areas tend to attract a high level of clients with poor payment patterns. Practitioners may want to charge the entire fee up front for such services, or provide in the engagement agreement that the initial fee installment applies to the first stage of the engagement. Provide that the engagement will be put on hold or terminated until the fee for each next stage is paid in advance. Unless you can and will terminate the representation as soon as the client falls behind in payment, don’t lower your retainer to make it more affordable. A client who can’t afford to pay before you render services is not likely to become more able to pay after they have already received them.
- Grade your clients and prospects. If your prospective client balks about paying a retainer, ask why and proceed with caution. If the client fully intends to pay the bill, why is there a concern about paying some portion in advance? Can the client really afford your services? If the client has a trust issue, is there something about you that created that fear? If not, do you want an overly suspicious client? Difficult clients (Ds and Fs) take our time and attention away from better serving our ideal clients (As and Bs), and then often pay slowly. As scary as the idea may sound, you can often improve your productivity, revenues and cash flow by firing current D and F clients or declining prospective clients who have unrealistic expectations, demanding attitudes, or bad habits.
- Scrub your invoices. If your client is an insurance company or a corporation that uses multiple legal service providers, make sure your invoices follow their invoicing guidelines. Review the invoice carefully to be certain that it describes everything you have done for them. Even if you discount or write off some fees, include the description with an indication of the discount or “no charge.” Instead of lowering your rates for family and friends, let them know the value of what they are getting by charging your regular rates, then applying a “Family and Friend Discount” which you note on the invoice. Don’t nickel and dime your clients for small items they consider to be overhead, like faxes, copies, long distance, overtime for staff, and in some cases, conferences among lawyers in your firm. Let your invoice be a marketing tool by describing the benefit of each service provided. Instead of “draft revisions to contract,” say “crafted revisions to buyer’s proposed contract language to reduce post-closing liability risks of seller.” Clients are more willing to promptly pay invoices when they understand the value they have received.
- Make it easy for the client to pay. Enclose a return envelope with your invoice. Contact the client’s accounts payable department in advance and find out their needs, and what facilitates prompt payment. They may have a certain time of the month when they pay invoices. If yours comes in just after that date, you may have to wait an additional 30 days. Write down the names of the persons you speak to and build relationships with them. They may have the ability to influence which invoices get paid first when times are tough, or to help you if you call about not getting paid. For small business or “consumer” clients, consider accepting credit cards or at least have a PayPal account or automatic withdrawal process. Provide in your engagement agreement that you will charge their credit card or process the withdrawal for the full amount of the invoice 10 days after sending it out. Alternatively, you can request post-dated checks which you deposit monthly against the invoice balance.
- Don’t surprise your clients. Have a clear, written statement about your rates and your billing policies. If a bill is going to be higher than usual, or events have taken a turn for the worse, contact your client to let them know how it will likely affect the outcome of their matter and the bill. They may want to adjust some other strategies to keep costs or risks within their budget. Every time I have heard interviews of General Counsel, they have described surprises as their pet peeve. Don’t let your bill be one.
- Under-promise and over-deliver. When giving estimates, tell clients the high end of your expectations about price and delivery time, not the low end. Most clients don’t know what to expect until you set their expectations, so make them ones you can meet. If the fee turns out to be equal to your high estimate, they are satisfied because their expectations were met. If you bring it in at anything under that, you are a hero. By contrast, if you tell them a range, they tend to be merely satisfied if you bring it in below the top estimate, or disappointed if it is higher than the lowest estimate. Don’t try to woo a new client with a low estimate. Bargain shoppers often make unsophisticated clients with unrealistic expectations, and they will desert you for the next low bidder.
- Consider delivering invoices in person for significant clients. Call them to say “We’re mailing invoices today. I would like to schedule lunch (off the clock) later in the week to go over your questions and discuss our progress.” In addition to helping get your invoice paid more readily, this gives you a chance to enhance your relationship with the client. You may learn of additional needs that your firm can service. Sometimes when clients pay slowly, it is a passive-aggressive way of communicating their dissatisfaction. Ask for feedback about your services, and listen carefully.
- Create prompt payment incentives or slow payment disincentives. Give a discount for payment within 10 days. Offer a guaranteed completion date or a fixed fee for advance payment. (Include a refund of a percentage of the fee for each day that you miss the deadline.) For a “consumer” practice, offer a small gift like a paid filing fee, a copy of a useful book or a flash drive with the firm logo for fees paid in less than 20 days. Apply an interest charge to any fee not paid within 30 days (make sure the interest rate is specified in a written agreement signed by the client to avoid usury issues). Contact a slow paying client to remind them that the next invoice will include interest on the unpaid balance. I often received a check soon after such a reminder call.
- Get collateral. Sometimes you know the client may have difficulty paying the fee if the transaction doesn’t close or they lose the litigation. Ask for collateral for the fee obligation before beginning work. This is particularly important if the client is at risk of filing for bankruptcy protection, either out of necessity or as a strategy in litigation or negotiation.
- Get a promissory note. If despite your best efforts and the client’s best intentions, the client is unable to pay the full bill on time, offer a promissory note arrangement to the client. Once you set up installment payments, you will at least get a portion of the fee each month, instead of having the clients avoid you or stonewall you because they can’t make the full payment. If possible, set up automatic withdrawals or a credit card charging schedule to fund the note payments as they come due. It is also usually easier to get a judgment on a promissory note, if that becomes necessary.
- Send a “thank you for the project” email. Include a short note saying, “By the way, the check hasn’t arrived in the mail yet, I was wondering when you mailed it?” If you don’t get a response, call the main office phone number and ask for the fax number or email address of the Accounts Payable department. Send a polite note to the AP office explaining that, “I’m afraid that this invoice may have been lost in the shuffle. It’s several days past due. Please update me on the status when you have time.” Often you’ll get a polite phone call or email with a notation about the “paid” status. Make sure you note all of the dates and times you’ve called and keep copies of all of your correspondence. [This suggestion came from a reader, whose name was not recorded, unfortunately.]
- Be the squeaky wheel. If payment does not arrive on time, promptly have your bookkeeper or admin call to make sure the invoice was received, and to inquire whether there are any obstacles to payment. If payment is not soon received, give a call directly to your contact to inquire as to whether there are any concerns about the service or questions about the invoice resulting in the slow payment. You can ask your contact for assistance in getting the invoice paid. Until the invoice gets paid, have a system for regularly reminding about the unpaid amount. Squeaky wheels really do get more grease.
If you have had success with other ideas for collecting fees more quickly, please share them in the comments. I’ll express my gratitude by offering a free half-hour coaching session to the person who submits the best new idea on the posting date of this blog post.
All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.