While there is no sure fire way to avoid deadbeat clients or prevent client’s from stiffing you on your bills, there are ways to reduce the likelihood of this happening.  There is much ado these days about alternative fee arrangements and new billing practices with much less conversation about why clients don’t pay.  With even clients of mega-firms editing their bills and paying 30-45 days late, solos and small firms must be ever more vigilant about revenues. Indeed, we have less cushion to absorb the loss.

In my last column, I discussed choosing clients wisely to reduce negative impacts on your bottom line. But, what do you do after your selected client has hired you? Every seminar and CLE on practice management tells us that getting paid is the most important factor to staying in business, but we knew that already. Without revenue the doors close. That’s with any business! Doing it is not necessarily as easy. Though the basics hold true, sometimes it is just not enough.  After working with many clients and attorneys, here’s what I’ve found:

Always insist on a written agreement.

People are always looking to get something for nothing, and the law is no different. This should be a no-brainer for every attorney, and I am surprised at how often we overlook it.  There’s a recent case where a new ‘client’ retained counsel to handle a small business matter. The attorney was to draft and handle some contract issues for the client’s current business and handle the legalities of the client establishing a new business. The attorney spent months researching, drafting, and communicating with the client to accomplish these goals. The attorney sent the client a bill for the services rendered and the clients response was ‘what am I paying you for?’ Though the client was clear the attorney was acting (and working) as the client’s counsel on these matters, and had indicated all throughout the client’s intention to pay the attorney for the services, when it came time to do so, the client bailed. In addition to refusing to pay, the client subsequently stopped communicating with the attorney to avoid any attempts to collect payment. Another attorney tells the tale of having to sue a client for fees after coming in and settling a case on behalf of a client who phoned for help ‘at the last minute.

The problem with these situations is that they happen all too often.

The representation agreement ensures that both parties understand the terms of their relationship, what is expected from that relationship and what happens if or when the relationship falls apart. In the first instance, the attorney spent many hours and billed thousands of dollars which he now has to eat due to the poor character of someone else. In addition, the attorney lost valuable time that could have been spent on a client who would pay.  The attorney could sue, but this costs time, and such unscrupulous clients bank on the fact that attorneys won’t bother.

In the second instance, the attorney did prevail in court (we usually do in fee disputes) due to keeping accurate billing records and the client’s inability to claim the attorney didn’t do the work. Unfortunately, it took time and money to sue the former client to recover. Any potential client worth their salt expects to sign some kind of agreement to retain your services. The ones that do not, are not for you. At some point they will be more trouble than they were worth.

Go over the agreement with clients before they sign on.

Most people don’t read what they sign. Because almost everything we do and every interaction we have is governed by some small print somewhere, our society has become lazy about reading the terms. The agreement to retain counsel is not exempt from this practice. Sadly, the failure to read the agreement creates problems down the road.  In addition to having a clear written agreement, a few extra steps can help make sure that your client understands those things that tend to cause conflict later.

1. Initial key sections. In addition to signing at the end of the agreement, add a line after the payment/fees section that the client must initial. People tend to stop and review places where they are directed to sign separately. If there are any questions, they are usually asked and can be clarified at that time.
2. Use underlines and bold print. Instead of sticking it in the ‘fine print’ make it stand out. This shifts the burden to the reader, who will later have a hard time claiming there was no way they would see it ‘way down there in ‘those small letters.’
3. Go over the paperwork. It should not be necessary to read the entire agreement to each client, but use your best judgment. If the client is inclined to misunderstanding, read it to them. In most instances, simply going over specific sections like fees (how and when they are charged and how much), privacy, time frames, withdrawal policy, etc., will bring these things to the forefront and the client can ask about anything they don’t understand. Once discussed, they cannot later come back and claim they didn’t know.

Send bills on time.

At a legal seminar some months ago, a woman expressed that the bills she got from her attorney’s office were sporadic, in some cases getting two in one month for a period covering three months.  Most people are used to paying their bills on a monthly basis. If you are billing clients, you should be sending them that way as well.  Most of us would be enraged if our utility company sent us a bill for both January and February in February and expected it to be paid timely.  Give clients the same courtesy. Practice management software makes it easy to send out bills and most allow you to do it electronically. You want to get paid on time, bill on time.

Stop working when payments stop.

One of my favorite movie lines is that of Matthew McConaughey in The Lincoln Lawyer…. “I don’t get paid, I don’t work.” This line sums up what every lawyers position should be toward clients. Solos and small firms more than anyone, eat what they kill, so to speak. That means if you are not getting paid you are soon out of business. Worse, if you are working and not getting paid, you are working for free! That is a BAD business model. Aside from time set aside specifically for pro bono work, every other moment should be billed and paid for. I have a friend with a client that has not paid him in four months, yet he continues to work and pay bills. At a lunch meeting I asked him, “if this lady hasn’t paid one bill, what makes you think she’ll pay three piled up?” His hopeful response indicated that his fear of losing this client was greater than his fear of going bankrupt. It shouldn’t be. The hard reality is a few clients can bankrupt you. Especially if you are spending time working for them instead of for clients that will  pay!

Eliminate clients who use threats to report you to the bar to get out of paying. 

A bar complaint is undoubtedly a lawyers worst nightmare, and people know this. The more unscrupulous of them will use this as leverage to avoid paying you for work you have done. You do not want this kind of person as a client or in your life. Simply put, its sleazy. If you have done your job, you have a right to be paid for it.  For clients who don’t intend to pay, it does not matter how good a job you do for them. Do not succumb to their poor character.  Do your job and keep good records. If you’ve done nothing wrong that will come out. While you cannot know who this client is until they threaten you, or make good on such a threat, you can sometimes get an idea. Is someone paying you late all the time, complaining about or disputing every bill, do they begin to complain about your handling of the case when before they were singing your praises…? Drop them. Often clients are very excited about their position until they realize the time and expense it will take to litigate it. Having little knowledge of the legal system, people tend to expect problems to be solved in a matter of weeks and a few court appearances. A year later, when the matter is still pending, clients grow weary of seeing your bill every month and look for ways to get out of it.

Add value services.

Though not required, it does not hurt to give clients more than they ask for. Getting a good deal on legal services is always a client plus, but getting the services they pay for plus a little something extra increases the chances you will not only get paid, but likely get some referral business- thereby increasing your revenue.  For instance, our firm assists clients with the purchase of commercial/residential properties in one of our practice areas. Savvy investors are encouraged to place each multi-unit or commercial property into its own LLC for better protection and tax purposes. In addition to handling the negotiations and closing process, we set up those LLCs for the client at no extra charge. It’s routine work that does not require much more time and most of our investor clients use us over and again, year after year for their acquisitions, many becoming long term clients who also send us their business and contract work. Additionally, they refer their investor friends. Happy clients are paying clients.

There is no science to getting people to pay their bills. At a time where the economy is tough and things are tight all around, people and business big and small are looking for ways to save money.  In running through the list of monthly bills people and businesses have to pay, the attorney’s bill is usually pushed to the bottom of the pile. Unfortunately, the attorney’s bills still have to get paid. Implementing a few, or all, of these practices force clients to respect your time, service, and your business even if they prefer not to. At a minimum they may have to take their business elsewhere, and in some cases, that’s not necessarily a bad thing.