Taking a Collection: 10 Tips for Effective Fee Collection for Lawyers

Piling up billable hours without receiving cash is the road to insolvency. The goal in fee collection is to have a high ratio of collected to billed accounts. An overall ratio of less than 80 to 85 per cent is a recipe for trouble. An overall ratio of greater than 95 per cent might mean your rates are too low — clients could be paying quickly because the amounts are insignificant to them.

Here are ten techniques you can employ to get accounts paid quickly.

#1: Get fees and budgets in writing. Before beginning every engagement, you should get the client's written agreement regarding the fee to be charged, how it will be calculated, when the fee is to be paid and the consequences of non-payment, including your right to withdraw. Every engagement letter should also provide a budget that addresses events, time and money. This significantly increases the chances of collecting your fee because the client understands what to expect upfront.

#2: Develop a collection policy. Consider the establishment of a firm-wide written collection policy that outlines how to keep track of delinquent clients and how to deal with unpaid accounts. The policy should cover everything from the beginning of the relationship with the client to the payment of the final bill. Larger firms may want to hire a collections manager, or designate a staff person, to handle the details of the collections policy.

#3: Offer payment convenience. Accept credit cards to make it as easy as possible for clients to pay for legal services. Clients today live on plastic and therefore paying legal bills with credit cards is easy for them.

#4: Manage your collection cycle. Financially successful lawyers prepare a forward-looking budget of cash receipts and payments for the next 12 months. Develop alternatives to diversify your receivables stream, for example, by billing one-fourth of the alphabet each week. You could also shorten your monthly billing cycle, sending out invoices on or about the 25th of the month so that clients receive statements on or before the first day of the following month, when most people pay their bills.

#5: Send statements after a positive outcome. If you bill when clients are happy because you've won a motion or negotiated a favorable deal, they're more likely to pay quickly. Such billing places the client on the peak of the "satisfaction curve," the time of least resistance for payment of fees.

#6: Address overdue accounts as soon as possible. Regularly determine which clients are behind on their payments. Forgetting or ignoring "old" clients results in forgetting or ignoring the accounts receivable. One study shows that a bill that is over 60 days past due can still be collected about 89 per cent of the time. However, the likelihood drops to 67 per cent after six months, and 45 per cent after one year.

#7: Communicate constantly. If a client has the ability to pay but is not paying, they're probably unhappy with some aspect of the representation. They choose to express that by slowing down or stopping the payment schedule. To avoid such a situation, stay in continual contact with the client about progress according to the budget, and to discuss any issues.

#8: Don't ask for money yourself. If payment hasn't arrived, lawyers shouldn’t be the ones to call the client about it. Instead, ask someone from your staff who's good with people and sensitive to their needs to make the call. If the lawyer calls, clients may become confused about whether the call is to request information, seek new business or request payment. Separate yourself from the collections function to avoid this confusion.

#9: Consider arbitration first, collection service second. Lawyers who consider using a collection service to collect a fee should first offer arbitration of the fee dispute through the disciplinary system. Check the rules and regulations of your jurisdiction before proceeding with either action.

#10: Avoid end-of-year haggling. Never cut your fee after a client has agreed to pay the full amount. This sort of price shenanigan is quite popular during the month of December with clients of large law firms. Clients agree to pay their large bills in order to get huge discounts because partners are rewarded based on how much is collected by year’s end. Some of these clients have gotten into the habit of attempting to discount their lawyers' fees for every matter. Don’t bite.

Neither the author nor the CBA should be construed as endorsing any product or website listed in this article. The views expressed in this article are those of the author and do not necessarily reflect the views of the CBA.
In this document, any reference to "jurist" or "lawyer" includes, where appropriate, "Québec notary".