Law Practice Today

You've sent your bill to the client. It's been several weeks and they haven't paid yet but there's no reason to be concerned. After all, if there were a problem, wouldn't they tell you so by now?

The answer, regrettably and often inevitably, is "no." If you defined your payment terms up front in your letter of engagement with the client, and the client has not lived up to those terms, it's symptomatic of a deeper communications problem. My book, Collecting Your Fee: Getting Paid from Intake to Invoice, notes that there are five reasons why clients fail to pay their bills:

• They didn't get your bill/statement
• They didn't understand your billing and/or what you did for them and/or the value to them of what you did for them
• They didn't ask you to do what you billed them for
• Their cash flow is temporarily interrupted, despite the best of their intentions to pay you quickly
• Their business has gone "south" and they can't afford to pay you.

Always Communicate

In times of recession, the last two of these reasons are to some extent beyond a lawyer's control. Even so, if there is a problem with a client's ability to pay, good communication can uncover it by learning about and being more sensitive to the needs and conditions of clients. None of this requires constant calls or elaborate questionnaires. Simply meet clients over coffee and ask, "How are you doing? Did you understand my bill? Is there an issue that concerns you? Is there something I can help you with?" Given this opportunity clients will provide you with honest answers. And if there's a problem, it's better to know sooner and come up with a solution than to keep haggling over an unpaid bill.

The first three reasons for unpaid bills also involve communication issues, but of a different kind. They reflect the fact that, although the main purpose of a bill is to secure the client's payment, there is a secondary purpose that lawyers often miss: to leave the client with a favorable impression of the services he or she received. In other words, the bill is another tool for client communication. An effective bill is one that speaks clearly and directly to clients about how you as a lawyer have improved their lives.

 

Never Assume

In an earlier column we addressed the fact that the cost of legal services, as reflected in the bill, must be "reasonable" according to Rule of Professional Conduct 1.5. A reasonable fee is directly related to the value that the client receives in terms of a lawyer's skill, timeliness, experience, reputation and results. Lawyers too often make the mistake of assuming that clients understand this value when, in fact, they have made no effort throughout the engagement to communicate it.

A large law firm once engaged me to help end their write offs of litigation fees. I suggested creating a flowchart of the litigation process to determine where/how much the clients had really been involved. The result was that there were very few points at which the clients were apprised of what was happening in their cases. When the final bills came, they were shocked at the large amounts and refused to pay. The lawyers defended themselves by saying, "I talked with the clients frequently. We were preparing for depositions and constantly asking for documents, etc." But, that's not the kind of interaction that gives clients a sense of where they are relative to their budget and the bill they ultimately receive.

The antidote to this is regular communication with clients during the engagement. Don't wait for them to come to you. Send them copies of all relevant documents about them that come into and out of the office, and provide status reports on a regular basis. Clients appreciate communication, the more, the better. But don't make client communication just another itemized function charged by the hour. It should be done at no cost, as a means of building trust and appreciation for the work done. Demonstrating that work is the best way to ensure getting paid once it is billed.

 

Be Detailed

That brings us to the nature of the bill itself. Because legal services are often intangible, the more information you can provide about your work and accomplishments, the more likely the client will be to perceive the bill as fair and to pay it promptly. Be as detailed as possible when listing charges. Too many lawyers make the mistake of brevity in billing - for example, "work on motion for summary judgment, 20 hours." Break any such charge into its basis elements, with the amount of time needed for each: review key documents and deposition testimony, draft statement of uncontested facts as required by court procedure, research precedents in four similar cases, and so on. Such itemization does not try clients' patience - it helps them understand just how much you did on their behalf, particularly if you have kept them in the workflow loop during the engagement. Use action verbs to describe your services. Clearly indicate the specifics of what was accomplished. This gives clients an appreciation of the effort you expended.

Don't limit detailing simply to ancillary charges for "opening" a file on each matter or for such business expenses as photocopying or secretarial overtime. These are legitimate charges to clients if specified in the engagement agreement. The fact that the client owns his own file does not prohibit the lawyer from contracting to copy it at the client's expense. Of course, if your competitors do not make such charges, or if your client resents being asked to pay them, it's each lawyer's judgment call on whether or not to charge.

 

Be Convenient

A bill should also be easy to receive and pay by taking advantage of all that technology affords. One simple way to do this is to email bills as PDF files (which cannot be modified by the recipient) rather than sending them through the mail; such speed and convenience often result in quicker payment. For corporate clients, consider using an electronic invoicing service. This requires substantial initial setup and coordination, and is mainly justified for larger clients; but once this is done, the billing service performs much of the routine work of certifying compliance with the client's billing rules and assigning fees and costs by matter handled and by requesting lawyer. Finally, for clients of any size, afford the ultimate convenience of paying the bill by credit card.

 

Be Timely

Your bill should also be timely. If you bill when clients are happy because you've just won a motion or negotiated a favorable deal - even if somewhat before or beyond the normal billing date - 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. Later, the client will invariably forget how important you were in the process and wonder why the bill is so high. Once in that state of mind, the statement for services will sit unpaid until some future date. One study shows that, a bill that is over 60 days past due can still be collected about 89% of the time. However, that drops to a 67% likelihood of collection after six months, and to a 45% likelihood after one year. Why take the risk? Send bills promptly.

In fact, it's a wise idea to be proactive in the timing of your bills. Sending out invoices on or about the 25th of the month is a good example. It shortens the receivables stream because clients receive statements on or before the first day of the following month. Since most people pay their bills on or about the first of the month, a bill that comes after that is frequently kept for payment until the following month. Another idea is to bill one-fourth of the alphabet each week. That way the firm receives money from one-fourth of all clients weekly, which evens out cash flow over the month, rather than once per month.

 

Make the Effort

It should be clear from this discussion that billing a client is an active process that requires real effort. It is not a mere administrative bother. Lawyers typically focus on the quality of work they perform. But doing a great job with documents, the court, or the opposing party, no matter how successful the end result, is a moot point unless the client understands the accomplishment. A bill that only says, "For legal services rendered," or that is inaccurate or confusing, does nothing to enhance such understanding. A bill that is the culmination of an active, ongoing communication process enhances a client's understanding of the benefits received - and enhances as well the likelihood that it will be paid timely.