Billing and collecting are among the core activities of a business’ day-to-day operations. This is as true for law firms as for any other type of business, though many law firms do not put procedures in place to ensure billing and collection duties are completed in a timely and efficient way. Ignoring the importance of billing and collections can result in numerous delinquent accounts, as many law firms can attest. These delinquent accounts sometimes harm the relationship between lawyers and clients, and can result in legal disputes and other undesirable situations.
From a risk-management perspective, it is often unwise for law firms to sue clients for unpaid legal fees. Bringing suit against a non-paying client is likely to result in one of two outcomes — a default judgment against a judgment-proof client or a counterclaim against the suing attorney for legal malpractice. For this reason, suing a client for unpaid legal fees is a very high-risk, low-reward practice. A better approach to billing and collections is to avoid delinquent accounts altogether by developing an effective billing and collection strategy from the outset of the representation.
The following suggestions can help lawyers take a proactive approach towards preventing delinquent payments:
Assign someone in your office to be responsible for calculating and sending bills on a regular schedule and for keeping track of accounts that have fallen behind on payments. Ensure all billing procedures comply with Rule 4-1.5 regarding fees and Rules 4-1.145 – 4-1.155 regarding lawyer trust accounting and safekeeping client property. Once a bill has become delinquent, assign a contact person in your office to be in charge of collection attempts for the unpaid bill. Ideally the person engaging in collection negotiations with a client would be someone other than the representing attorney, thereby ensuring that the attorney-client relationship is affected as little as possible by such financial discussions. It may be helpful to draft a form collections letter, email or phone script to assist your office personnel with these collection efforts. You also should determine at what point an account will become so delinquent that your attorneys should withdraw from the representation. When developing your withdrawal procedures, take a careful look at Rule 4-1.16 regarding declining or terminating representation.
Before committing to representation, verify that the client has the resources to fulfill payment obligations. It’s important to inform the client about all of the anticipated fees the representation entails prior to accepting the case, and to discuss with the client how the client expects to make payments. It may be necessary to ask “difficult” questions regarding the client’s finances to determine whether or not a client’s anticipated payment method is reasonable. It is unlikely that a client with low income could pay monthly legal bills simply out of his or her discretionary funds. Discussing the client’s financial situation up front can help the client brainstorm other methods of payment, e.g. credit cards, assistance from family members, etc. If, after fully analyzing a client’s payment strategy, it is still apparent that the client cannot afford your fee, you will be glad you learned that fact prior to beginning the representation.
Discuss billing procedures
Before beginning the representation, ensure the client understands how billing and collection activities will be handled. Explain to the client how often he/she will receive a bill and the types of fees and expenses he/she can expect to see on each one. To this end, it may be helpful to show the client a “sample bill,” demonstrating the types of fees that can arise during the course of a billing period, e.g., phone calls with the client, court appearances, research, drafting, etc. It also can be helpful to walk the client through the representation in terms of “billing chunks” to demonstrate the size and timing of bills that can be expected for certain time-intensive activities such as discovery, depositions and trial. During these discussions, you also should explain your firm’s procedure when an account is delinquent, including the nature of the collection efforts that will be taken, and, if necessary, the withdrawal process your office will go through if the bill continues to go unpaid. This conversation with the client should emphasize the client’s responsibilities and the consequences of lack of payment at the outset of the representation, as well as getting client buy-in to the representation.
Whittney Dunn is a Risk Manager at The Bar Plan who regularly presents at local and national CLE seminars and conferences on the topics of ethics, professionalism and malpractice avoidance. She also provides risk-management consultation services to law firms and audits law firm procedures to evaluate risk-management controls.