Vol. 82, No. 4, April 2009
Your time is valuable, andthe way you make your living is to bill clients for your time and advice. But billing is only part of the equation. If you don’t get paid, you in turn cannot pay your bills, pay your employees’ wages, or provide for your family.
Too often, lawyers overlook this simple fact: You need to make enough money to keep your doors open. Lawyers often forgo efforts to be paid or to receive sufficient advanced fees because they believe they have a mandatory obligation to provide services for less fortunate people without compensation. While it is true that Wisconsin’s Supreme Court Rule 20:6.1 prescribes that lawyers have a professional responsibility to provide services pro bono publico, that is, for the public good, to people unable to pay, the rule does not prohibit or proscribe you from making a living before delivering pro bono services. You need to get paid so you can pay your bills and then be able to provide services for the public good.
Failure to get paid is one of the fastest ways to damage or destroy your practice, especially in these challenging economic times. When you do not collect all your fees, you are more apt to face a host of associated problems, such as missing payments to your vendors and suppliers such as utility companies, office products stores, and insurance companies; being unable to pay your employees and then losing them; and falling behind on tax payments. Time and again, attorneys concentrate on paying everything except their self-employment and other taxes, which is a serious mistake. Never fail to pay your taxes! Close your doors if necessary, but pay those taxes. Other creditors usually have to take you to court and get a judgment before collecting. But the government will seize your assets first and only then give you an opportunity to contest its actions.
Nevertheless, lawyers who are willing to ask the tough questions on behalf of their clients are often afraid to address payment issues head on with their clients. Raising these matters can make even the toughest lawyers squeamish. This continues to be a problem in law offices, which is puzzling when compared to the way other professions handle fees and payments. When you visit your doctor or dentist, you generally don’t leave that business without making a partial or full payment and signing an agreement acknowledging your liability for the balance due. The same is true for your clients when they go to the doctor and dentist. So why should the services that you provide be treated any differently?
Tips on Getting Paid
Lawyers need to approach fees and the payment of fees as a business matter, similar to the way other professionals do. Here are five tips that can improve your chances of getting paid:
1) Discuss your fees at the initial consultation. Talk about the basis of your fees and your advanced fee requirements at the initial consultation. Use this as an opportunity to describe in detail how you will bill – hourly, fixed fee, contingency, or value-based billing. Discuss the expenses the client will be responsible for paying and the amount of any advanced payment for expenses or fees. Finally, discuss how the advanced fee or expenses will be applied against the client’s bill.
2) Get it in writing. Lawyers tell their clients this all the time – get your agreement with the other party in writing. But lawyers don’t always practice what they preach. In Wisconsin this can result in a violation of the Supreme Court Rules and lead to an Office of Lawyer Regulation complaint.
SCR 20:1.5(b)(1) requires a written engagement letter if the attorney reasonably believes that the total cost of representation will be more than $1,000:
“SCR 20:1.5(b)(1) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. If it is reasonably foreseeable that the total cost of representation to the client, including attorney’s fees, will be $1000 or less, the communication may be oral or in writing. Any changes in the basis or rate of the fee or expenses shall also be communicated in writing to the client.”
Nerino J. Petro Jr., Northern Illinois 1988, is the advisor to the State Bar of Wisconsin Law Office Management Assistance Program (Practice411TM). He assists lawyers in improving their efficiency in delivering legal services and in implementing systems and controls to reduce risk and improve client relations. Visit the Law Practice Management area at www.wisbar.org regularly for practice management guidance. You can reach Petro at (800) 444-9404, ext. 6012, or email org practicehelp wisbar wisbar practicehelp org.
To view Petro's video presentation on getting paid, please see the March 4 edition of InsideTrack, the State Bar's twice-monthly electronic newsletter, at InsideTrack. In future videos, Petro will provide advice on monitoring business and trust accounts, avoiding client selection problems, and other practice management issues.
But you shouldn’t only use written agreements for matters that will cost more than $1,000; you should also use them in every representation or at least with each new client (you may not need a new one for subsequent matters with a client if the original agreement was for the provision of a broad or general range of legal services). Using written fee agreements or engagement letters is a best practice in running your law practice. By using them every time you engage a new client, it will become part of your normal routine.
The fee agreement becomes a tool to help you not only detail your billing practices, fees, and expenses but also detail:
- how you expect to be paid;
- whether or not you place the advanced legal fee in your business account (if you will place it in your business account, remember to include the alternate protection language required by SCR
- your right to withdraw for nonpayment by the client;
- your record retention policy; and
- requirements for clients to keep their contact information current.
Clearly explain in your fee agreement or engagement letter the scope of your representation and specifically list what you will not do for the client. By listing what your representation does not include, you can help avoid misunderstandings and prevent reluctance to pay that might result when you don’t do something that the client agreed would be excluded. The agreement is an opportunity to set out client expectations and the mutual obligations between you and your client.
3) Use your bills as a regular status report. Send bills regularly – either monthly or biweekly – even if you are doing the work on a fixed or contingency fee basis. This lets clients see what you have been doing on their behalf. Use the bill to communicate with your client, but also look at the bill through the eyes of the client as though you were the customer. It’s easy to fall into using abbreviations in our descriptions, but you should ask yourself what makes more sense: “TC with atty Smith re: Dep Scheduling” or “Telephone call with attorney Smith to discuss scheduling of his client’s deposition.” The latter is longer but does a better job of keeping the client fully informed in understandable language. Understanding what you are doing helps keep the client happy and should improve the client’s desire to pay promptly.
4) Stay on top of your accounts receivable. Keep track of the status of your accounts receivable. Close monitoring helps you to identify potential issues with clients if they’re not paying or are slow paying. If you catch issues quickly, you can then discuss any potential unhappiness with the legal representation or other issues before the client’s memory fades. Regular monitoring also may prevent you from continuing to work for a client who is not paying and give you an opportunity to withdraw in accordance with your written agreement and court rules.
5) Don’t nickel and dime your client. Nothing irritates clients more than feeling that they’re being charged for every paperclip or every minor detail regarding their case. You should only bill for significant legal work. Instead of charging for every item or expense, such as the actual telephone call or fax charges, find a different way to deal with these costs. You can build these charges into your hourly rate, assess an overhead charge when you open a case, or elect not to charge for any expense under a set dollar amount, such as $10. However, if you provide services that you do not charge for, you need to show these entries on the bill as “no charge” or “(n/c)” entries. While these billing ideas may not sound like big things to you, they can engender a great deal of goodwill with your clients, and happy clients pay their bills.
You can also follow the advice of Jay Foonberg, author of the ABA book How to Start and Build a Law Practice, and considered by many attorneys to be “the source” for techniques on running a law practice. Foonberg has a very simple three-word rule (“Foonberg’s Rule”) to ensure prompt and complete payment: Cash Up Front. If you want to hear Foonberg tell you about his rule, spend two minutes online and review his brief video presentation on YouTube, at http://tinyurl.com/yv6fa3.
Another great resource is Ed Poll’s book, Collecting Your Fee: Getting Paid, From Intake to Invoice, which provides advice and forms that can be adapted for use in almost any law office. Foonberg’s and Poll’s books are both available for loan from the Practice411™ Lending Library at www.wisbar.org/practice411/lendinglibrary or for purchase through www.wisbar.org/bookstore.
While putting these tips into practice won’t bring more clients into your office, they can help you stay on a strong financial footing and avoid potential disciplinary issues.