By Alex De Grand, Legal Writer, State Bar of Wisconsin

March 18, 2009 – A few simple steps can help the client better understand the lawyer’s bill and improve collections.

In the State Bar’s 2008 survey report of law firm economics, a third of respondents said that more than 10 percent of their billed fees go uncollected. The problem is especially acute among solo practitioners and small firms.

But better communication with clients regarding payments and less procrastination when billing can go a long way toward improving collections.

“While all of that seems to be pretty commonsense, in the rat race of our practices and the comings and goings, days can go by – sometimes a week can go by – without making accurate notations as you’re [working] and if you don’t do that, it can get away from you,” said Michael Hart of Kohler & Hart, LLP, in Milwaukee.

“And if it gets away from you, before too long you’re going a month putting out a whole lot of more money than you’re taking in,” he said.

Better billing

Hart suggests the following tips for better billing:

• Start with a well-written fee agreement. “Depending upon the kind of work you do, these agreements are not complicated,” Hart said. “Understand what you are being engaged to do and put that into an agreement.” Some representations – such as those costing more than a $1,000 or a contingency fee arrangement – must be in writing pursuant to professional ethics rules. The client should have a copy of the agreement, he added.

• Clearly set forth the client’s obligation to pay. Be sure to discuss the expectation of payment with the client, Hart said. The lawyer should particularly explain the basis of the fee and the expenses for which the lawyer expects to be paid. Also, the lawyer should explain to the client the consequences of a failure to pay. In his own practice, Hart said he includes a paragraph in all fee agreements that tells clients that if they fail to cooperate in the representation – either by staying in touch or failing to pay bills – his firm will seek permission from the court to withdraw.

• Keep track of time in as great of detail as possible. The sooner time is recorded, the more likely none of it will go unaccounted. Hart suggested keeping a log on hand by which a lawyer can contemporaneously note the time spent for each client and exactly what work was performed. Hart said this enables the lawyer to give clients a regular and detailed bill that lets them know exactly what they are paying for. “Clients pay fees more often than not if kept informed, regular bills go out and they feel they are being treated fairly,” Hart said.

• Create fee arrangements that accommodate the client. Not all clients are created equal and a fee agreement might be tailored to meet their particular needs. “Clients in more complex business settings are interested in ways to avoid paying a big initial advanced fee,” Hart said. “Hybrid fee agreements are acceptable under the [ethics] rules. Lawyers may accept a matter at a reduced hourly rate for a percentage of a recovery in a contract action. Clients appreciate creative thought in putting together an appropriate fee agreement which they can lie with and afford.”

Hart also suggested a lawyer consider using an “evergreen” agreement that works off an advanced fee. “That is, if you were to say to a client, ‘I estimate this case is going to take some work. I’m asking you for a $25,000 advance. In addition to sending you a monthly statement, when that advanced fee is depleted, I’m going to expect you to replenish it,’” Hart explained. This type of fee would require full explanation to the client in an engagement letter or retainer fee agreement, Hart said.

Better collections

Improved billing leads to increased collection, said Brenda Majewski, an administrator at the Milwaukee-based Kohn Law Firm S.C., a practice that concentrates in debt collection and litigation. In addition to Hart’s tips regarding communication with clients and regular billing, Majewski gives the following suggestions:

• Conduct a proper intake investigation. Clients occasionally disappear. But Majewski said that if a lawyer gathers social security numbers, home and work addresses, phone numbers, e-mail addresses, alternative addresses, emergency contacts, and employment information, the lawyer will have a good place to start looking. Majewski said this information might also assist a lawyer garnish a client’s wages or attach property to satisfy a judgment for unpaid fees.

• Know the ebb and flow of the client’s income. A client may sit on a bill if it shows up when the client does not have enough money on hand to pay it. For example, if the client is a corporation, a lawyer should know when the organization typically pays its bills and submit an invoice then, Majewski said.

• Make a phone call. If a bill is overdue, Majewski suggested that a law firm call the client to see if there is an issue that can be resolved. “See what you can work out,” she said. “It is much cheaper to communicate than to litigate.”

• A lawyer might have to sue for payment. A lawyer may not want to sue the client for payment out of fear that the client will file a counterclaim, Majewski said. But Majewski recommended that lawyers review their malpractice policies and the steps they have taken to secure payment before becoming discouraged. “Do you have a fee agreement? Did you communicate with [the client] regularly? Did you bill [the client] regularly? Did you give [the client] what the positive and negative outcomes of their case may possibly be?” Majewski asked. If so, she said, the client may not have any basis for a countersuit.

Michael Hart and Brenda Majewski spoke on this topic at the 2008 Wisconsin Solo & Small Firm Conference. The 2009 Solo & Small Firm Conference is planned for Oct. 29-31 at the Wisconsin Dells.

Related: The Economics of Practicing Law: A 2008 Snapshot