As alternative billing approaches go, flat fees have many fans. Clients like to know exactly what a particular legal service will cost and lawyers like to leverage experience they have gained in providing the same service to others. Sometimes a flat fee even lets a lawyer spend more time on a matter because there’s no concern that the client will feel the lawyer was trying to run up the bill by spending more time on legal research or clever drafting. Flat fees are also important for clients who are at a high risk of future nonpayment. 

The place where lawyers tend to get in trouble ethically with flat fees is when they want the fee to be both flat and nonrefundable. From a definition standpoint, calling a fee “flat” merely says what the amount will be and says nothing about when the client is expected to pay, when the fee will be considered earned, and what portion (if any) the client will get back if the client is unhappy or just decides the lawyer is ugly.

One way to handle the flat fee is to have the client pay the amount up front, put it in the lawyer’s trust account, and state in the representation agreement when the fee will be considered earned, so that the lawyer can take it out of trust and put it in the business account.  This works well for document-intensive projects, such as an estate plan or an incorporation. But even in a criminal matter the agreement could be that 25% of the fee is earned after the arraignment, another 25% after the omnibus, and the rest after trial, with all of the fee earned at any time a plea bargain is reached.

Most lawyers who use flat fees, however, see them also as a way of avoiding having to place funds in a trust account.  Of course, one could avoid trust account issues by having the client pay after the work is done, but getting the money up front is a key part of keeping a law practice afloat.

This is where the ethics problems start.   (more…)

With the stock market gyrating and the economy sinking, many lawyers are already starting to see clients fall behind on paying their bills.  Here are a few ideas for managing fee collection through troubling times:

Comfort clients

First of all, and to put the strategies below in context, make contact with your clients, particularly the ones who have typically paid their fees. Everyone’s nervous about the economy; you are one of their trusted professionals. Call them. See how they’re doing. Find out if there is anything you can do for them. Give them your ear. Don’t bill them for the call.

Send statements

Now is not the time to let invoices sit around unsent.  Yes, your clients maybe hurting financially, but they need to know what the status of their bill with you is. A big surprise later certainly won’t help.  If the clients have many bills, you need to make sure you’re figured into the mix. If clients don’t see a bill from you, they may think they don’t owe you anything or that your bill can wait a couple of months.

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One difficulty in representing clients who are “under water” on their mortgages is how the lawyer should get paid for his or her time negotiating a better deal for the client.

The client is heavily in debt, but if the lawyer shines, the client could save tens of thousands of dollars. In a listserve post this week, Professor Andrew Perlman asked: What if the lawyer was paid by taking a percentage of the money that the client saved through renegotiating the mortgage?

This kind of arrangement is used in other areas of the law and is commonly referred to as a “reverse contingent fee.” The ABA issued an opinion over 15 years ago, Formal Opinion 93-373, stating that there was no ethical prohibition against charging a client a fee based on a percentage of the money the client would save if the lawyer was successful.

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Like time-share shysters and ultra high-end restaurants, most lawyers prefer not to advertise their fees. Oh, many attorneys advertise their hourly rate, but that does not really help consumers, who have no idea how long a task should take.

Why not?

Sure, you have a better chance of getting a client to sign a retainer once they walk in the door, so many attorneys focus on that. But if potential clients already know what you charge before they walk in the door, your potential client:client ratio should approach 1:1.

Will you lose clients if you give up the opportunity to give your “spiel” to each one? I suppose that, in part, depends on your spiel.

I have seen criminal defense attorneys whose sales method seems to be scaring the hell out of potential clients, then trying to find out how much money the client could beg, borrow, or steal for a retainer fee. That is definitely harder to do through a website or phone book ad.

If, on the other hand, your strategy is to be straightforward, up front, and consistent, I think advertising your fees—to the extent you can—could only help. We’ll see, anyway. I am giving it a try to see how it goes.

Blasphemy! I know it sounds crazy, but law firms and lawyers should realize that hourly billing is not always beneficial to the firm or to the client. And in order to shift away from thinking in terms of hours to thinking in terms of value, law firms must stop tracking time whenever possible.

Instead, you must find new ways to measure value.

For example, if it takes 12 hours to draft a contract for one client, but only 3 hours to polish it up for a second client, why would you bill each client by the hour? Considering the value received, the second client should pay more, not less, since you were able to deliver a superior product in less time.

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As people are able to do more legal work themselves, the value of full-service legal representation will diminish. As a result, lawyers will have to adjust to clients’ needs in order to stay profitable (and busy).

There are three basic reasons why clients hire lawyers: expertise, efficiency, and to assume risk.

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