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:
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.
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.
Take a look at your clients who are more than 90 days behind on their payments. With a down economy, some of the clients who have not been paying never will. Take a look at those clients’ cases and determine whether there are any you would be better off withdrawing from.
You need to find the files that have no pending discovery or trial deadlines, venued in state court rather than federal court (because you may not be allowed to withdraw from federal court because of unpaid fees), and may require a lot of uncompensated work if you don’t make some tough decisions. Make sure you’ve asked for payment first.
For clients who are less than 90 days behind, call or write them. Don’t ignore their overdue bills and don’t threaten them either. Just remind them that you’ve done good work for them and that you need to be paid. If you ask for a partial payment or a payment plan, they may appreciate your flexibility and you might get some money that would otherwise have gone to their other creditors.
If you sometimes begin a representation without an advance retainer, start requiring one, and if you currently get retainers, set the initial retainer higher. By making better use of advance retainers, you are reducing your risk of nonpayment in the future, which may help balance out the slow payments by some of your current clients.
Line up liens
In many states, a lawyer can assert an attorney’s lien against a client’s property that was the subject of the lawyer’s representation, which can be an effective way to ensure collection of a lawyer’s fee. But a lawyer can lose his or her right to the lien by not following the technical requirements regarding notice and filing.
In Minnesota, for example, an notice of intent to claim an attorney’s lien on a client’s real property must be filed within 120 days of the last work the lawyer performed on behalf of the client. If the notice is not filed on time, the right to claim a lien is lost.
When dealing with clients who aren’t paying, remember that a fee dispute with a client that escalates may leave you with a conflict of interest. Lawyers cannot sue a current client over fees. Stress over a client’s nonpayment has led more than one lawyer to do or say things that violate the Rules of Professional Conduct.
If you believe that an existing client owns property that could be used as security for your fee, treat any request for a security agreement as a business transaction and follow the ethical rules (ABA model rule 1.8(a)), especially giving the client an opportunity to consult independent counsel about the transaction. The same goes for converting an hourly fee agreement into a contingent fee arrangement or asking a client to sign a confession of judgement.