73% of law firms deal with past-due accounts from as much as 39% of clients. What the heck is going on here?
In ten years, only three clients owed me money. The first was because I didn’t know any better. The second, years later, was because I needed a reminder not to work unless I have been paid. And the third was basically unavoidable due to a weird confluence of things.
There is no great secret to getting paid. All you have to do is follow this rule: never work unless you have been paid. Contingent-fee matters are the only exception. In that case, your client has given you everything you asked for by signing your contingent-fee agreement. In all other cases, get paid first.
It is a simple rule, and you should always follow it. Whenever I have been tempted to make an exception, I think of how the first two clients made me feel taken advantage of. It’s a sucky feeling, and the only way to avoid it is to get paid before you agree to do any work.
Getting Hourly Fees Up Front
Despite the increasing popularity of fixed fees, hourly fees are still the most popular way lawyers charge for their services. Traditionally with hourly-fee clients, you send out a bill every month for the time you billed during the previous month. That’s fine — as long as you have already been paid.
How? Require your client to give you a retainer — an advance on fees — that is large enough to cover the work you are going to do for that client. If you use up the retainer, require the client to give you another one before you do any more work.
Be draconian. If someone says they will have your money next Monday, tell them you will start working for them on Monday when they sign your agreement and hand over a check.
Consider including a “dead-man’s switch” in your hourly-fee agreement so that your client’s failure to refresh the retainer is all the notification required to terminate the representation.
This representation will terminate when the retainer exhausted unless you pay any outstanding invoice(s) and refresh the retainer within 10 days after receiving an invoice with an outstanding balance.
When your client’s retainer reaches zero, send a friendly letter with your invoice that includes a reminder of this provision and a due date. If you do not get a check by the due date, send your letter acknowledging that you have been fired. If the client calls you in a panic as soon as he gets your letter and offers to drop off a cashier’s check that afternoon, think twice. You may not want to represent him again after he has shown an inability to pay on time.
Getting Flat Fees Up Front
The rule is more obvious for flat-fee arrangements. Get the fee before you do the work. Any time someone asks for a few days to come up with the money, make an appointment for the day they plan to have the money and tell them you will be happy to start working with them on that day. Do not sign a retainer agreement before you have the money in your hand.
Sure, some potential clients won’t come back. Those are the ones who probably would not have paid you anyway, so it is no great loss.
For more complicated billing arrangements like billing in phases, separate the phases by carefully defining the scope of representation in your retainer agreement. For example, if you are going to represent someone up to but not including trial, make sure your agreement lays out when the representation will terminate, and make sure that point in the litigation will not prejudice the client or make it difficult for you to withdraw. Then if the client wants to hire you for trial, execute a new agreement and get paid.
If you will not be able to withdraw once you start, get the entire amount up front.
If a client bounces a check, follow up immediately and give her a very short time frame to show up at your office with cash or a money order, or to wire the money to your account. Bouncing a check may be a show of bad faith, but it is definitely a sign of an unreliable person. And it is a breach of your retainer agreement. Make sure your client understands that if she wants a lawyer, she has to pay your fee.
To prevent check bouncing, you might want to require cash for some fees. I used to require cash for all fees and retainers of $3,000 or less if I had to take any action on the client’s behalf (like filing something with the court) within 10 days. (If you do this and your bank isn’t within about a block of your office, you might want to get a safe.)
Even if your client makes up for a bounced check by giving you cash right away, you should give them a stern talking-to about the importance of making payments on time. Make sure they understand that any further bounced checks or missed payments will result in immediate termination of the representation, because you do not work for free, and you do not work for people who try to take advantage of you,
Pro Bono v. Free
You should absolutely do pro bono work, but writing off a bill is not the same as pro bono. That’s called working for free. That’s also allowing yourself to be taken advantage of.
Pro bono is work you do for people who cannot afford to pay for a lawyer. It is not work you do for people who do not pay their bills. The decision to work pro bono is one you make at the outset, not after a client has decided he cannot (or will not) pay your bill.
How do free consultations fit in? Go ahead and do them if you want to. Just don’t bill for something and then write it off later and call it pro bono.
Remember this Rule
It is deceptively simple, but it is the only 100% guaranteed way to ensure you never have to worry about dealing with past-due accounts again. Next time a someone asks you to do something, ask yourself whether you have been paid for that work. If the answer is no, do not do it. Ask your client for some money, first.
Featured image: “man handing over money on white background” from Shutterstock.