Collecting attorney fees is difficult, which is why many lawyers insist on getting fees up front.
But after turning away thousands of dollars in business, I started looking at the potential clients who were walking away. I realized the average fees were between $1,000 and $4,000, and were generally for lower-level court cases. Many of these potential clients had professional jobs, but either had credit cards with insufficient limits or did not use credit cards even though they may have qualified. I felt that these potential clients were suitable for a payment plan.
With this knowledge, I decided to take on client financing. Here is what I learned.
Research Your Client
You must make sure that your client is worthy of financing. Financing every client is foolish. You have to ensure that the client has incentive and ability to pay. A credit report and score can give you a lot of information about your client’s financial history.
Major credit bureaus have plans where you can request that the client run their credit report. I have my clients use Experian Connect. For less than $20 a client can run his or her credit report and share it with me. This process is extremely simple and you can set it up in minutes.
Do your own research as to what range of credit scores you are willing to work with. The “Experian Plus” score ranges from 330 to 830. After some research and discussion with colleagues in the mortgage business, I decided that scores below 575 are simply too much risk.
Depending on the credit score and credit history, you may want to modify how much you require your client to put down. Requiring a credit report is also a great way to weed out those who have no interest in hiring or paying you. If they are serious, they will run the report and share it with you in minutes. If they aren’t, they will waffle on running the report or drag their feet on sending you a copy.
Once you have obtained a credit report, you need to confirm that your client has a bank account with steady income. Ask your client to bring in bank statements covering the previous two months for you to review. This will tell you what their income is, when they get paid, and whether they maintain a balance.
The client’s ability to pay will also be verified by the first payment. Sometimes, clients will want to pay the up-front fee in cash, and then continue with payments. In that case, you should at least charge their account something, even if it is just a small amount to verify that the account is valid.
Setting up a Payment Plan
Having a client pay you $10 a month for 10 years is not reasonable when you have your own bills to pay. The goal is to come up with a reasonable payment plan that is affordable for your client and minimizes your risk.
For a case where the fee is $2,000, and your client pays half of the fee up front, you can finance the remaining $1,000. I like to set up plans where payments are charged right after each payday. That way if someone gets paid every two weeks, $200 per payday will have the balance paid in five payments, or about two and a half months.
Keep in mind that if you refuse to finance, you are losing money because the client will just walk away. If you only take half without offering a payment plan, you just make half the fee you would otherwise charge. Financing the second half takes time, but you will probably collect the entire fee.
Related Payment Schedule Template
Once you decide a client is qualified and agree on a payment plan, you should provide a terms disclosure, a written payment schedule, automatic draft authorization, and your fee agreement. Preparing form documents will allow you to quickly repeat this process with only a few minutes added to the client meeting.
The authorization for automatic draft is essential to a workable financing plan. You simply cannot rely on your client to bring in a payment. For $35 a month plus nominal transaction fees, PaySimple will automatically draft payments from a client’s bank account and email an invoice. Those funds will deposit into your account about 3 days later — no calls, no begging, no appointments, no staff, and no hassle.
How To Charge Interest
To compensate for the risk of financing and delayed payment, I charge a flat 10% to the amount financed; you can adjust the charge based on your time and needs. I have found that the added 10% will cover the few extra minutes spent on preparing the payment schedule and setting up the automatic draft.
Therefore, if the client finances $1,000, $100 is added to the balance. All this is explained to the client in writing, and I give them a spreadsheet showing all of the charges, calculations, and dates of the auto drafts. I keep the signed originals of all of these documents and give them a copy.
Attorneys should always be on the lookout for ethical issues that may arise. I am not aware of any ethical problem with a client voluntarily bringing in payments, and I have not found a problem with arranging a fair auto-drafting payment plan. Just make sure everything is disclosed to the client in writing. If a client contests the fee or demands that the drafts stop, you then have to choose whether the fee is worth your time, effort, and reputation to contest. Regardless, it is best to check your state’s professional responsibility rules to be in full compliance.
While there are no guarantees, I have yet to be stuck with any part of any fee where the client has agreed to a fair scheduled payment that automatically drafts from their account. While I still prefer my fees upfront, I have found this to be a safe approach for keeping business that I would have turned down. Having a written policy, performing a credit check, and most importantly, having a fair payment plan with auto-draft will greatly minimize the risk of financing your clients.
Originally published 2014-08-14. Updated 2020-02-17.
Last updated February 17th, 2020