You hang your shingle, you put the word on the street that you’re open for business, and a client walks in the door and signs a retainer agreement. You’re in business! Then, the client hands you your first retainer check. Now what? You need establish a proper money management system, both for business and ethics reasons.
Business Solutions to Increase Odds of Payment
One of the biggest money management complaints solo lawyers have is the difficulties they face in getting paid. As you set up your practice, there are a few things you can do to help increase the odds of getting paid for the work you do.
Collect Fees in Advance
Getting paid before you have done the work to earn the fee is a great idea, though it’s easier said than done for many lawyers. While it can be hard to ask for upfront payment at first, it does get easier as you get used to the business practice, and once you get burned by a non-paying client, you will find it easier to ask.
One way to collect in advance is to ask for an upfront deposit toward your hourly rate. You can estimate a reasonable number of hours to initially invest in a matter and ask the client to pay for those hours up front. When the first bill comes due, you already have those hours paid in advance and can apply the deposit to the invoice.
When the client pays you these advanced fees, you deposit the funds in your trust account. When you have earned the fees and you prepare an invoice for your client, you then withdraw the funds from trust and deposit them into your operating account, simultaneously sending an invoice to the client reflecting the payment from trust.
A variation on the idea of advanced fees is an advanced payment of the final invoice on a matter. This is like paying the last month’s rent when you move into an apartment. The client will pay you some sum that you estimate to be a reasonable deposit on your work. You deposit that amount into your trust account, and each month when an invoice is due you send the invoice to the client to be paid in full. Any payment received will go directly into your operating account because it is already earned. Then, when the client’s final invoice is prepared, you apply the funds held in trust to the amount outstanding, write yourself a check from the trust account and deposit it into your operating account. If the client still owes additional money, send them a bill, or if their deposit exceeds the final invoice, send them a refund.
Each of these practices is permissible under ethics rules; the only ethical question that remains is how to treat the funds once you receive them–and you cannot go wrong depositing them into trust.
Establish a Billing Department with Procedures
Much as we would all like to be paid in advance at all times, in reality you are likely to have some outstanding receivables. In order to increase the chances you will be paid, and paid on time, set up a billing department with proper billing procedures. This is true even if the billing department is just you.
At the outset, it’s important to note that a billing department should have its own email address from which invoices should be sent. And, your billing department should prepare and send invoices on the same day every month, whether it’s the first business day of the month, the last day, or the 15th. Just pick a day and stick to it.
Your billing department should have a practice of sending out reminders on unpaid invoices and offering payment arrangements when appropriate. If you have a high volume practice, you will more likely need a specific template and rules for when payment arrangements are offered. In a smaller volume practice, you can more easily determine when to offer arrangements such as installments or discounts for full payments.
When you abdicate responsibility for invoicing to a billing department, you take some of the difficulty out of asking to be paid. You are no longer the person sending the invoice to your client and reminding them that the bill is past due. That responsibility now belongs to the billing department. That department can send a reminder to pay the bill on the same day that you have a perfectly pleasant conversation with your client on the substantive issues in their matter with no mention of the late bill.
To learn other important money management tips when starting a law firm, make sure you check out the full (and free) MyCase eBook, “Let’s Talk Money.”