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Can my firm charge interest on past-due balances?
Post on June 12th, 2024

It’s our general recommendation that attorneys implement billing practices that prevent past due balances to the extent possible. Charging sufficient retainers, implementing recurring payments to help clients avoid large bills or infeasible retainer replenishment requests, and periodically reviewing accounts with office staff are all proactive practices that can mitigate delinquent receivables. We encourage you to consider what fits best for your client population and practice areas. For some law practices, recurring payments coinciding with the client’s pay dates may help smooth out the relationship around billing.

But even with the best proactive measures, it’s sometimes unavoidable for clients to incur delinquent balances.

Charging interest on past-due balances has been long established to be acceptable for attorneys so long as the client is advised in advance.  Ohio Board of Professional Conduct issued an opinion in 1991 addressing interest on past due balances and New York issued an opinion in 1995 on the topic. The New York opinion references the ABA’s and other states’ decisions.

The sample fee agreement in the Ohio Bar’s publication “OfficeKeeper” manual includes a Sample Fee Agreement. The template anticipates interest on past due balances:

Invoices for legal services rendered and costs advanced or incurred are issued [__(indicate time interval, e.g. monthly )__] and are payable upon receipt. Interest at the rate of [___] percent per month will be added to the balance due on amounts which remain unpaid thirty (30) days or more.

General best billing practices would include that you have a narrow net payable policy, such as “due upon receipt” or at most 14 days, (except with prior arrangements with managing partner, for example). Setting a narrow net payable policy will help manage the client’s expectations and avoid the bill slipping into a state of “out of sight, out of mind.”

It’s generally recommended that the earliest you start charging interest is 30 days past the due date, which may be considered too aggressive in some situations. Perhaps most importantly, ensure consistency in how you treat clients when it comes to applying interest.

There is no requirement to use a specific interest rate – rather that it is reasonable (consistent with general fee reasonableness requirements of Prof.Cond.R. 1.5) and communicated in writing to the client in advance. One reasonable approach may be to set your delinquent payment interest rate at the annual statutory interest rate set by the Ohio Tax Commissioner. This may avoid allegations of usury interest rate.

Let us know – are you charging interest on past-due balances? What strategies have you found to be successful in avoiding delinquent accounts?

Additional OBLIC resources:

Billing Ethically to Get Paid

Best Practices – Dealing with Difficult Clients

 

Gretchen K. Mote, Esq.
Director of Loss Prevention
Ohio Bar Liability Insurance Co.
Direct:  614.572.0620
[email protected]
Merisa K. Bowers, Esq.
Loss Prevention Counsel
Ohio Bar Liability Insurance Co.
Direct:  614.859.2978
[email protected]

This information is made available solely for loss prevention purposes, which may include claim prevention techniques designed to minimize the likelihood of incurring a claim for legal malpractice. This information does not establish, report, or create the standard of care for attorneys. The material is not a complete analysis of the topic and should not be construed as providing legal advice. Please conduct your own appropriate legal research in this area. If you have questions about this email’s content and are an OBLIC policyholder, please contact us using the information above.