Clients who do not pay their bills are the bane of the private practice lawyer. While there is no failproof solution to eliminate the problem, there are steps that lawyers can take to reduce the likelihood that a client will become delinquent on a legal bill. Here are some best practices to bill clients ethically and get paid.

1. Initial Meetings

The initial client meeting is a good time to discuss the client’s objectives for the representation and the costs associated with meeting those objectives. The nature and scope of the representation and the basis or rate for the fee are part of the client discussion, keeping in mind the factors for determining the reasonableness of a fee in Prof. Cond. R. 1.5(a). How the services of other lawyers and non-lawyer assistants will be billed, what expenses will be charged, information about use of experts and outsourced services should be addressed. The billing cycle, terms and conditions of payment, methods of payment, and fees for using credit cards or late payments must also be included.  The lawyer should also include a realistic estimate of the overall cost of the representation and the client’s plan for meeting the financial obligation. If the client expresses hesitation about the ability to afford the representation, the lawyer may want to explore other options like limited scope representation or referring the client elsewhere.

2. Written Fee Agreements

Ethical billing begins with a good fee agreement that has been thoroughly discussed with the client and signed by the client acknowledging that they understand the terms of the agreement. Unless the representation by the lawyer involves a client whom the lawyer has regularly represented on the same basis as previously charged, the fee information must be communicated to the client before or within a reasonable time after beginning the representation. Prof. Cond. R. 1.5(b) says preferably in writing. We advise always put it in writing whether they are hourly, fixed, or contingent fee agreements.

Fee agreements often require payment of a “retainer” before any work is performed. We suggest using an “evergreen” retainer.  With this agreement, the client still receives a regular monthly invoice. The client then agrees to replenish the retainer in the amount of the invoice within 30 days, so that the retainer amount remains at the agreed upon amount. The client and the lawyer agree that the lawyer may terminate this agreement and withdraw its representation of the client if the client refuses or is unable to replenish the retainer. Using this agreement allows the lawyer to avoid having large receivables to collect from non-paying clients.

3. Client Communication

 Whatever the fee agreement, the lawyer must fulfill the communication duties of Prof. Cond. R. 1.4.  We recommend keeping the client informed by sending a monthly status update timed to arrive about a week before the regularly scheduled monthly invoice. This avoids having the invoice be the first place the client finds out what legal work has been done on their matter.

Lawyers must also keep good time records of all the time billed by lawyers and all support persons.  Practice management software and time and billing programs can help. The invoice should reflect all the work done on the matter. Lawyers should set up a pre-bill review to be sure bills are clear and accurate. Time and expenses for which the lawyer has opted not to charge the client should be noted on the invoice.

We also recommend providing payment options for clients. Lawyers have been able to use credit cards to accept payments since 2007. See Opinion 2007-3. Lawyers can also accept electronic payments from clients through PayPal, Square, Apple Pay and similar platforms. Fees for the use of these services charged by the entities should be discussed with the client prior to payment and an agreement reached with the client regarding who will be responsible for the fees. Payments from these services should be deposited directly into the IOLTA.

4. Prompt Collection

If the monthly invoice is not paid by the time the next invoice is sent, the lawyer should contact the client to determine why they have not paid. Delaying that discussion will only reduce the likelihood that the bill will ever be paid. A recent collection survey revealed that almost half of accounts that are 6 months overdue will never be collected.

We discourage lawyers from ever filing a lawsuit for fees. These lawsuits usually draw a counterclaim against the lawyer alleging malpractice that the lawyer must report to their malpractice insurer. There will be deductible considerations and potential impacts on future insurance premiums. We recommend that, if the lawyer must file a lawsuit, to wait at least 1 year from termination of the representation and carefully consider the decision. If the client has not paid yet, the likelihood of collecting is very slim.

As always, if you have any questions about this or any other loss prevention topic, please do not hesitate to contact us. We’re here to help!