Earlier this week I was in the LFS mailroom engaging in a battle of wills with the copy machine (I lost) when in walked Mike*, a solo attorney who does mostly business litigation.
We exchanged standard niceties. How are you? Did you take some time off this summer? Are you still working crazy hours?
This led to a conversation that touched a nerve with both of us: client collections.
In 10 plus years of running my own corporate transactional practice, it never ceases to amaze me how many clients do not pay their bills on time, and just how many don’t pay at all. You would think that clients would assume it’s bad business to stiff an attorney, but it happens – a lot.
So much so, a year ago my law partner and I began transitioning our practice from an hourly fee structure to a contingency based model doing nursing home abuse litigation.
My guess is that practices like mine and Mike’s, where we tend to develop long-term relationships and work on multiple matters with corporate clients, may be more exposed to collection problems as compared to volume-based practices with lower cost engagements and bigger up-front payments.
In a perfect world, I’d like to follow the advice of the experts about good collection practices (i.e., demand a huge retainer up front and stop working until it gets replenished). The reality is, clients have their choice of capable attorneys, they don’t like those arrangements and I have bills to pay.
I’ll often risk taking less of a retainer up front to land business that has the potential to be lucrative over time (especially in this less-than-stellar economic climate). I’ll also let clients get a little bit ahead of me on billing before I start to pressure them for payment. It’s a tricky balance that works most of the time, but occasionally goes really bad.
Mike and I spent a minute trading war stories and sharing some of the tricks we’ve developed to collect from clients. It turned out to be a really fruitful conversation for both of us.
He described his recent success with taking an assertive approach to collections, along the lines of “I spent the time, you got value, I’m not your business partner and I expect to be paid immediately or else”. He usually sends a handwritten note to this effect with a client’s first past due invoice, and then follows up with a call.
According to Mike, he feels that when it comes to collections, if clients have no respect for you, your check will be cut last, if at all. Set the right tone about payment expectations early and reduce collection issues over the long run.
I shared with Mike that I started accepting credit cards a few years ago and that it has greatly reduced the receivables I carry. I don’t let clients have a long term interest free loan with my firm any longer. Let them ding a credit card and pay Amex or Visa 22.99% a year. It also gives clients who may be temporarily strapped for cash the option to retain my firm (or pay my bill on time). Clients also like the bonus miles or points they can accumulate when they pay a big bill with a credit card, and I’m happy to eat the three percent processing fee to get paid on time.
I have also been successful with using discounts as an incentive for clients to pay early. I’m frequently asked to discount my rates, but I will only do it with some quid pro quo. I tie the discount to a payment deadline, the bigger the discount, the tighter the deadline. If a client pays on time, they benefit, if not, they are responsible for the full boat.
Finally, while I give clients a bit of a leash with credit, I only let it go so far until I require the balance of an account to be paid down. If that doesn’t happen, I pull the plug on services and quickly get aggressive about collections. First a “nasty letter” goes out followed by calls. If that doesn’t work, within a week I send the client the fee dispute arbitration notice required by the NYS Bar. It’s an official looking document and clients often think they are getting sued. As I told Mike, that usually gets the client’s attention and checks get written. Only once did I actually have to file a complaint, and even that matter was settled before the time period to answer expired.
By the end of our conversation, both Mike and I got really good tips about different collection strategies. Plus, I emailed to Mike copies of the fee arbitration notice, instructions and affidavit of service required by the Bar, saving him what took me hours to find and figure out on my own. I also referred him to my credit card processor who has a unique service for attorneys that complies with the earned/unearned commingling funds issue, keeping him out of trouble with the professional responsibility folks.
The next day I thought about my conversation with Mike. I spend a lot of time promoting the exchange of business referrals between Law Firm Suites’ clients – which really does happen in a meaningful way. But there are other, sometimes less quantifiable, benefits to LFS’ shared office space for attorneys, like the benefits Mike and I both got from our impromptu conversation.
I know that the advice I got from Mike will save me thousands of dollars on my next difficult collection situation. I’m pretty sure Mike will greatly reduce his receivables and be more effective with collecting from dead beat clients, earning him thousands more.
The beauty of it all was that this happened unexpectedly over a five minute conversation that started with polite small talk between two friendly people who share office space together.
I was really happy because the vision I had when I started Law Firm Suites in 2007 — to be the only office space that truly supports the practice of solo and small firm lawyers — was really working. The exchange with Mike was first hand proof that there are meaningful benefits to officing at Law Firm Suites beyond the exchange of hard business referrals.
We’re able to make this happen because the Law Firm Suites Community consists of 85+ self-employed lawyers who have so much in common (from a business perspective), and have a significant amount of mutual respect for each other as business owners.
In Mike’s firm, he’s responsible for bringing in new business, performing the legal work and collecting the checks. I do the same for my practice. There’s always something meaningful to discuss in every conversation, and frequently the lessons learned make our practices more profitable.
So, despite the lost battle with the copy machine, the day was an overall win!
*For privacy reasons, name has been changed.