A recent blog offered tips on managing cash flow. For law firms suing or not suing clients for fees can be a key component of a law firm’s financial health.
Suits for fees are one of the leading causes of attorney malpractice claims. Some studies suggest that 33% of all malpractice claims are due to fee suits. The larger the percentage in over 90 days past due receivables, the more likely the firm will have issues when they try to collect the past due amounts. These issues can lead to attorney malpractice claims and bar complaints. Even though certain types of law practices have more issues with being paid, i.e. divorce work, there are steps that law firms can take to make sure to minimize the need for having to sue a client for fees.
1. Make sure to discuss and have agreement as to the potential fees up front prior to accepting the client.
2. Make sure that the law firm has part of an attorney’s compensation tied to past due clients.
3. Make sure to collect an adequate retainer for the work to be done.
4. Have formal billing procedures for transactional work in place for billing ongoing matters. Billings should be at least monthly. Make sure the billed services are properly described so that the client can understand the work that was performed.
5. Have a person in the office designated to review and follow-up on all past due accounts. This process should include bringing matters to the attention of the management committee of any accounts that exceed the law firm’s guidelines. Determine if the reason the client is not paying is because of dissatisfaction with the services provided. If so make sure to address the service deficiencies with the client.
6. Send statements out on all matters that are past due monthly.
7. If the account is over 90 days past due remove the account from the billing lawyer and turn it over to someone else for collection follow-up.
8. If a past due client submits a “reasonable” amount to settle an account, take it and write off the remaining debt. Law firms can spend way too much time pursuing deadbeat clients.
9. If you feel it is necessary to pursue legal remedies to collect the amount owed make sure the debt is worthwhile and the services performed were done properly. Suing a client for a couple hundred dollars, might make you feel better, but the consequences of a disciplinary compliant being filed or a claim being made against the firm, can costs far more in attorney malpractice insurance premiums than the amount in dispute.
Minimizing the amount the firm carries in past due accounts will help the law firm with better cash flow, reduce time spent chasing deadbeat clients for money, and minimize potential retaliatory claims because of a collection matter. With less time having to chase dollars, you will have more time to spend practicing law.