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February 23, 2017

When Polite Letters Go Unanswered — Procedures for Collecting Unpaid Legal Fees

by WSBA
A billboard showing a legal a bill with "Thank you."
Here are some basic tips and procedures for collecting fees and voiding unpaid balances from piling up in the first place.

A billboard showing a legal a bill with "Thank you."Some lawyers avoid collecting unpaid legal fees because the process makes them acutely uncomfortable or they’re concerned about a bar complaint that could result. While some clients may indeed take offense at your efforts to collect money owed you, using appropriate, empathetic, and consistent follow-up can lead to better client communication and interaction, improved cash flow, and no retaliation. And even if a complaint does arise, allowing a client relationship to fester without directly addressing the issue is not an effective strategy.

Here are some basic procedures you can use for collecting — along with tips and techniques to avoid unpaid balances from piling up in the first place.

The Basics
When a payment is late, follow up with a phone call to the client. Set up payment plans where appropriate, using specific dates. If the invoice continues to go unpaid, follow up with a letter. If still unpaid after the agreed-upon date, follow up with a call and a letter — this time with a heightened level of urgency and a warning that you will withdraw from the case if the client does not respond within a set amount of time.

Arrow graphic

If payment is still not made, withdraw from representation if possible, through the procedures outlined in local and court rules. If a case is not in court, withdraw through formal notice to the client. (Because procedures vary widely, refer to the rules and protocols of your particular situation each time.) Avoid waiting until the last minute to withdraw as that would injure the client and many courts will not allow you to do so.

After that, you must make a decision to seek payment or write off the loss. But before you reach that point, consider whether you’ve actually made every possible effort to collect. You could, for example, simply ask: Why haven’t you paid your bill?

It may be as simple as a lack of funds. In that case, you may need to accept credit card payments. You could also create a customized payment plan. These tips might help you.

Payment plans
Your plan should be set in writing, signed by both parties and it should be reasonable. You may set up a payment agreement with a client at the beginning of representation; in other situations you will make adjustments when a client loses a job or falls behind in payments. Some lawyers give their clients self-addressed envelopes or a monthly bill receipt at the beginning of representation. This puts the onus on the client to be consistent in paying, but you will still need to follow up when a payment is missed. There should be clear consequences for failing to stick to the payment plan. While payment plans can be administrative work, they can also result in steady, if small, income over a set period.

Remember the business maxim about hiring experts for work that falls outside of your expertise, or work that you dislike? Apply that principle here. If you decide to send your client to collections, consider hiring a firm or specialist, unless you have deep experience in this field.

Ask yourself: How much money do I actually collect?
If you still have persistent problems in getting paid, even after following all of these procedures, try measuring your realization rate. (There are two types; one involves not invoicing all billable hours; the other is not collecting all that you have billed. I am focusing on the latter type here). Before you determine your realization rate, ask yourself: How much do I actually collect from the work that I bill? You can determine this by taking gross fees collected and dividing them by gross fees billed. (Yes, that is the bigger number divided into the smaller number because it comes up with a rate, or percentage.) Here are two examples:

1 2 You
Current hourly rate $250 $150
Total hours billed last year $1,400 $800
Total fees billed $350,000 $120,000
Gross fees collected $290,000 $115,000
Realization Rate 83% 96%

A realization rate of less than 90% means you have work to do; clients are not paying the bills you send them for any number of reasons. Do not despair, though. Improve the situation by asking yourself:

  • Am I selecting clients who can pay my fees?
  • Am I charging a reasonable fee for my services?
  • Am I comfortable talking with my clients about money?
  • Am I doing my bills on the weekends? Should I hire someone to take the burden of billing off my shoulders?
  • Do I stick with a client past the expiration date (beyond the point when the client stops paying)?
  • Am I asking for a sufficient advance fee deposit at the beginning of representation?
  • Am I consistently messaging the importance of paying their bill? Or do I send a 2xFISTed bill and undercut its strength verbally by telling clients they do not have to pay on time this month?
  • Do I follow up on late payments?
  • Is there anything else that could be explaining the way clients are behaving? When all else fails call the clients and ask them a variation of “I notice you haven’t been paying my bill even though I put you on a payment plan. Mind telling me what I could do to help?” Or simply, “Why?”

Keep asking yourself these questions; change your procedures based on the answers.

Learn more
Visit the WSBA’s Practice Education Center for more tips on opening and managing your practice. And Check the WSBA lending library for more billing resources, including:
(WSBA members can request these titles via email.)

Minding Your Own Business: The Solo and Small Firm Lawyer’s Guide to a Profitable Practice
Ann Guinn
Shows you how to strike a balance between managing a firm and practicing law and make the most of billable hours with key management and strategies that amount to profits.
ISBN 9781604427899

Results-Oriented Financial Management: A Step-by-Step Guide to Law Firm Profitability (3rd Edition)
John G. Iezzi (2015)
Budgeting and financial knowledge needed to make managerial decisions for managing partners, law firm managers, and law firm accountants.
ISBN 9871627228909

Winning Alternatives to the Billable Hour: Strategies That Work (3rd Edition)
Mark A. Robertson and James A. Calloway (May 2008)
Economic and client service advantages of alternative law firm billing methods, the methods available and how to select the right alternative billing method.
ISBN 9781604421286

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