How to … get paid

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Worried about getting stuck with unpaid fees, more lawyers are demanding larger advances and limiting their representation to work they know their clients can afford.

“A huge silver lining of this whole economic thing is that lawyers have no choice but to finally be businesspeople,” said Nancy Byerly Jones, a legal consultant in Banner Elk, N.C. “It’s having the courage to ask for the money up front.”

Linda Oligschlaeger, membership services director at the Missouri Bar, agreed that the best way to avoid getting stuck with unpaid fees is by “collecting a reasonable retainer and keeping that retainer replenished.”

Lawyers are becoming more assertive in fee discussions with potential clients, said Judith D. Equels, director of the Florida Bar’s Law Office Management Assistance Service.

“We have observed an increase, generally, in the number of lawyers telling us that they are asking for retainers before work is begun,” Equels said.

Reid Trautz, a Washington, D.C.-based practice management adviser and co-author of “The Busy Lawyer’s Guide to Success: Essential Tips to Power Your Practice,” suggests using a fee advance as security and applying it to the final bill, rather than drawing against it to cover ongoing litigation costs.

For example, he said, a $10,000 advance fee can be held in a client trust account as security. The client is billed monthly and pays the attorney each month. The $10,000 isn’t used until the end of the case, when the attorney can draw it down.

“Usually in litigation, it’s the last month or two that the bill really goes up, so you have that $10,000 in security,” he said. “Some clients will balk, but lawyers are lawyers. We are not bankers, and we have to protect our business.”

Suing Clients is Risky Business

Enduring an uncomfortable discussion about money with a potential client is preferable to sending unpaid accounts to collection agencies or suing clients for unpaid fees, according to several practice management advisers.

“It’s always risky to sue clients for fees because it can trigger a malpractice claim [or] a disciplinary complaint, whether it’s warranted or not,” Oligschlaeger said.

Equels agreed.

“It is a commonly held view that suing clients for unpaid fees or turning client accounts over to collection agencies is a prelude to a bar grievance and/or a malpractice suit,” she said.

Ellen Freedman, law practice management coordinator for the Pennsylvania Bar Association and president of Freedman Consulting in Montgomery County, Pa., noted that not only does it take time to answer such complaints, but also they are reported to malpractice insurers.

“It can definitely have an impact on your malpractice premiums,” she said.

Some carriers won’t write policies for attorneys that sue clients for fees; others have riders requiring attorneys to agree not to sue clients for fees.

“It’s really scary,” Freedman said.

Credit Check Clients

A better course is improving intake procedures and accounts receivable collections.

Equels said that the lawyer and client need to document the scope of the representation and payment arrangements in writing.

Lawyers should “take extra time to evaluate the creditworthiness of each client” by looking for red flags, suggested Trautz.

For example, a client who forgets his checkbook for the initial consultation, has already met with several other lawyers or balks at the amount of a fee advance may not be able to afford the attorney’s fees.

Other ways to reduce the risk of unpaid fees include:

• Accept credit cards.

  “There are a lot of firms that are moving toward accepting credit cards in their practice,” Oligschlaeger said. “That can be helpful to clients; it may make it possible for the attorney to get started on their legal matter much sooner; and it’s beneficial to the lawyer because they’re being paid up front.”

• Limit the scope of your representation.
  
  “For clients who have limited means to pay in this economic downturn, the attorney might consider limited scope representation, depending on the matter,” Oligschlaeger said.

  For example, “the attorney might just draft a document or answer interrogatories. It’s a very specific work the attorney is going to do for the client.”

• Use flat fees.

  The recession may have answered the long-running debate about hourly billing versus flat fees.

  Oligschlaeger said she sees a trend toward flat fees “because everybody is just very in tune with what things are going to cost and need to know up front.”

• Make follow-up calls.
  
  Freedman suggested that solos and small firms hire retirees with customer service backgrounds to call clients who haven’t paid their bills.

  “You can hire someone for a few hours a week and believe me, they pay for themselves,” she said.

• Be realistic.

  Give the person in your office that makes calls for unpaid bills the authority to take a certain percentage off the total.

  “The reality is if you set a threshold at 10 percent or 15 percent (off the amount due), it is way less than you’re going to lose by holding that account in abeyance,” Freedman said.