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How to buck the declining collections trend

By: Jane Pribek//December 21, 2012//

How to buck the declining collections trend

By: Jane Pribek//December 21, 2012//

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Tips and tricks to increase the odds of getting paid

Succeeding as a solo or small-firm attorney means being not only an effective lawyer, but also a savvy businessperson.

It’s especially true in a recovering economy where overall collections are down more than 3 percent at law firms nationwide, said Marquette University Law School Professor Teig Whaley-Smith.

Madison lawyer Megan Phillips and others have bucked that trend, however.

Phillips, of Erhard & Payette LLC, estimated that 90 percent of her bills get paid within two weeks, and she has only withdrawn from a case once for nonpayment.

Below are the steps she and others take to ensure prompt payment for the work they do.

Screen carefully

It’s important, Phillips said, to gauge a prospective client’s cost expectations at the initial consult.

“If their baseline premise is that representation will cost little or nothing, or that they can get on a payment plan,” she said, “I refer them to a legal aid center.”

Milwaukee lawyer Coral Pleas said she looks for warning signs, such as if a prospective client has been previously represented on the same matter by another lawyer. The Pleas Williams LLC attorney also is wary of prospective clients who try to negotiate too severely from the start.

“I had a business client who, right out of the gate, tried to negotiate my rate — significantly. It was a corporate client who came in with five files in hand,” Pleas said. “I packed them all up and shipped them right back because I wasn’t going to get into that. I haven’t lost any sleep over that decision. If anything, I’ve patted myself on the back.

“He’s somebody else’s problem today — not mine.”

Whaley-Smith said it’s also wise to explore public records or run a credit check to see if the prospect has a pattern of not paying bills. If the potential client is a business, he said, review financial statements before agreeing to representation.

Clearly communicate payment expectations

Always talk about payment expectations in advance and put them in writing. SCR 20:1.5 requires a written engagement letter or other letter explaining fees for new clients with expected fees of more than $1,000, Whaley-Smith said, and for all clients where a retainer or advanced fee is required.

Require a sizeable advance fee

Phillips said this can be justified to a client by explaining that the total cost of representation is usually the same — it’s just a matter of paying now versus later.

“I prefer to maintain a good relationship with my clients by avoiding the role of debt collector as long as possible,” she said. “They typically understand.”

When the advance fee is nearing depletion, Phillips said, she warns the client so he or she can begin saving to pay a monthly legal bill. She helps predict how much the bills will be, for budgeting purposes.

Along these lines, Pleas said that as developments take place in the case and while discussing options, let the client know each potential cost. It’s appropriate, for example, to let a client know what a particular response to motion might cost, so he or she is advised of every aspect of a particular course of action, including its potential cost.

Discuss expenses, too

Pleas said if she anticipates hiring a medical expert, for example, she’ll let the client know up front that he or she will be expected to cover that expense. There are some exceptions, however, she said. If a case is strong and the costs are a hardship for the client, Pleas will advance smaller costs such as filing fees, when possible. She also doesn’t charge for faxes, photocopying or other office-related overhead. Clients don’t like paying those fees, Pleas said, and she’s found it not worth her time to track them.

Billing best practices

With each bill Phillips sends, she said, she encloses a personal message updating the client and asking him or her to pay the bill within two weeks. She also gives specific directions for paying, such as to send a check made out to the firm or where to call with credit card information.

“I am amazed at how many lawyers send impersonal bills — sometimes from their accounting firms, unknown to the client — with no clear instructions on how to pay and the amorphous phrase ‘due upon receipt,’” she said.

“Lawyers should consider invoices a work product that’s valuable to the client. Sometimes it’s all the client has to rely on over extended periods of time to instill confidence that the lawyer is doing good work. A detailed description without legalese goes a long way.”

Bills should follow the course of the initial engagement letter, Whaley-Smith said. For example, an engagement letter might detail progress billing based on significant benchmarks, such as 25 percent paid as retainer, 25 percent prior to filing a complaint and 50 percent upon settlement or final resolution.

And don’t be shy about highlighting complimentary services. When Pleas doesn’t charge for a particular service, she said, she notes them on the invoice in bold, capital letters reading “no charge,” so the client is aware.

Typically lawyers bill monthly, but Pleas said she staggers when her invoices are sent, to accommodate clients’ cash flow.

If a client hasn’t paid on time, Phillips said she sends a follow-up letter explaining that the client isn’t abiding by the representation agreement and warning that she might need to withdraw if the bill remains unpaid. Typically, the money comes within a few days, she said.

Stay on top of who’s paying

Most time-and-billing programs make it easy to generate reports on who’s paying and who’s not, Pleas said.

“It’s wise to try to collect sooner rather than later,” she said. “From my prior firm experience, I can say that the older it gets, the less likely you are to successfully collect.”

Calling to collect

If you’ve screened clients well, Pleas said, you’ll often find that they’re embarrassed and apologetic when reminded of past-due bills and quickly work to make good on their obligations.

Calls should be made only by the attorney who has the relationship with the client, Phillips said. “Open communication with the lawyer they know is essential,” she said. “If the client is directed to the originating attorney, or worse yet, to the accountant, this can cause a lot of awkward conversations.”

When to sue

When deciding whether to sue, said attorney Tom Watson, of Wisconsin Lawyers Mutual Insurance Co., Madison, first find out if you can. Some malpractice carriers don’t allow lawyers to sue for fees owed, he said, because statistics show it increases the chances the client will counterclaim alleging malpractice.

Watson also suggested asking the following questions before filing suit:

  • Was the client pleased with the outcome of the case?
  • Is the lawyer critical of his own performance?
  • Has an uninvolved attorney assessed the lawyer’s representation?
  • Is the amount at stake worth the risk of a claim?
  • Is there an alternative to a lawsuit for unpaid fees?
  • How will the lawyer’s carrier handle a claim?
  • Would a judgment be collectable?

At WILMIC, he said, the company leaves the decision up to its policyholders.

“It’s a personal preference,” he said. “Some lawyers tell me they do it from time to time. Sometimes it is appropriate; lawyers should be paid.

“But, if you’re going to do it, make sure you feel good about your representation and you’ve assessed whether it’s worth it.”

Regardless of whether a lawyer is pursuing collection or not, Whaley-Smith reminded that the lawyer should be following SCR 20:1.4, which requires keeping the client informed on the status of the matter. If this communication and other ethical rules were followed, he said, a lawyer should be able to defend against most any malpractice or other ethics claims.

The best business practice is trying to work with the client, however, Watson said, whether via a reduction in fees or by offering a payment plan. It goes hand-in-hand with good client communication — making sure the lawyer conveyed payment expectations upfront, keeping the client informed of progress in the case and finding out whether there’s a problem sooner rather than later.

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