Dealing with a Delinquent Payment

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Published 11/08/10

If a lawyer fails to specify a “pay by” date for a client, at what point, if any, can the client legally be considered delinquent for failing to pay?

That question is essential to the business of law. Every engagement should begin with an enforceable written agreement on services to be provided and fee to be charged. American Bar Association Model Rule of Professional Conduct 1.5 states that “the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.”

The date for payment ought to be included as a matter of simple business prudence, but the model rules do not require a due date. In its commentary on Rule 1.5, the ABA advises lawyers to put in their fee agreements “the general nature of the legal services to be provided, the basis, rate or total amount of the fee and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation.” When payment is due, however, is up to the lawyer.

If a date is not specified, some jurisdictions may supply this missing element with expectation of payment within a “reasonable” amount of time, but that puts the issue on a slippery slope of interpretation. It is far better to be specific and follow usual commercial practice, to require payment within 30 days after billing or receipt, whichever is later, and to state that outside collection agencies may be used in the event that fees are not paid.

Attorneys and law firms cause their own collection problems by failing to establish collection policies, to explain the policies from the start of an engagement, and to enforce those policies consistently. While the collection policy need not be part of the engagement agreement, the agreement should clearly state the consequences to the client for failing to honor the agreed-upon payment commitment. That should include the details of how the lawyer will keep track of when clients are behind on their payments and when clients who fall behind will be contacted.

Do not be deterred by clients who assert that detailed collection terms somehow imply that they are dishonest or a default risk. Lawyers must assume that every client will be a collection problem. That requires being well-armed with a variety of signed — and initialed — agreements, which will demonstrate the client’s advance knowledge and acceptance of the payment terms.

If a fee payment impasse develops, there are two worst-case actions a lawyer can take. The first is end representation consistent with Rule 1.16, which allows lawyers to withdraw if the client has not met an obligation to pay and the lawyer has given adequate warning that representation will end.

The second, and even more drastic, action is to sue a client for non-payment, which should not be done without early and adequate communication to the client and careful and complete records of the client’s billing and payment performance. It should never reach this point, however. Always specify in the engagement agreement the fee, due date and consequences for failing to pay.

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