Pay yourself: 8 steps to collecting the money you're owed

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Published on 2/20/06

As a lawyer, your inventory is not billable hours; it's the cash those hours represent. You may feel that emphasizing your receivables is unprofessional, but the Internal Revenue Code says that unless you bill under an accrual system, you can never have the tax benefit of writing off bad debts. You could get nothing for all your hard work.

Generating enough new work to cover your bad debts simply isn't the answer. Depending on your type of practice, it may take up to 18 months from first client contact to first assignment. Add the typical 120-day average billing cycle for new work and you may not see a return on new work for nearly two years.

The better course for any lawyer is to make sure clients know they must pay their bills on time. That means a businesslike approach to collecting money.

Here are eight useful steps to move you down that path, from the start of an engagement to unpleasant but necessary last resorts.

  1. Get it in writing. It will unquestionably be easier to collect your fee if you incorporate it in the engagement letter, so that clients understand they have an obligation to pay their bill.

  2. Make a plan. For every matter prepare a budget that addresses events, time and money, and get your client to accept it. That increases the chances of collecting your fee significantly because the client understands what to expect.

  3. Keep accurate time records. Studies have shown that unless lawyers record and bill their time throughout the day, there is a minimum 10 to 15 percent loss of revenue through incomplete billing. You can't bill for what you can't document.

  4. Minimize ancillary expenses. Even if your agreement with a client lets you charge for opening a file on each matter or for photocopying a file before giving it to a client on request, clients may resent perceived "nickel and diming" on charges they consider overhead, giving them an excuse (in their mind) not to pay their bill.

  5. Communicate constantly. Stay in continual touch with the client about expenses versus budget. If you suspect a slowdown in payments is due client to dissatisfaction, find out why they're unhappy.

  6. Don't ask for money yourself. If payment hasn't arrived, ask a staff person who's good with people and sensitive to their needs to make the call. Keep yourself apart from the collections function.

  7. If necessary, use a collection service. But first review the client file to make sure it contains no evidence of negligence on your part. Avoid jeopardizing confidentiality by disclosing only those details that are absolutely necessary for the service to do their job.

  8. Know when to fold 'em. Ultimately, a non-collection situation may come down either to working out terms with a client who is willing but unable to pay, or walking away from the engagement - which is your right and obligation if payment appears unlikely.

There's just one bottom line here: Only you can prevent and solve collection problems.

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