Why work for clients who don't pay?

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Published on 3/26/07

One of my first columns was on the importance of collecting the money that clients owe you. This topic is so important that, as a new fiscal year begins for many firms, it is worth revisiting.

If the client pays each bill every month like clockwork, your relationship is working. But if the client owes a great deal of money and shows very little inclination to pay it, the relationship is clearly on the rocks.

Shared expectations, effective communication and dependable follow-through by lawyer and client all define the kind of good relationship that results in collecting a higher percentage of billings. Despite what some lawyers think, the two are tied together.

You truly have a good relationship with your client only when the client's account receivable is up to date. Delinquent accounts indicate that the client doesn't respect you, is attempting to hoodwink or undercut you, or is dissatisfied and considering disciplinary action against you.

If a non-payment situation develops, lawyers in small firms or in sole practice often continue to work for the non-paying client in the misguided hope that continuing the relationship means getting paid and receiving referrals in the future. However, clients respect firmness and a businesslike approach and generally do not go out of their way for lawyers they disrespect.

Consistent with the Rules of Professional Conduct, stop work for clients who do not pay. That step should focus the client's attention on the problem. Ask the client what he or she would like you to do to resolve a billing dispute. Listen carefully to the suggestion.

Generally, price is not the issue with clients. Therefore, lawyers should resist discounting their fees. However, in a collection situation, it is important to do whatever is necessary to resolve the conflict. Clients who argue about over-billing are often just angling for a discounted bill. If, after all other efforts to collect have been exhausted, the client is merely interested in a fee discount, give it. Do it to get rid of the matter -- and the client.

If a fee-payment impasse develops, the lawyer cannot ethically cease representation when the client will be prejudiced -- for example, by withdrawing within 60 days of a court date.

In the American Bar Association's Code of Professional Conduct, Rule 1.16 ("Declining or Terminating Representation") allows lawyers to withdraw if "the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled."

If you try to withdraw without adequate communication and careful records of the client's billing and payment performance, the result may be a state bar disciplinary action requiring future "involuntary servitude" (or pro bono work) to fulfill your ethical obligations toward the client.

It is vitally important to keep from reaching such a point. One study shows that a bill that is more than 60 days past due can still be collected about 89 percent of the time. However, that drops to a 67 percent likelihood of collection after six months, and to a 45 percent likelihood after one year.

The sooner you take action, the more likely you are to avoid problems -- and to get paid.

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