Digging out of the discounting hole

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Published on 8/27/07

Fundamental to being a business-savvy lawyer is resisting the urge to discount fees -- particularly if the client has earlier agreed to pay the full amount in the engagement letter.

Clients who argue about over-billing often just want a discounted bill. Such price shenanigans are quite popular with clients during the month of December. They agree to pay their large bills in order to wangle discounts because the remuneration system for partners is based upon how much has been collected by the end of the year. Any bills collected in January do not count for another 11 months. Some clients attempt to discount their lawyers' fees for every matter.

Even more inexcusable is when law firms themselves propose the discount.

I recently heard from one person who was being hired as the new collections manager of a firm. For years, on a number of accounts for repeat clients with significant billings, the firm in its year-end push to collect fees offered some type of discount.

The firm was resolved to stop this vicious circle and get clients to start adhering to terms immediately, but the new collections manager needed guidance on handling the client who, even with a signed fee agreement, says, "I'm not going to pay now without a discount. I'll just wait until the end of the year and I know I'll receive a discount at that time."

I suggested that the new collections manager had a number of alternatives to choose from in stopping this practice -- some better than others, but all certainly practical.

  • Offer the discount immediately to get outstanding bills paid, emphasizing that subsequently there will be no more discounting in December or any other month -- and mean it.

  • Refuse to offer the discount in December, tell clients that there is a fee agreement in place and it will be enforced -- irrespective of the firm's failure to enforce it in the past.

  • Tell clients that unless they honor the agreement that they accepted and signed, the firm will not continue to work for them -- which Code of Professional Conduct, Rule 1.16 permits. They should get other counsel, and the firm will seek to enforce collection of all billed fees outstanding.

  • Offer a discount for everything to date ... and make it interesting for the client with the proviso that all work hereafter will be billed at full rate and collected in accord to the fee agreement. Get full acknowledgement of both the discount acceptance and the future adherence to the fee agreement.

  • Accept the discount process and admit to yourself that instead of getting 100 percent, you're getting only 75 percent (or whatever); then compensate by raising the fee/rate either higher or sooner than other firms

Each of these options for breaking the discounting cycle says that the firm is a business with certain policies in place; and that you are willing to treat clients fairly when they treat you well.

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