Law Practice Tips

'Do You Accept Credit Cards?'
By Jim Calloway, Director OBA Management Assistance Program

Every week we receive telephone calls from lawyers concerning credit cards in the law office. Many lawyers have never accepted credit cards and are concerned that there may be some ethical or practical office problem with accepting credit cards. Other lawyers have questions about the process.

The American Bar Association in Formal Opinion 338 (Nov. 16, 1974) has accepted the propriety of attorneys accepting credit card payment for attorney fees.

Indeed there are some types of law practices for which accepting credit cards might be inadvisable. For example, if your practice consists entirely of representing insurance companies, you are generally assured of receiving payment and there would appear to be no business advantage to accepting credit card payment and incurring the transaction fees. Obviously there are some situations where credit card payment of fees can be extremely problematic, such as a consumer bankruptcy practice.

However, for most law offices, including most of those that do business with consumer clients, there seems to be no good reason why the law office should not accept credit cards.

The detriment to accepting credit cards is, of course, the transaction charges that are incurred and paid to the credit card processing company. However, in my opinion, this small expense is greatly outweighed by the significant benefits. Credit cards will allow you to cut down on your accounts receivable and will provide an additional financing option for those clients who wish to "pay your fees out." Additionally the law firm receives the money immediately, even faster than with a check that is deposited in most cases.

After all attorney fees are 'big ticket" items in most situations. There are very few, if any, attorney fee bills for $10.99. So any seller of products or services with a price tag that is likely to be more than a consumer might have in their wallet (or even in their bank account at the time) should be willing to accept credit cards or provide methods of availability of financing methods. Unlike some other businesses (e.g. auto dealerships) financing handled through the law firm will never be a profit center for the law firm and is properly viewed as an administrative expense and a significant headache for the staff. Accepting credit cards instead of entering into payment plans with various clients could be a significant improvement in law firm operations. So the very best answer to an inquiry about payment terms is "Sure, we accept credit cards.'

For the purposes of this article credit cards also include the bank debit cards.

Simply put, accepting credit cards is a good business practice. You would never want a potential client who wanted to hire your firm to be forced to go to another lawyer simply because he could not pay the retainer in advance and the other lawyer accepted other credit cards. One would also hate to find oneself in the position of declining representation of a cash poor client when the client was sitting in your office with a credit card in their wallet with a $5,000 credit line.

So while there are some who may have lingering concerns that acceptance of a credit card is something that is less professional, I would suggest that lawyers should join the doctors, dentists, accountants and other professionals who have long accepted credit cards.

Indicating which of the many competing credit card processing services that a lawyer should employ is not only outside the scope of this article, but outside the scope of my expertise. However, I might note that a call to the friendly local banker might be the first inquiry in this area. Information on numerous processing companies is available on the Internet. I understand that these services are quite competitive and that most all now require these transactions be completed online or via phone rather than with paper deposit slips.

Which Bank Account?

Once the attorney has decided to accept credit card payment of fees, then the nuts and bolts of how this will take place should be examined. Credit card payments are received and electronically deposited into a bank account. The credit card transaction fees will then be withdrawn from that bank account generally on a monthly basis, but sometimes more frequently.

Having all of these electronic transactions take place in the regular office expense account may be problematic for a couple of reasons. If the office is generally run with paper checks and traditional methods, these electronic debits and credits may make it difficult for the staff to keep an accurate account balance. But clearly of more importance is the fact that one of the best arguments for accepting credit card transactions is to receive retainers via credit cards. Retainer fees, in most all circumstances, should be deposited into the trust account, rather than the operating account of the law firm. Mishandling trust funds may give rise to a disciplinary proceeding by the Oklahoma Bar Association.

There are also valid reasons why credit card transactions should not be uniformly deposited into the trust account. One may simply wish that there are no electronic transactions associated with the trust account for bookkeeping purposes. These transactions make the trust account bookkeeping more complex and could even give rise to a charge of commingling client's funds with the law firm funds.

Some very conservative lawyers might assert that the only real way for a law firm to accept credit cards would be to either refuse the use of credit card for a retainer or to have two separate credit card processing identifications. One of these would be for the office account and the other for the trust account. My concern with having two types of credit card processing procedures within the office would be that it would generate a significant expense and complexity while failing to really assure that there would be no mistakes by staff. In fact it would be extremely difficult to process two different types of credit card transactions, at least in my estimation.

After some years of discussion and debating the alternatives, your practice management advisor has decided that the best solution is to have one separate bank account for all the credit card transactions. This separate account may be deemed the credit card processing account. The credit card processing bank account should be treated with all the care of a trust account because most of the funds deposited in this account will be trust funds.

One problem with accepting credit cards is that clients may come in at any hour of the business day to make payments and the lawyer is not always available to personally supervise these. So having every credit card transaction processed independently to the same bank account allows the lawyer an opportunity to review them and allocate them as appropriate; trust funds to the main trust account and earned fees elsewhere.

While some might wish to view this as inappropriate commingling, I believe that the better view is to deem this as an appropriate control procedure over electronic received funds. Again, this approach has been endorsed by no official policymaker and the Oklahoma Supreme Court is the ultimate arbitrator of legal ethics in Oklahoma. I=m searching for a rational and workable method of operation so that the lawyer is in control of determining where the funds go rather than a staff person.

It is also a good idea to leave a fixed amount ($100 or so) in this credit card processing account to pay for service charges that may be billed by the credit card processor.

The card processing charges themselves merit a brief discussion. It is my opinion that these charges are borne by the law firm and cannot be passed along to the client. This means that when a client charges $1,000 on the credit card for your firm's benefit they should receive credit for $1,000, not $1,000 less the 3 percent service charge. Luckily most credit card companies provide the money and statement in that format, which is to say that the money is deposited almost immediately and then the charges are taken out periodically.

The fact that the lawyer has to pay a service charge means that one should typically only use credit cards for attorney's fees and not for advancement of expenses. Clearly you should never use a credit card for a large sum that will not be retained by your firm. There is a small but appreciable risk that a client might contest the charges and cause a transaction to be reversed. This would be bad if it were attorney's fees, but much worse if you had given the money to a third party and had no recourse. One can always sue for earned, but unpaid attorney=s fees.

One should be aware that the time period for contesting or attempting to reverse a credit card charge is much longer than with a check. A client may attempt to reverse a credit card charge within 30 days after receiving the statement. Normally this will not occur but it is good to be aware of this possibility.

Conclusion

Overall, despite the modest charges and somewhat more complex office procedures required to deal with electronic transfers, credit cards are valuable method of receiving fee payments for lawyers. They also provide a great consumer service. We predict if you go to the trouble to set up these procedures, there will be several times a year you will be paid in advance for a matter where that otherwise may not have been the case.