Vol. 71, No. 18, June 10, 2000

The Fine Art of Getting Paid

By Reid F. Trautz and Paul McLaughlin

How many times have you said to yourself, "I could retire on the money I have written off!" Or "#%*@ it, stiffed again!"

There's no doubt about it: collecting unpaid bills must be the most debilitating, demeaning, depressing thing a lawyer has to do. And if you suffer from this blight, you're not alone. Many hard working, honest lawyers find that their expectations about getting paid aren't shared by their clients. How does this happen? And how can they stop it from happening? Read on.

There are three categories of non-paying clients: clients who don't pay, clients who can't pay and clients who won't pay. They have different characteristics and require different responses.

Clients Who Don't Pay

Clients who don't pay their bills confront you with a fact that at that point doesn't have an explanation. Some don't have your bill yet, or they have it but haven't looked at it. Some have simply forgotten. Some don't have the money. Others are procrastinators or simply have not given it any priority and some have no intention of paying.

Non-paying clients are sending you a message, but you can't tell what it is from the bare fact that the bill hasn't been paid. When you clarify the message, you can often create solutions that will change the future course of your relationship. But it's up to you to take the initiative to determine the reason for nonpayment.

Sometimes clients will say they did not receive the bill in time to make the payment when you expected it. You can ask these clients if there is a better time of the month for them to receive the bill and offer to send it at that time each month. Make a notation of that promise and stick to it.

Another common response is that the client "didn't see the bill." Offer to send a copy immediately.

When clients say they have not had a chance to review the bill, you should tell them you would appreciate it if they would give the matter priority (this request is all the more convincing if you have given their work priority). You should also reassure them that you are available to discuss the bill and suggest a phone call or meeting the following day. If the client says that won't be necessary, make a note to call again and insist on a meeting if payment has not been received within a week.

Of course, your clients won't always be totally truthful about their reasons for not paying: a don't may be a can't or a won't in denial. So no matter what the reason for non-payment, be sure to keep track of clients who say they'll pay to make sure it actually happens. If the client really is a can't or a won't, you want to know as soon as possible, because they are much harder to deal with and require a different strategy.

If you find yourself with a practice full of clients who don't pay their bills, you may want to reevaluate how you administer the billing process so you can make it more convenient for them. You may also want to be more flexible on how they pay you; for example, you might want to offer to take credit or debit card payments from some clients -- the small discount or service charge is not a significant cost when weighed against the huge cost of nonpayment.

The message you want to send to these clients is that you control your financial affairs with the same diligence as your legal work. Don't be afraid to point out that your reputation, your most valuable asset, is on the line: if you are slack about getting paid, people might begin to think you are also lackadaisical about the quality of your legal services.

Clients Who Can't Pay

Some clients can't pay their legal bills: they simply don't have the money or other resources. Many clients may claim this status, but unless you are very careless in the way you screen new work, only a small portion of clients will actually fit into this category.

Clients who truly can't pay aren't just insoluble collection problems, they're also credit problems. If you have a significant number of clients who can't pay for services you have already performed, your credit policy needs to be revised. By "credit policy", we mean the steps you take when you begin a new representation to ensure you get paid in due course.

When you take on new work, do you analyze whether the client will be able to pay you to solve their legal problems? If you don't, you become the client's banker and loan officer -- and odds are you don't get the kind of credit information that banks routinely demand!

We aren't saying that you shouldn't do pro bono work. We recognize that it is part of your professional obligation to do a certain amount of work for which you don't expect to be paid. We are saying, however that you will definitely feel more fulfilled as a lawyer if you carry out your pro bono obligation with cases you deem worthy. If you let your clients turn their matters into a pro bono cases without your consent, you will experience frustration and anger.

To avoid taking on clients who can't pay, you need to determine your clients' credit-worthiness. With existing clients, a past history of timely payment might be enough, although we are always surprised to see how often lawyers take on new work from clients with a poor payment history.

When dealing with new clients, you can ask for the necessary financial information on a pre-interview client intake form or ask for it in the initial interview. Coincidentally, you may already request some of the information for the legal matter itself, such as current employer and income, bank accounts and balances; credit cards and balances; outstanding taxes, and other resources, etc. Then you can make an informed decision on the conditions under which you will accept the client and the work.

Lawyers commonly require the deposit of a fee advance, often called a retainer. It could also be a letter of credit, a personal guarantee by a third party or a mortgage or security interest in property owned by the client. If you are unsure whether the client can afford your services, then ask for a larger retainer. Even if you believe the client is creditworthy, ask for a retainer. A retainer is your assurance that the client is committed to the legal matter you are about to commence.

So what do you do when you find yourself with a can't client in the midst of a legal matter? First, you can agree to finish the case pro bono. True, your client has forced you to make this decision, but the legal matter or the client may be worth the investment of your time without the expectation of being paid.

If you don't want to finish the file pro bono, you may be able to obtain new assurances from the client that your bills will be paid. The new assurances could take several forms:

• a monthly payment schedule of an amount the client can afford to pay (one of us had a client who paid $10 a week for five years; the balance was then forgiven.)

• a new retainer that the client pays with a credit card (be careful here, as clients can "charge back" on a credit card within 30 days, causing the credit card company to take back the money you were paid)

• a monthly payment against a credit card

• provide an opinion letter assessing the likely outcome of the matter for your client to use to borrow money from a relative or friend (be careful here, too, to make sure you don't create a reliance on which you could be sued if the matter doesn't work out as you expect)

If all else fails, you will have no choice but to terminate the representation. Do it gently, politely and with civility. Don't burn bridges. Former clients can be referral sources -- and they can also discourage potential clients with negative comments.

Clients Who Won't Pay

Your biggest collection problems are the clients who won't pay -- clients who can pay and who probably once had the intention to do so, but now choose not to.

Clients who won't pay are making a statement -- a statement about your bill, to be sure, but also a statement about how they value your services, your skills, the relationship they have with you -- in other words, how they value you as a lawyer. The issue is not usually price, it is value -- not what you have charged, but what you gave for the money.

Trust and respect may seem irrelevant concepts in bill paying, but they are fundamental to most financial relationships. Life insurance companies, brokerage houses and even credit cards try to build trust and respect into the relationship with the customer: Prudential uses the Rock of Gibraltar to signify strength and trust; Visa and MasterCard have gold and platinum colored cards to add to the customer experience. Credit card companies also build in value by offering additional services to the client. Yes, this is marketing, but is also trying to improve the client experience -- all in an attempt to build trust and respect to make the cardholder more likely to pay.

The bottom line is, the more your clients trust and respect you and the work you do for them, the more likely they are to value their relationship with you as their lawyer, and to pay your bills on time each month to preserve that relationship.

You can build trust and respect in many ways in an attorney-client relationship. In the consumer-driven world you must now work in, it's no longer enough to be a skilled lawyer. Clients view a high level of legal skill as the starting point; they look at how you deliver your legal services as the primary basis for deciding how much they value their relationship with you. When you don't meet their service expectations, you don't build the trusting, respectful relationships that are demanded by today's clients. It is only when a relationship of trust and respect is achieved that the client will reciprocate this respect by paying the bill we send them.

What can you do with won't clients?

The won't client has decided not to pay you. You now have a two-step process ahead of you: to discover the reason for the decision and to determine what, if anything, can you do to reverse it. This can be a tricky task, but may make the difference between getting paid and losing a client.

Again, the key to resolving the situation is to communicate with the client. It is best to try to arrange for the discussion to take place in person. Call the client and request a meeting. If the client won't come to you, go to the client. Remember, you are not just trying to get paid for an existing bill, you are trying to turn a dissatisfied client into a happy one who will be a source of revenue and referrals for many years to come. Now is the chance to save the relationship, or at the very least prevent it from damaging your business.

At the meeting, let the client know you understand there is a problem with the relationship and the service you are providing. Let the client know you value the relationship and that you are very interested in salvaging it. Ask the client "What can we do to improve our service to you in your legal matter?" Then sit back and let the client talk. Be prepared for some harsh words, but don't respond defensively. Listen. Show the client you are listening. Make eye contact. Make affirmative gestures, such as nodding your head. If you must take notes, but do not let your note-taking distract you from listening and showing you are listening.

If the client does not want to talk, ask non-defensive questions to draw out the client's thoughts. Debrief the case and the relationship. What went wrong? What aspects of your legal representation would the client like to see improved? Is it you, or does the client have other problems for which you aren't responsible?

When you understand what went wrong, you can start making some new assessments of your own. Can I improve my services to meet the client's expectations? Can I build trust and respect? Can this relationship be salvaged? Should I continue the representation or inform the client that new legal counsel is necessary? If I continue the representation, can I obtain payment and assurances of future payment?

Only after you have established that improvements will be made should you discuss the outstanding fees. Ask the client how he or she would like to pay the outstanding bill. If you agree that your service has been lacking, you may agree to a reduction of the bill. Remember, you are trying to seek a resolution.

If you conclude that you cannot provide services to meet the client's expectations, discuss terminating your legal relationship. Keep it civil. Explain that the client will have to find a new lawyer. Offer to help and cooperate with new counsel. Then talk about your fee. Be firm but not strident. Do not agree to an outright reduction in your fee. Many clients will view this as a sign of weakness or an admission of guilt. If the client insists on a reduction, you may offer to cut a portion of the fee owed after the client has paid the remaining amount.

Improving the Quality of Your Service

We can agree that it is not fun to deal with clients on the issue of being paid. This is not why you went to law school! The best way to avoid it is to build more consumer-focused client service into your practice and to make an effort to build trust and respect into every phase of the attorney-client relationship. If you're starting to think this may have as much to do with you as your client, you're starting to get the picture.

Traditionally, lawyers thought they could get credibility by locating their offices near the courthouse, having imposing "lawyerly" offices with the visual cues associated with the law, such as marble, wood and symbols of justice, and using Latin phrases and obscure "legalese" -- phrases that clients aren't meant to understand but that seem impressive. We have also believed that if we "win" for our clients, victory builds respect. But these things are no longer as important in our consumer-driven world, if they were ever that important at all.

This is not new advice, of course. Many lawyers have known this for years. You are in a new era of lawyering, and must embrace the newer ways of building trust and respect. You must be willing to build the relationship on the client's terms without sacrificing your professionalism.

Although it may seem difficult, it will convert your practice into one full of cooperative clients who want to pay your bills.

Some Thoughts on Technique

Let's back up for a minute. Knowing that a client is not paying presumes you are watching your receivables, an important component in managing the finances of your practice. You or your staff should run an accounts receivable report at least once a month. You should personally check to see who is paying and who is not. Every client who is more than 30 days overdue should get a telephone call or a personal one-on-one meeting.

Who should make the initial contact with the client to discuss the bill? Some experts say the staff person with the best "people skills" should call each client to inquire about payment. Others say the lawyer working on the matter must call. Whoever calls, the purpose of the first call should be clear: it's not to dun the client, but to discover the real reason why the client hasn't paid and to encourage payment. The person making the call needs a healthy dose of skepticism, but should not project anger or cynicism.

The next step is a meeting. Although it feels safer and less confrontational to discuss fees on the phone, the best way is in a face-to-face meeting because human inter-personal communication is more visual than aural (i.e., through the ears).

As lawyers, we already know this. When we need to discuss an important legal matter with a client, we ask for a face-to-face meeting. When we make legal arguments in court, we prefer to do it in person, not by phone or on paper. We say we want a hearing, but what we really want is a hearing and a "seeing."

Why do we go to this trouble when the client or the court could hear our words electronically -- or just read them on paper? The answer is that communication is more than just words. We get a lot from the tone and intonation of the speaker's voice, but to fully understand and trust the communication, we also need to see the speaker's body language and facial expressions. All of these things add to the quality of the communication. And quality communication leads to greater understanding of the information being communicated and faster resolution of the issues at hand.

Many solo and small firm lawyers find these discussions difficult. They fear that confronting their clients about money will taint their working relationship. There is no doubt that these meetings can be uncomfortable -- it takes practice and patience to develop the skills you need to steer through the numerous shoals that lie hidden under the lawyer-client relationship. But remember, this is your business and your livelihood: take charge of it!

So, how should you handle these meetings with clients? Start by reminding them that your bill is outstanding; have a copy of the latest bill. Politely ask when you can expect payment. Then sit back and listen to the client's words, and as well to the client's voice and body. Don't get angry or defensive. Remain calm. Listen. Politely, but firmly probe for the real answer. What are they really saying? What are the real reasons for not paying the bill? Do they intend to pay or not?

As you listen, decide if they will pay your bill, and if not, if it's because they can't or they won't. Depending on which category the client falls into, you can decide what steps to take to turn that non-paying client into a paying client.

Getting Paid in Advance for the Work You Do

Up-front retainers This is the most common type of retainer. The money is paid up-front by the client, then used by the lawyer as legal services are performed and billed. A retainer for the full amount of the services, fees and costs (disbursements) is of course the ideal.

Often, however, the retainer doesn't cover the full cost of the services and is not replenished. The end of the matter approaches with a substantial account owing. The lawyer may want to withdraw, but if it is too close to trial, it may not be possible to do so. If this has happened to you too often, consider changing your fee agreement to allow one of the following arrangements:

Replenishing Retainers The client pays an initial lump sum fee advance, which is billed out for fees and costs on an ongoing basis. When it has been exhausted, the client is given 30 day notice to deposit the same amount again, failing which, subject to ethics, the lawyer stops working and withdraws.

Security Retainers The retainer stays in the lawyer's trust account until the end of the matter, like a tenancy security deposit. The client is billed as the work proceeds and must pay each bill; if a bill is not paid by the client within 30 days, it is paid from the retainer and, subject to ethics, the lawyer withdraws. The amount outstanding when the matter is completed is paid from the retainer.

Split Retainers The retainer is "split" in two; one half is used as a replenishing retainer and the other half as a security retainer. After the first half of the fee advance has been spent, the client is billed and must pay each bill. Any amount that is outstanding when the matter is completed is paid from the remaining half of the retainer.

Credit Cards By accepting credit card payments from clients, you shift the burden of being the client's banker over to the client's banker. The number of lawyers now accepting credit cards has grown dramatically in the past several years. It costs one to three percent of each transaction to accept such payments, but isn't that worth the price of not having to collect the fee? Ask your banker or check the Internet about opening a "Merchant Credit Account."

About the Authors:

Reid Trautz is a practice management advisor for a Washington, D.C. bar association. He spent nearly a decade in small firm private practice before advising lawyers on the business of law. He has a BA in Communications from the University of Minnesota and a J.D. from Hamline University in St. Paul, Minnesota. He can be reached at rtrautz@earthlink.net.

Paul McLaughlin is a practice management advisor with a Canadian law society. He works primarily with solo and small firm lawyers, drawing on his 15 years' experience in private law practice. He has a BA and an MA from McMaster University, Hamilton, Ontario and an LLB from Osgoode Hall Law School, York University, Toronto, Ontario. He can be contacted at pmclaughlin@compusmart.ab.ca.