by Sheila Blackford ©2014 Lawyers enjoy practicing law. They rarely enjoying billing. Busy solos especially can find themselves struggling to get their bills out consistentlyby Sheila Blackford. ©2014 month after month. One lawyer I met with recently discussed that there were a number of clients who weren’t paying their bill, month after month.
Here are some of the tips the lawyer implemented that improved cash flow.
1. Put a date on your billing statement and indicate when payment is due.
If you don’t have a due date on your bill, your client will be motivated to put your bill at the bottom of the stack of bills to be paid. Then next month, the client, repeats organizing bills to be paid by their due date. Again, your bill is moved to the bottom of the stack.
2. If your billing statement is due in 30 days of the billing statement date, consider offering a discount to your client if the bill is paid within 5 days.
People are motived by discounts! Put this to work for you. Be clever and memorable: “10 by the 10th!” Take a 10% discount if amount due is paid by the 10th.
Age your receivables.
Do you know how old some of your accounts have been on your book? Age your receivables into these age categories:
0 – 30 days (Current)
31-45 days (Late. Call client to see if bill received and why not paid. Payment plan.)
46 days to 60 days (Collect. Contact client about terminating engagement.)
61 days to 90 days (Suspend work. Collection Agency)
91 days to 120 days (Negotiate Settlement such as 50 cents on the dollar.)
over 120 days (Write-off Debt)
Remember to apply client payments first to costs then to legal services, applying to oldest balance first. If you intend to turn your delinquent client accounts over to a collection agency, be sure to indicate this in your fee agreement signed by your client otherwise you are breaching the duty of confidentiality by disclosing this information to a third party. You should let your client know that you will terminate representation if they fall behind on paying their balance as agreed. If you come up to this point, send the client a letter with a copy of a Motion to Withdraw and indicate that you will file it payment of $xxx is not received by a set time on a set date. “Your account is 60 days past due. If 80% of the balance due is not paid by 4:00 p.m. on Aug. 29, 2014, the Motion to Withdraw will be filed with the court.”
4. Consider tracking the client balance on the billing statement so that client realizes exactly how long you have not been paid.
Some clients are consumed with worrying about their legal problem and lose track of how far behind they have gotten with paying you. Imagine asking your clients if they would show up to work if they weren’t paid?
5. Consider dividing your client list in half and billing one half at mid-month and the other half at month-end.
Many if not all of your clients are paid on a bi-weekly basis. They likely pay their mortgage and rent payment at the first of the month. Some clients may even prefer to be billed bi-weekly. This can be especially helpful for family law clients who are struggling.
6. The easiest way to ensure cash flow is to get cash up front!
Ask for enough of a client retainer to cover the first part of the representation, but more than two months. To avoid running out of the retainer, use provision to have a set balance held in the retainer. This is called an Evergreen Retainer.
My favorite success story reported that by negotiating old client debt, money came into the firm sufficient to cover one month’s expenses! I hope that more of you will find your cash flow improving!