There needs to be clear expectations for payment terms for the services provided by the law firm.
Controlling receivables directly affects a firm’s financial health. Therefore, it is imperative that a law firm has an organized and detailed method for collecting client payments in a timely manner. Rather than waiting until each billing cycle, I recommend taking a holistic and forward-thinking approach to the regulation of these receivables.
Set Client Payment Expectations
At the start of any engagement with a client, there needs to be a detailed contract between the law firm and the client. This language sets the parameters for the terms of the engagement and is the foundation of the professional relationship. In order to prevent any confusion, there needs to be clear expectations for payment terms for the services provided by the law firm. Too often, ambiguous language around payment leads to misinterpretation. Therefore, these payment terms are the first step in ensuring receivables are collected in a timely manner.
Invoicing
Similar to the contract, language on each client invoice needs to be unambiguous. In fact, there needs to be no room for interpretation on the details which includes the invoice due date, description of work performed, total fees and costs due, and any retainer or trust payments applied. The invoice should include any past due amounts and any payments received since the last invoice. Invoices need to be presented to clients in a timely manner. Billing clients months after services were performed can lead to nonpayment and/or late payments.
Payment Methods
To ensure that the process is as manageable as possible for the client, I highly recommend providing a variety of different payment options. This limits the amount of push back from a client in regard to payment feasibility. Many law firms are now accepting credit card payments along with regular check or wire payments. The easier it is for a client to pay, the quicker they will pay. Using payment portals are very simple for the client to use and can be included on the invoice. Credit card payments have, in many cases, been effective at reducing the time to receive payment. Be sure to clearly specify any transaction fees the client will incur for payment by credit card.
Reminder Notices
To prevent confusion on timing and overdue payments, a law firm should include the generation of reminder notices in the monthly or regular billing workflow. By having this organized process set up, any receivable that has not been received within 30-45 days of due date should result in a reminder notice. Reminder notices are a very effective way to gently remind clients of outstanding invoices. Many law firms will add different reminder notices or past due terminology based on the length of time the invoice is outstanding.
Reminder notices are a very effective way to gently remind clients of outstanding invoices.
Contact Client
When email and print notifications do not result in payment, there needs to be a more direct measure taken to ensure that the client is aware of the outstanding receivable. This should result in direct telephone contact between the client and either the partner in charge of the work or someone in the legal accounting department. Once this conversation takes place, the firm has a tangible confirmation that the client is aware of outstanding payments and payment arrangements should be discussed and agreed upon. Personal contact should be made no later than 60 days after the due date. This may vary by law firm, but whatever period is determined to be correct, the collection procedures should be consistent.
Interest
Too often law firms are left with outstanding receivables for clients that have little incentive to pay in a timely fashion. By charging interest on these outstanding invoices, they understand there is more of a severity to the unresolved receivables. Should this be a measure that your firm takes, there needs to clear language about this incurrence at the onset of the professional relationship. As a result, be sure to include verbiage within the contract and the invoice thereafter.
Say No To Non-Paying Clients
Finally, when all else fails, the firm needs to stop working for non-paying clients. This is a really important measure to take in demonstrating the serious nature of the outstanding receivables. You and your team should not be working for free or tolerate lack of payment.
Written by CARET Legal partner, Deborah J. Schaefer. Deborah is a Certified Public Accountant in Connecticut and New York, who specializes in the selection, implementation, training, and support of computer-based accounting systems for law firms. Practicing for over 35 years, she has worked with hundreds of firms across the US and internationally.
