Legal: Billing and Accounts Receivable

Legal: Billing and Accounts Receivable

The image of lawyers running up their clients' tabs as costly seconds tick away on the office clock has long held a place in American pop culture. And because the legal profession can pay quite well, the tenacity of this perception is not surprising.

Even so, research from the American Bar Association suggests that getting money into a practice's coffers frequently proves more difficult than the general public realizes. Inadequate invoicing and collection methodologies, coupled with increasing public and industry controversy around the standard "billable hour" model have compelled today's attorneys to take a close look at how they do go about garnering the cash they've earned.

Fortunately, a number of leading practitioners have devised a slate of solid strategies to ensure effective and timely billing and receivable cycles. These tactics benefit both attorneys and their clients.

Consistency and Communication Equals Collection

While expert advice on fee collection abounds in both trade publications and on the Web, a common thread runs through the literature: From the outset of the client-attorney relationship, successful fee collection rests on clear, consistent communication. A number of tactics can achieve this.

  • Make payment easy. A thorough discussion of fees should take top priority in the initial meeting, with the client feeling free to ask questions or voice concerns. When possible, a wise attorney will take into account the client's preferences regarding the invoice's format and disbursement. Some experts suggest going over sample fee agreements to make sure clients thoroughly understand billing protocols, including when and why services would terminate. On a purely practical note, including stamped and preaddressed remittance envelopes with mailed statements often prompts quicker payments.
  • Leave paper trails. Invoices should catalog all documents, either reviewed or created, during the client-service period. This includes drafts and subsequent revisions. Other details, such as case names and numbers, dates and duration of telephone consults, and court information also should appear on the bill. Some experts suggest cover letters sent with particularly complex invoices can speed up payment, simply because clients don't waste time getting confused. In all circumstances, a regular mailing schedule is key.
  • Document digitally. Any paper contract, invoice, letter or notice should have its counterpart in an accessible electronic file. By the same token, maintaining files for cyber-communications, such as emails, is critical, too. In smaller practices, administrative support staff likely can handle this task; but larger firms might find it useful to employ a collections manager.
  • Deposit checks immediately. This tactic keeps a practice's cash flow running smoothly and the accounts receivable column flush. But more importantly, a prompt visit to the bank may lessen the likelihood of bounced checks or other complications.
  • Know when to call it quits. Do not continue to serve clients who have not paid their bills. Do consult with delinquent clients as to the best means of resolving the issue. While legal analysts largely agree that discounting the agreed-upon fee should be a "when all else fails" measure, in the end, doing so may cost less than hiring a collection agency.

Billing options: By the hour or the job?

A quick review of current research makes one point clear: Over the last few years, the legal industry has begun to question the efficacy of the hourly billing model. Some insiders maintain this traditional system serves neither client nor attorney, because the emphasis falls on quantitative processes as opposed to quality of service.

On the flip side, several thorny ethical issues - too complex to address here - have made the subject rather controversial. All the same, a growing number of legal pundits are suggesting that retainers, flat fees and other systems may be better suited to the modern practice of law. And while shifting gears within a corporate structure can be tricky, the following list is a sampling of alternative billing models that are becoming more commonplace.

  • Fixed fee or project billing: In this arrangement, the attorney agrees to perform specified client services for a predetermined cost. Work that extends beyond the original agreement typically requires a second contract. Fixed fees function most effectively when the lawyer can accurately access the amount of work involved in a particular job. Examples include uncontested divorce cases, non-compete agreements and simple wills.
  • Retainer: This model involves ongoing service to a particular client for a regular, predetermined monthly fee, usually for a set period, such as six months to a year. A meticulous itemization of exactly what the retainer covers - and excludes - should be part of the written agreement.
  • Straight contingency fee: Typically utilized in personal injury suits, this model assigns a percentage of the amount recovered to the attorney handling the case. In fact, a straight contingency fee applies in any situation where money or benefits come into play.
  • Fee combination: Depending on the nature of the service, coupling various fee types can benefit both attorney and client. These include: combination hourly rate and fixed fee; combination hourly rate and contingency; and combination flat fee and contingency. Besides providing the maximum level of service to clients who cannot afford straight hourly rates, combination models assures attorneys of a degree of cash flow stability during the service period.