The Risk Manager, Winter 2009
The news is full of reports of law firm layoffs, decreased legal business, and increased client resistance to high billing for legal fees. In these times lawyers can expect more frequent fee disputes. These disputes can lead to malpractice claims motivated in part to avoid paying a legal fee; or counter-claims that are the result of suing a client for fees – the surest way of drawing a malpractice claim.
The first line of defense in getting paid is to know what you are doing in billing clients. What is your attitude about a client’s commitment to pay your fees? What are the common mistakes made by lawyers in billing? What are good billing practices? What follows is a review of these questions.
An Attitude Check
Do you believe:
- If you do good work, your client will appreciate the quality and will pay you for it?
- If you send a reasonable bill, your client will pay it?
- If you do not charge the client for all the work you did, the client will be more likely to pay the bill?
- Paying your bill is as high priority for your client as getting paid is for you?
- Your client understands that you have bills to pay and that you need the money?
- Your client cares that you need the money and will therefore pay your bill?
- If you charge lower rates than the competition, you will get more clients and they will pay your bills?
- People of modest means are more likely not to pay their bills than wealthy people?
- The client’s gratitude for the good job will endure after you have finished the job?
- The new client sitting in your office right now is the last client you will ever get. Therefore, you cannot make the client angry by asking for an advance retainer; you must take whatever the client is willing to pay because something is better than nothing; and anyway the client will be grateful and send you a lucrative personal injury case in the future?
If you believe the answer is ‘yes’ to these questions, get help fast. Money Magazine once did a survey to determine the priority people gave to paying the bills of the top 25 service providers including doctors, lawyers, plumbers, electricians, etc. Lawyer finished dead last – 25th! If you are looking for friendship and gratitude as a lawyer, the best advice is to get a dog. The point here is not that most clients are deadbeats, but that you must bill in a way that realistically improves the likelihood that you will, in fact, get paid for your services.
Common Billing Mistakes
Amy Stevens (Wall Street Journal), Larry Bodine (Lawyers Weekly USA), and Jay Foonberg (Lawyers Weekly USA) have all written articles listing their 10 favorite “Billing Bloopers.” What follows is a gloss of their ideas:
- The bill is as big as the client’s file. (sure looks like churning!)
- Client gets a large bill that is the first thing the client has heard from you since the initial interview.
- Secret identities. (no names and no billing rates for the work done)
- Over-qualified personnel for the work. (charging lawyer rates for administrative work)
- Too many meetings, telephone calls, and research hours (sure looks like churning!)
- Billing for several lawyers reviewing or preparing to discuss the file. (sure looks like churning!)
- Billing for “soft costs” (copying, fax) and general overhead (heat, air conditioning).
- Itemized bills use generic terms such as “phone call” or “meeting” with no substantive information.
- All telephone calls take .3 hours; all dollar amounts are nice round numbers or end in five; and inserted along with all the routine itemized expenses is a charge for expert witness fees of several thousand dollars.
- Billing for billing.
- Too quick billing reduction if client complains. (must have been overcharging!)
- Billing out of cycle with the client’s preference.
Good Billing Practices
There are a number of good checklists on smart billing. Almost all of it is based on good client communications. Howard L. Murdock in his article Better Communication Increases the Likelihood That Bills Will Be Paid (The National Law Journal) emphasizes this point by developing 12 ways lawyers can improve their chances of getting paid by proper billing:
- Improve client communications - at the outset explain the entire billing process.
- Prepare a client for the total cost of legal services being provided.
- Prepare written fee letters outlining the specific terms of an engagement.
- Use retainer arrangements, especially when a client’s ability to pay is in question.
- Identify for the client the people being assigned to work on a matter.
- Use the billing process to communicate details of the work performed.
- Reach an agreement about what time and costs will be charged to a client and what will not be charged.
- Discuss billing formats and what information will make invoices easier for the client to process.
- Provide a budget, as a matter of firm policy, on all matters in excess of a specified amount.
- Schedule periodic meetings with clients to discuss ways to improve service.
- Review invoices to ensure that they contain no mistakes.
- Send regular reminders for invoices that remain unpaid.
Some lawyers are reluctant to press for a retainer. This is a serious mistake. Lawyers should have a strict policy to get retainers routinely -- especially in laborintensive matters requiring an immediate big effort, or when the ability of a client to pay is questionable. Clients who have not paid a retainer or fee do not yet have a financial stake in the matter. It gives them a different attitude about paying your bills. It feels like a free ride. Get a retainer.
The October 2008 issue of the ALI/ABA The Practical Lawyer includes the helpful article “Creating The (Almost) Perfect Retainer Agreement (With Form)” by Lori A. Colbert. In addition to the model form it includes a practice checklist. It is available on the Internet for $19.00. Just Google The Practical Lawyer and go from there.
Finally, another good way to get paid is to accept credit card payments. The KBA Ethics Committee issued a comprehensive opinion on proper procedures for Kentucky lawyers to accept credit card fee payments in Ethics Opinion KBA E-426 (March 23, 2007). If you are not already accepting credit card payments, it is recommended that you read this ethics opinion and begin offering your clients a most convenient way to keep up with paying for your valuable services.