Every client is a potential collection problem
Every client is a potential collection problem
May 26 2011, 01:13 PM
Joined: 17-July 09
Member No.: 125
Lawyers must understand the difference between pricing and billing. The price for legal services is typically an hourly rate and is used to get the business and define the engagement. It is a prospective measurement.
Billing, by contrast, is retrospective; the way to tell the client: “This is what I did, this is the time I worked, and this is what you owe me based on my price.”
Pricing sets the cost of the legal services; billing conveys the monetary value of those services as defined by the lawyer.
The Wall Street Journal recently spotlighted the few lawyers in this country (less than 2.9 percent) who can command $1,000 or more in hourly rates. Such rates certainly are high, but they still meet the standard set forth in the ABA’s Model Rule of Professional Conduct 1.5: “reasonable,” if they are proportional to the value of the services performed and justified by the lawyer’s skill and experience. Such a high rate may sound attractive to many lawyers, but the real issue is whether the client understands the amount and nature of the fee and is willing to pay it.
No matter what price is set for legal services, it is irrelevant if the client does not pay it. Here is the fundamental difference between pricing and billing. Consider, for example, if a lawyer fails to specify a “pay by” date for a client. At what point, if any, can the client legally be considered delinquent for failing to pay?
Every engagement to provide professional services should begin with a written agreement on services to be provided in order to be enforceable. One of the terms of an engagement agreement is price, whether $1,000 per hour or $100 per hour; another is payment due date.
If the due date is not stated, some jurisdictions may say it should be “reasonable” in the event of a payment controversy, which raises the question: “What is reasonable?” Under most commercial circumstances, it’s 30 days after billing or upon receipt, whichever is later.
But such ambiguity is inexcusable. Attorneys and law firms cause their own collection problems by failing to establish collection policies, to explain the policies from the start of an engagement, and to enforce those policies consistently during the engagement.
Lack of a written collection policy can lead a firm to financial disaster. The engagement letter should clearly state the consequences to the client for failure to honor the agreed-upon payment commitment. The written collection policy must detail how to keep track of when clients are behind on their payments, and who/how to contact clients when they are late.
Every client is a potential collection problem. That means signed agreements are essential to demonstrate the client’s advance knowledge and acceptance of the payment terms. Once terms are set, it is vitally important to move quickly and collect accounts that are past the payment due date. A bill that is 60 days past due can still be collected much of the time, but the likelihood of collection drops off sharply thereafter.
It should never reach that point, however. Any vendor or professional service provider, no matter how highly priced, will not be in business very long without stipulating fee, due date and consequences for failure to pay.
Check out Ed on YouTube
Follow Ed on Twitter
Join the LawBiz Forum
Become a fan of Ed's on Facebook
8 Steps to Greater Profitability The Lawyer's Path to Prosperity
Are you frustrated with how your law firm or practice is running? Are you looking for ways to jump-start your business? Do you want to make the
dream of starting your own successful firm a reality?
This 8-CD set provides the most complete audio guide to law practice management available. From crafting a business plan to selling your
practice for maximum value, Ed will lead you from start to finish through the eight most crucial steps to law firm success. Earn the living you
deserve and find fulfillment throughout your career - embark on the path to success today!
Special New Release Price: $149 (until March 31)
Regular Price: $199
or Order Online at: lawbiz.com
Ed's Latest Book, Published by WEST ®
Growing Your Law Practice in Tough Times
By Edward Poll
Following the worst economic crisis since the Great Depression, and facing a sea change in clients' demands and expectations, law firms must
respond and adapt quickly and effectively. Law firms must choose the kind of law practice they will be; the marketing and business development
tactics they will use; the overhead that is critical to their functioning; how to price, bill and collect for services; and how to manage the cash flow
cycle. Success lies in identifying and capturing the right kinds of clients, providing the services those clients need in ways that add value, and
ensuring prompt payment and the ability to grow profits. This book, based on the experiences of the author and his clients over 20 years of
coaching and consulting, provides the keys to successfully thriving in the new era.
Call or Order Online at:
1-800-837-5880 or www.lawbiz.com
What Clients Are Saying:
"It is a joy and pleasure working with Ed and I look forward to each coaching session. My only regret is that I did not start sooner!"
[iJRL, Atlanta, GA[/i]
"It has been a pleasure and a real assistance speaking to Ed on a weekly basis about issues as they came up, and about developing a roadmap
for future actions. It was great to know that no matter what the issue, Ed has been there to field questions and provide amazing ideas."
SEB, Central California
2011 LawBiz® Management. All rights reserved.
|Lo-Fi Version||Time is now: 9th October 2015 - 10:13 PM|