Five steps to combat late (or absent) payments

You've done the work and sent a bill, so now comes the fun part: getting paid.

Right?

Not necessarily. As you know, or will discover before long, just because you have done the work and sent a bill does not mean that a client will pay you promptly, or even at all. But as ubiquitous as non-payment may be in the business of law (and business in general), you're not powerless to stem the tardy tide.

There are methods by which you will improve the odds of getting paid on time. Here are five suggestions to that end:

1. Raise your retainer.

Increase your retainer, consistent with market pressures, to the point that a substantial portion of the initial phase(s) of the task to be accomplished will be covered by the retainer in the client trust account. The larger the retainer, the larger the portion that is nonrefundable (consult local regulations and practices to determine how large the nonrefundable portion can be). This effectively reduces the risk of collection problems.

Indicate in the written fee agreement that a portion of the retainer will be placed in the trust account and will remain there until computation of the final billing for the client. In the interim, monthly statements will be sent to the client, and the amount billed correspondingly must be paid monthly. The "extra" sum improves your chances of being paid fees when billed. It can be compared to a security deposit that a tenant delivers to a landlord when renting real property.

2. Shorten the billing cycle.

If you remain on the monthly billing cycle, be sure that your clients receive your statements on or before the first day of the following month. To do this, your billing cycle must end on or about the 25th of the month.

The theory is that most people pay their bills on or about the first of the month. If a statement reaches the client after this time, the statement is normally placed in the pile of bills to be paid in the following cycle. That means a delay for payment of your statement by as much as 75 days. The first 30 days you are doing the work; the next 30 days constitute the missed payment cycle of the client; the final 15 days represent the minimum amount of time it takes for the client to write and mail the check and for the mail to reach you. If the client delays payment even further, the time extends beyond 75 days. Thus, anything that you can do to shorten the cycle will be that much better for you.

Another tactic is to change your billing cycle. Bill one-fourth of the alphabet each week, for example. In this manner, you will receive money from clients on a regular basis, probably weekly rather than once a month.

3. Time your statements.

Send statements after a particularly beneficial psychological event, even if it is somewhat before or beyond the normal billing date. For example, after winning a motion in court or closing the negotiation of a deal that favors your client, send a bill for services rendered. Clients are more likely to pay at the peak of the "client satisfaction curve." Don't let so much time pass that they forget how important you were to a favorable result in their case.

4. Make it easy to pay.

Use remittance envelopes, pre-addressed and stamped, and mail them with your statements. It saves the client time and effort, and frequently cuts the time it takes for you to receive payment.

Also, in addition to credit and debit cards, make sure your accepted payment methods include 21st-century mainstays like PayPal, Google Pay and electronic check deposits.

5. Discount for timely payment.

Consider a discount for clients who pay promptly. If a percentage discount (for example, 2 percent if payment is received within 10 days of billing) may feel less than professional, an alternative is to lower your hourly rate by $10 to $25 for next month, as a reward for the client who pays within 30 days.

-----

Edward Poll is the principal of LawBiz Management. He coaches lawyers and is the creator of "Life After Law," a program that helps attorneys plan for profitable exits. He can be contacted at edpoll@lawbiz.com.

Published: Tue, Sep 01, 2015