Cash flow is always an important issue for law firms, but this economy and the availability of online and “do it yourself” options has put additional pressure on lawyers. What should you do to improve the chances that your clients will pay you in full and on time?
Talking to Clients About Fees
Every problem with fees, billing or getting paid, relates back to the initial meeting with the client. That meeting is where you determine whether the client is a good fit for your practice, which may include rejecting clients who are unwilling or unable to pay at the outset – before work is begun. The initial meeting sets the stage for the entire engagement, and lawyers should be careful not to gloss over financial matters.
Most people are uncomfortable talking about money, including clients. But whether they want to talk about it or not, clients will certainly be thinking about money and how much everything you are telling them is going to cost. Take the lead and address the issue of fees up front with your clients – do not make them ask first. Clients want to know what they are getting and what they are going to pay for it. Set the tone by addressing fees based on the factors that are most important to the client. Discuss total costs, not just hourly rates. Include fees and costs paid to others (filing fees, expert witness fees, deposition transcripts, outside evaluators, etc.). Most importantly, discuss how your fees are tied to the results1 the client can expect and the type of service you will provide.
The Fee Process
There are nine steps in the fee process. Step 1, as noted above, is to identify the client’s desired results – what is the outcome they would like to see? What does the client want to accomplish? How important is this to the client? What outcomes are acceptable, if not ideal? The remaining steps are:
• Step 2: Manage the client’s expectations
• Step 3: Establish value
• Step 4: Define the scope of the en-gagement
• Step 5: Identify variables
• Step 6: Set the fee
• Step 7: Establish billing practices
• Step 8: Document it in writing – develop you retainer agreement
• Step 9: Manage the engagement on an ongoing basis This article will focus on steps 2, 3, 4, 5 and 7, where lawyers can head off the majority of their billing headaches.
Manage the Client’s Expectations
Your client’s expectations will control the engagement and the perception of value that you provide. But as the lawyer, you must play a role in defining and re-shaping what some of those needs, wants and expectations are and should be. Just because your client desires a specific outcome does not mean it can be accomplished. Temper the client’s expectations, goals and desired outcome with your own expertise and experience. This must be done not only during the initial consultation, but throughout the process (see Step 9, above). Remember that clients have expectations about outcome and services. Be sure to discuss the client’s expectations with regard to communication (method and frequency) and other aspects of your services.
Establish Value
Clients don’t really care how much time you spend on a task. Clients care about the result that is obtained, they way they are treated and the total fee for legal services. Clients do not always know what they are going to need or what services will be necessary. As the lawyer, you are the expert. It is your job to educate your clients about the essential features of your service and how your services benefit the client or help them to reach their stated goals.
In order to obtain the client’s agreement to perform your services, the client must understand why those services are important – from their perspective, not yours. Always tie value and fees to the benefits received by the client, not the work performed by the lawyer. Never “low-ball” the estimate. Estimating low on purpose creates a poor attorney-client relationship and is bound to mean more time and money spent chasing clients for fees and “justifying” your services after they have been performed. Clients that are truly shopping only on price are not the best clients to have anyway; it is better to eliminate the price-shoppers that do not value your services before they become problem clients. Not getting the client is better than getting the client, doing the work and not getting paid. If the client does not want to pay, either they are not the right client for you or you have not done your job of establishing value.
Define the Scope of the Engagement
Clients do not like surprises. Many lawyers run into fee problems with clients because the client requests additional services or because unanticipated circumstances arise which lead to additional work. Lawyers frequently tell me that in these situations, it is difficult to get the client to understand that an additional fee may be required for the additional work. Believe it or not, this problem also relates back to the initial consultation with the client and the manner in which you have defined the scope of the engagement. The New York Code of Professional Responsibility, Rule 1.5(a)2 specifically addresses scope, and acknowledges changes in scope arise during the course of legal engagements: A lawyer shall communicate to a client the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible. This information shall be communicated to the client before or within a reasonable time after commencement of the representation and shall be in writing where required by statute or court rule…. Any changes in the scope of the representation or the basis or rate of the fee or expenses shall also be communicated to the client.
A lawyer shall communicate to a client the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible. This information shall be communicated to the client before or within a reasonable time after commencement of the representation and shall be in writing where required by statute or court rule…. Any changes in the scope of the representation or the basis or rate of the fee or expenses shall also be communicated to the client.
Some lawyers are afraid to give clients too many specifics about what may happen during the course of the engagement and what additional fees might be incurred because they do not want to chase client away. They are afraid if they discuss these issues, the client will feel overwhelmed, particularly if another lawyer down the street is willing to simply quote one fee. But consider the alternative: Is it better to do the work and have the client walk away without paying, fight you on the fee, or tell others that you performed a “bait and switch” on them?
Defining the scope of the engagement includes detailing the typical steps or stages which the engagement will move through, and the work that will be performed by your or your firm. What does lease negotiation entail? Is your representation limited to one controversy? Spell out the work that you will perform for the client under your engagement agreement. Consider creating options or levels of service at differing fees, which include some of the more common adjustments that might arise during an engagement. It is easier for clients to adapt to and accept the unexpected if the initial scope of the engagement is well defined and agreed upon in advance.
Identify Variables
One of the scope-related mistakes lawyers make when talking to clients is the failure to identify the variables that may cause result in a change in scope and an increase in fee. Even when the scope is well defined, it is advisable to be specific about what is not included and to discuss what might go wrong and what constitutes additional services. Identify these variables up front for the client and how the client’s behavior might contribute. For example, if your fee assumes the client will be obtaining documentation, let them know that if they do not do so and you are required to obtain the documents yourself, an additional fee will be required.
These variables may differ from client to client. Even clients who appear to have identical problems may have different wants and needs or different expectations regarding service which may affect the fee. For example:
• Does the client want something in a rush?
• Does this client require additional reporting?
• Will you be dealing with one person within the organization or more than one?
• Will working for this client mean that you have to forego other business or postpone other work? You do not need to anticipate every possible scenario, but you should articulate the kinds of problems or contingencies that may arise in order to avoid surprises.
Establish Billing Practices – Train Your Clients and Make it Easy to Pay
Your actions set the tone for your clients and how they will treat you throughout the engagement. It is incumbent upon you to explain these practices and procedures and get your client to acknowledge and agree to them at the outset. If you are consistent, your clients are much more likely to be consistent. Let your clients know when to expect your bill, what the bill will contain, and when and how the client is expected to pay. Then follow through. If you do not respect your own procedures, clients will not respect them either.
If you are hesitant, unsure or unclear about your fees, the method or timing of payment or other terms, clients will not take your fees seriously. Of course, the best billing practice of all is to deliver an exceptional client experience and follow through on all of the promises you make to a client. When you do that, collecting your fee will be much easier.
Allison C. Shields is President of Legal Ease Consulting, Inc. a practice management and business development consultant who helps lawyers create productive, profitable and enjoyable law practices and develop fee structures that work for lawyers and their clients. Contact her at Allison@LegalEaseConsulting.com or at 631-642-0221, or visit her website, http://www.lawyermeltdown.com/, or blog at http://legalease.blogs.com/.
1. Ethically, lawyers cannot guarantee results, but you can and should discuss the client’s desired outcomes and what will be required to reach the client’s goals. 2. Fees are addressed in the New York State Code of Professional Responsibility, Rule 1.5, Fees and Division of Fees, which can be found at: http://www.nysba.org/Content/NavigationMenu/ForAttorneys/ProfessionalStandardsforAttorneys/RulesofProfessionalConduct.pdf.
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