The best way to avoid billing problems is to set expectations clearly and in writing from the outset so there are no surprises for clients: develop a smoothly functioning cash flow machine from obtaining a retainer to billing on time to providing clearly understandable bills, to specifying the deadline for payment. What’s past is past, but if you are owed money right now and the payment is past due, you need to do something about it.
Every business needs to get paid if it hopes to survive, and yours is no exception. Not paying bills on time is not unique to your clients; think how many people don’t pay the Internal Revenue Service on time, or their cable bill, or their credit card. Only about 71 percent of respondents in one study conducted in 2015 for the National Foundation for Credit Counseling report that they pay all of their bills on time. Keep in mind, too, that individuals aren’t the only ones who fall a bit behind in their bill paying; corporations and other institutions don’t always pay up on time either. It’s a given that lawyers will not collect all that they bill out for. Hence, the term realization rate refers to the amount of money the firm actually receives from clients divided by the amount the firm billed.
How to Collect Payment Efficiently and Effectively
If a client has not been responsive to email or phone messages from your support staff, what that means is that you are going to have to get on the phone to try and get paid. Here are some tips for collecting outstanding client debts effectively.
- Know the law and ethical rules in your jurisdiction, and also keep your malpractice insurance in mind. Your immediate goal is to get paid. You do not want to be accused of violating any laws covering the collection of debts. Keep in mind that the scope of some state laws on debt collection extend to any person who is owed a debt and are not limited, as the Fair Debt Collection Practices Act is, to third-party debt collectors and lawyers hired to collect debts. You also do not want your bill collection effort to devolve into threats about suing for nonpayment of fees, counter-threats to file a grievance, or malpractice insurance rate hikes because you get your firm involved in a number of billing disputes. You should know before you call whether you can charge interest for late bills, place a lien on the client’s property, or cease work until payment is made. Keep the optimal outcome in mind: getting the money while staying well within the constraints of various laws and ethics rules.
- Prepare a script and write it down. Many of us are uncomfortable discussing money owed to us, and becoming flustered or angry or otherwise emotional when someone is dodging payment is only natural. In the heat of the moment, sticking to the script may help you stay calm for the conversation. Again, remember: your best-case scenario is that the client pays you.
- Stand up when making collection calls. You will just feel more authoritative. You will want to be the alpha here; lead so that the client will follow you. You may feel weaker if you are sitting down.
- Keep your tone light but professional and assertive. Much here depends on your overall personality and that of the client. You might begin by saying that you just want to touch base because you are going over accounts receivable and noticed that you have not yet received payment from the client for a bill due seven days ago.
- Use silence effectively. Once you have stated the purpose of your call, you might pause longer than you normally would to give the client plenty of time to respond.
- Anticipate likely responses from your client and how you will react to those responses. Most of the time, if the client had the money, he would pay you. That said, some of us have had experiences with fairly large organizations where they delayed payment for less-than-legitimate reasons like they were upgrading their “system.” Some of us have also been told by major institutions that the check is in the mail, the check is really in the mail now, and the check has been FedExed when, in fact, none of those events had occurred yet. So, if the client says “the check is in the mail,” you might answer that you will look out for it over the next few days and call again on Friday if you have not received it. If the client admits not having enough money to pay the bill, discuss the possibility of partial payment.
- Follow up with a confirming letter or email summarizing the agreement reached in your conversation. Keep in mind: a dose of guilt combined with your own persistence works. Some people may be inspired to pay you just because they want you off their back. Also, they are embarrassed by their own behavior.
- Reward yourself after a call. These conversations are hard. Take a short walk, allow yourself some mindless web surfing, or grab a latte. Then get back on the horn and dial the next delinquent client.
Bill collecting is a skill, and it is one that lawyers can develop over time. They need to; without payment, they soon may appreciate the skills of creditors in their own universes.