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Make payment and collection policies work together to boost cash

Revenue problems? The best way to solve them is to prevent the collection problems.

And the best way to prevent the collection problems is to put in a payment policy and enforce it from the first day.

Along with that policy, weed out the poor-pay risks. More still, follow the little tactics that can spell the difference between payment and non-payment.

Ignore the collection safeguards, and the revenues will suffer. Statistics show that in any business there’s only a 70 % chance of collecting a bill that’s more than 60 days old. And at 120 days, success decreases to 20%.

Prevention: preferable to a cure

Where firms most commonly miss out is on their timing. They don’t start putting policies into place until the money is woefully late coming in. Then they’re forced to concentrate on the non-paying clients and they forget to start training the current clients to stay good clients.

Put the policy in place for the new clients. At that point, it’s not a dun effort but an understanding that the work and the billing will be done in a way that’s fair to both sides, and people are generally willing to pay it when they think they are being treated fairly.

All the collection policy does is explain the details of how the firm bills and how it expects the client to pay. In other words “here’s a rule and here’s how we will enforce it.”

Agreeing to that up front takes the personal aspect out of collections. Clients know at the outset that if the firm calls about the payment, it’s not a personal attack but simply a business matter.

Your questions or your money

To present the policy, do more than just hand over a copy to the client. Explain the procedure so the client knows what to expect. “This is how or billing policy works. Once we send you a bill, we expect payment within 30 days, and if we don’t get payment, you will hear from us.”

Along with that, say that the firm expects the client to call if ever there’s a problem with a bill. “If you encounter a problem with any invoice or don’t understand it, please call us immediately. Otherwise, we will assume there is no problem and that payment will be one time.”

That’s important to emphasize, because clients often think the attorney will be offended if they question a bill. Telling them they can ask questions and that no one will be offended by it keeps the communication open so issues can get resolved before the bill gets old.

And on the other side of the picture, that gives the firm and opportunity to find out immediately if the client is going to nitpick everything and not pay the full amount. At worst, the firm may decide to back out of the representation, if that’s allowable.

A better type of retainer

Along with the policy, get a retainer that’s more than just a payment toward the first bill.

One way to do that is to apply the money not to the first invoice but to the last. In other words, start billing immediately and save the retainer amount until the matter ends. Then either refund it or subtract the amount from the last bill.

The benefit there is that the firm is never stuck with an unpaid balance.

A similar approach is to get what’s called an evergreen retainer, or an amount the client has to replenish as it drops to a certain level. For example, the firm might require a $1,500 payment up front and then bill against that amount until it gets down to, say, $500. At that point, the client pays another $1,000.

That way, the firm is assured of being paid as the work goes along. If the client is late paying into the account, the firm still has the $500 cushion to apply to the bill.

Filtering out the deadbeats

Also important to know is the signs of the non-paying client. Who is risky?

The person seeking revenge against someone else.

The person with unreasonable expectations. Somebody looking for a million dollar award for coffee spilled in the lap won’t be satisfied with the outcome and won’t want to pay for it.

The prospect who needs immediate help because the statute of limitations is running out. Any last-minute matter means a lot of hard work in a short period of time with no opportunity to assess the client’s ability or willingness to pay. What’s more, emergency cases are usually disasters. In that situation, the only safe approach is to get full payment before taking on the work.

Risky too is the client who has already had four lawyers but somehow the new lawyer is supposed to be better than the other four. Don’t fall for the flattery. That client will soon be off in search of a sixth lawyer.

Be especially ware of the client who haggles over the retainer. If the client is not willing to invest in the case why should the firm?

A question with only one answer

The worst happens. The bill is 30 days past due. It’s time to make a call.

What’s the most effective approach to take with that call? Ask just one question: We didn’t get your check. Do you have a problem with the service?”

Wait for a response. If there is a problem, the client will bring it up and the firm can address it and move on. Usually, however, the client will have to admit that, no, there’s not a problem – which leads to the only logical conclusion that the firm has done its job and it’s time for the client to pay up.

Thus, the next question: “When can we expect payment?”

If the client cannot pay the full amount, the rule is to get whatever payment is possible. Always try to get some sort of arrangement. Ask “what can you pay us?”

Then at the 60-day mark, lower the boom. Call the client and say “we cannot continue to do the work until we get payment.”

That’s not possible in every situation, but where it is, do so, because at that point there may still be time to drop a deadbeat client. At 30 or 60 days, clients are often willing to allow a firm to drop a matter for non-payment.

Two more tactics to use

Here are two more tactics for better collections.

One is to monitor the checks that come in daily.

If a client promises to send $X by Friday, look for it Friday, and if it does not come in, get on the phone and say “the check did not come in today as you promised. Where is it?”

People will test anything. If the firm says it expects payment by Friday and then doesn’t follow up on payment failure, they think they can just get away with something.

The second tactics is a seemingly miniscule one. It is to include a return envelope with every invoice.

It doesn’t even have to be stamped. And the cost is minimal. Many firms are surprised to find that people pay considerable faster when an envelope is included.

Related reading:

Good communication speeds up the billing

The psychology of getting clients to pay

San Diego firm gets more cash faster with easy-to-use online credit card payment system









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