As a lawyer, you’ve likely encountered a situation where a client hasn’t paid their bill and wondered what you should do. Instinctively, many consider a fee suit. However, avoiding fee suits can be best, depending on the situation. Many accounts receivable disputes can be resolved before such measures are necessary. In other cases, filing suit against a client results in a burdensome countersuit.
Outstanding accounts receivable are one of the biggest strains on your law firm, causing personal tensions and impacting case matters. But the right steps before and after the bill is sent can help your firm avoid problems. Here are eight tips for avoiding fee suits and minimizing your risk of unpaid legal bills.
1. Get an Upfront Retainer
Working under a retainer is one of the simplest ways to avoid accounts receivable issues. Some lawyers hesitate to ask fearing they will scare off clients. However, a client who is unable to come up with money at the outset of representation may also have problems in the future. Begin with a realistic retainer for the matter at hand and require it to be replenished as warranted.
2. State Fee Terms in the Engagement Letter
Address the fee arrangement and the frequency of billing upfront in your engagement letter. Specify the fee basis as flat, hourly or contingency, when payments will be due, and what out-of-pocket charges will be billed to the client. If available in your jurisdiction, consider including a clause requiring arbitration in the event of a fee dispute.
3. Provide a Realistic Budget
Pinpoint an estimate for potential fees and costs for the representation. Don’t make the mistake of underestimating the figure to get a client to retain you. In the end, a client will be much happier to pay less than what was estimated than to be billed for more.
4. Ensure Prompt Monthly Billing
Routine billing on time every month can help prevent a fee dispute. Significant bills sent late can form the basis for a dispute, as clients don’t like surprises. Unforeseen invoices can add to dissatisfaction and increase the risk you won’t be paid for work already done. Put the proper procedures in place for your firm and ensure they are being followed.
5. Communicate Regularly with the Client
Many fee disputes can be prevented with professional communication. An invoice should never be the only point of contact, nor should clients ever learn the case status by reviewing an invoice. Clients should not be surprised about the time and expenses incurred when a bill arrives but prepared for the information it contains.
6. Be Proactive Before the Bills Pile up
Avoid letting accounts receivable accumulate without a plan. Ignoring one or several unpaid bills and hoping for the best won’t repair a soured relationship or cure a client’s oversight. As the lawyer, you should handle these matters directly and meet with the client to find out the reason for the unpaid bill. Don’t send an associate, paralegal or billing clerk. You may find it’s just an unintentional oversight and the client will provide payment immediately. But in the case of insufficient funds or client dissatisfaction, a proactive response will give you the best opportunity to consider withdrawal or other options, while complying with your jurisdiction’s ethical rules.
7. Weigh All Your Options Before Filing a Suit
Some lawyers and law firms may be eager to file suit to get paid, but it is important to weigh your options. It is estimated by legal malpractice experts that up to 40% of fee suits result in counterclaims for negligence. If you and a client are unable to come to an agreement on an outstanding balance, investigate if your bar association offers mediation or arbitrations services that may result in a satisfactory result for both parties.
8. Know What to Ask Before Filing a Suit
Make sure you ask yourself the following questions before proceeding with filing a suit:
- Is there a written fee agreement and has the firm abided by it?
- Will the firm’s file support the work outlined in the invoices?
- Is there any basis for a claim of legal malpractice, conflict of interest or breach of fiduciary duty?
- What is the likelihood of prevailing in a fee suit?
- Will a judgement against the client be collectable?
- What will the net amount to the firm be in the event of a win after retaining outside counsel?
- What will the fee suit cost the firm in terms of lost billable time?
- What will the recoverable amount be if income tax is owed on the judgement?
- What is the statute of limitations for any potential malpractice claim and can you wait until it has expired before filing the suit?
- What insurance issues apply, such as your policy’s deductible or the possibility of a premium increase due to filing the fee suit?
As a lawyer, it is important that you are always paid in full for the work you perform for clients. However, a fee suit shouldn’t be your first course of action in the event of an outstanding balance. Taking the right steps before and after the bill is sent can help you and your firm in avoiding fee suits and minimizing your risk of unpaid bills and dissatisfied clients.
If a client is unable or unwilling to pay, be objective about your cost–benefit analysis. Proceed with caution if you decide to file a fee suit and continue to look for opportunities for resolution. Fee suits can be a source of distraction and have unintended consequences. Reserve it as an option of last resort, and not a first strike.
Copyright Swiss Re Corporate Solutions 2020. This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.