Earn More Without Working More?
Sounds like a dream, but the key is collecting. If you work hard but don’t get paid, you’re losing money. Even a delay of 60 or 90 days costs you money. So, how do you improve collections?
Get Paid Upfront
The best way to improve collections is to avoid them in the first place. If you get a retainer up front, you secure payment before the work is done so no collection is necessary. Although you cannot take the money out of the IOLTA account until you do the work, you are at least guaranteeing that the bill will be paid. An evergreen retainer is the easiest way to do this. Whenever you generate a bill and take money from the retainer, the balance is checked. When the balance goes below a certain level, the client is asked to replenish the retainer. In this way, you always have enough money to cover your bill. Most legal billing software have this capability. Unfortunately, you cannot always get a retainer, let alone an evergreen retainer, but it is ideal if you are able to secure it.
Send Timely Invoices
Whether or not you have a retainer, the first step in securing your payments and minimizing collection time is to make sure you’re sending out bills in a timely fashion. Clients are much more inclined to pay immediately when they recognize the value, so be sure to send a bill as soon as possible once the work is done. Even with a retainer, you want to send out timely bills. A “good” bill makes sure the client is aware of the work being done on a timely basis; it can also avoid disputes about the amount of time spent on a particular task.
Make Bills Easy to Understand
The bill should also be easy to interpret. If clients do not understand what is on the bill or the amount due, they are most likely going to call to ask questions. This takes additional, usually non-billable, time and may lead to you giving discounts as appeasements. Even if clients end up paying the full amount, it takes additional time for them to contact the office before they pay the bill, delaying collection.
Allow Clients to Review Past Bills
It can also be useful to implement a system that makes it easy for clients to review past bills. Often a question will come up about past services when reviewing a bill. A portal where clients can review prior bills can help them answer their own questions. This saves time and money as the office staff and/or attorneys do not need to respond or reprint and send bills.
Offer Electronic Payment
Make it easy for clients to pay. Accepting credit cards and online payments make it easy for clients to pay when it is convenient. Yes, you pay a fee, but if you expect clients to pay by credit card, you can price your services with that expectation in mind. In some states, you can charge a surcharge for payment by credit card. If you email your bills, include a link so that the client can review the bill, click and pay. If you mail bills, you can tell the clients to go to the firm’s website and click on a link to pay. Even if you always email bills, a link on your website is useful as clients do not have to search for the email to get the link.
Charge Interest Rates
Other ways to help get paid faster include both “carrot” and “stick.” Charging interest is an effective “stick” that reminds clients that your bill should be paid promptly. Most people will pay a bill that can incur interest charges more quickly than one that does not charge interest since they, of course, save money by not having to pay interest. Make sure that you follow the rules for interest charges specified by your State Bar Association and that the terms are in your fee agreement. If clients do not pay on time and you get the interest, you are making “extra” money. If you write off the interest you can generate goodwill. Either way, it becomes a win.
On the “carrot” side, you can offer a discount for prompt payment. Years ago, I worked with a firm that did work for hospitals, notoriously slow payers. This firm had better than 95% collection in under 5 days. How did they do it? The hospitals were given a 5% discount if their payment was postmarked within 5 days of the date of the invoice. This was before email was popular so invoices were sent out by fax and Federal Express. The hospitals paid quickly. The firm had designed their rate structure to include the 5% discount and the Federal Express charges. For the small amount of times that the clients did not pay within 5 days and therefore paid the full amount, the firm made more per hour than expected.
Monitor Your Bills
When clients do not pay, you need to have a firm collection process in place. Monitor the bills, since the longer you wait to collect, the harder it is and the more likely you will give a discount just to get paid something. If you can, stop work if you are not paid the amount you should receive. For people that are chronically late on payments, implement a retainer. You can also set up payment plans when needed and then make sure they are followed.
Making sure that everyone in the firm is responsible for client relationships and collections can help the firm collect the money due in a timely fashion. This will help everyone earn more!
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