Five tips for effective billing and collection as the year comes to a close

As another year comes to a close, most law firms are focused on collections of outstanding invoices. However, for all of the effort that goes into providing legal services, far too many attorneys take an informal, anything-goes approach to setting and collecting the fees charged for those legal services. Failing to enact proper billing and collection procedures can, at a minimum, result in losing out on fees. Worse yet, improper billing practices are one of the greatest sources for malpractice claims and bar grievances. Attorneys thus literally cannot afford to disregard proper billing practices.

Below are five tips for effective billing and collection practices.

1. Agree on the fee before the attorney-client relationship begins

Prior to the inception of the attorney-client relationship, attorneys generally have much more flexibility in negotiating the fee. The most significant limitation is to ensure that the fee is not "unconscionable" under the factors set forth in Rule 4-200 of the California Rules of Professional Conduct. This may include a consideration of whether the fee is proportional to the value of the services provided, among other factors.

Setting or changing the fee can be more difficult once the attorney-client relationship begins. Of course, routine yearly adjustments to billing rates are pretty common and generally not subject to increased scrutiny. Rule 4-200 also acknowledges that the analysis of whether a fee is reasonable can change "where the parties contemplate that the fee will be affected by later events." But there can be risks for attempting other mid-representation fee changes.

Given the fiduciary relationship between attorneys and their clients, courts and bar officials are watchful for signs that the attorney used information learned in the course of the attorney-client relationship to the attorney's advantage and to the client's detriment to "force" an unfavorable fee arrangement.

Therefore, an attorney proposing a new fee agreement in the middle of a representation may want to suggest that the client obtain independent legal advice regarding whether to agree to the new arrangement.

2. Put it in writing

California is unique in that it generally requires the fee arrangement for contingency fee cases, as well as all matters representing non-corporations for which fees or expense are expected to exceed $1,000, to be in writing (subject to some exceptions). Cal. Bus. and Prof. Sections 6147, 6148. If required, the writing should include the "basis of compensation" (whether hourly rates, flat fees, or some other arrangement), the "general nature of the legal services to be provided," and "the respective responsibilities of the attorney and the client" for the representation.

Many fee disputes, when reduced to their essence, are simply a disagreement over the terms of the agreement between the attorney and her or his client. Even if not required, a written record of the agreement can thus help avoid the uncertainty that leads to fee disputes and can be very effective evidence when such disputes do occur.

3. Send timely bills

The first bill sent to a client may result in some "sticker shock" as the client learns how the fee agreement translates into the actual fees incurred on the matter. Sometimes, the client does not even learn of the fee until a settlement has been reached or, in a real estate or corporate transaction, until the closing.

Rather than just sending the client a large bill at the end of the representation, making sure the client is aware of the fees incurred or likely to be incurred in advance of the request for payment may help reduce the likelihood of confusion. For the hourly fee attorney, this means sending out bills regularly so that the client gets a sense of the time the attorney is spending on the matter.

The appropriate timing of bills can differ based on the circumstances of each representation. If there is little activity while a motion or appeal is pending, then it may not be necessary to send a bill for a few months. On the other hand, if there is significant activity, then may be more helpful to send bills frequently so that the client is aware of the charges being incurred. Section 6148(b) of the California Business and Professions Code provides additional guidance on what should be included in bills.

4. Don't let unpaid

bills linger

Even when attorneys document the fee and send regular bills, it can be a struggle to actually collect the fee from the client. If a bill remains outstanding, then a "reach out" to the client is usually in order. This enables the attorney to determine if the client has any issues with the services provided or whether the failure to pay is a simple oversight.

If the client has any concerns about the bills, it is better for the attorney to know as early as possible in the representation so that those concerns can be addressed. If it is a simple oversight, then the contact can be a helpful reminder to the client.

5. Discuss reasonable expectations

When it comes to the fee agreement, the most important prevention technique is to make sure that nothing is assumed or left unsaid. If a law firm expects to get paid at least every six months, or by year end, it is better to make that expectation known at the beginning of the representation rather than after the outstanding bills pile up.

There is no better time for law firms to evaluate their billing and collection systems. The tips discussed above provide a good starting place.