Don’t wait until the end of the year to address collections issues

As the new year begins, many lawyers are recovering from the year-end push of collecting outstanding billings. By waiting until the end of the year to address collections, law firms can lose the opportunity to avoid or mitigate billing issues that could have been addressed had they been discovered earlier.

There are many advantages to knowing that a client is refusing to pay outstanding fees as early as possible. Not only does it give the firm a better chance to actually get the client to pay and to repair the relationship, it also allows the firm to evaluate whether to pursue further action, including a possible lawsuit. Although suing a client is never an easy decision, firms have increasingly been willing to resort to litigation to get delinquent clients to pay. Such a decision certainly comes with a number of downsides, but the reality is that firms both big and small cannot always afford to simply walk away from outstanding fees.

By proactively addressing collection issues, firms may be able to avoid reaching the point where the firm is left with a large receivable and seemingly no choice but to file suit in order to collect. Below are some tips for avoiding collections problems.

Timely Billing

Many attorneys despise the administrative aspects of billing. However, sloppy time entry practices can impact the law firm's ability to send regular invoices to the client, which is extremely important when it comes to managing client relationships. A single, large bill for work performed over several months can be an unwelcome surprise for a client, whereas the same total amount might have been more palatable had it been broken into separate invoices sent each month. Even worse, if an invoice is not sent until after a matter resolves, the client may question the need to pay, especially if the result of the matter was unfavorable.

Don't Let Unpaid Bills Pile Up

While in many cases there may be an innocent explanation for the failure to pay a bill, attorneys who fail to follow up with clients regarding outstanding bills do so at their own risk. If a client is not going to pay, it is far preferable to know after one invoice goes unpaid as opposed to after several invoices are sent without payment.

In addition, communicating with the client regarding the outstanding bill can help the attorney understand why the client may not be paying. There are four common reasons for why a client may not pay a bill. The first is an unintentional oversight by the client, which could be the result of something as innocuous as the client losing the bill or computer processing errors. In those situations, following up with the client can quickly determine whether nonpayment was unintentional or if there is a substantive concern.

Second, nonpayment may be the result of administrative issues, such as where the rate charged or number of hours worked on a project are higher than the client and the firm agreed, or where the statements do not comply with billing procedures. These issues are best identified early to avoid any misunderstandings and so that they can be resolved for future invoices.

Third, a client simply may not have the means pay a bill. This issue can be more difficult to address but, once a law firm realizes that the client is unable to pay, the firm can consider the impact of never getting paid, as well as the significance of the firm's relationship with the client. If the law firm determines that it would like to withdraw from the representation of the client, it is generally easier to do so earlier in a representation under the applicable bar rules. It may also be the case that, in light of the client's financial situation, the scope of the representation needs to be adjusted.

Finally, a client may choose not to pay a bill because it is believes either that the work performed by the attorney was unsatisfactory or that the amount of the bill is excessive. In such cases, firms can proceed as discussed below.

Strategies for Resolving Fee Disputes

Law firms can consider three common methods for resolving a fee dispute prior to initiating a lawsuit.

First, consider whether an informal meeting between the client and the firm might solve the issue. While participation by decision-makers is of course important, it also can help to include an attorney other than the one whose services are at issue. Indeed, many larger firms separate the billing or relationship attorney from the primary working attorney for that reason. The challenge is to reduce the personal, emotional investment so that a business solution is possible.

A meeting with the client can also help the firm determine whether the problems are fixable such that the relationship can salvaged. Even if not, the meeting should at least provide the firm with a better understanding of the basis for the client's complaints, which may form the basis of a counterclaim for legal malpractice in the event that the firm decides to bring an action to collect the outstanding fees.

Next, a pre-suit mediation may help get the matter resolved. In some situations, discussions regarding outstanding fees are just too difficult for the law firm and the client to discuss independently in a productive way. When those situations occur, mediators can bridge the communication gap and save both parties fees, costs, expenses, and time.

Finally, an arbitration may be preferable to filing a lawsuit, and the State Bar of California in fact provides a fee arbitration program that is mandatory when requested by a client. This process is informal, confidential, and requires less costs than filing suit.

Balance the Risks of Litigation

Of course, sometimes firms may find that there is little choice but to sue a client in order to collect a fee. While such instances are part of the reality of practicing law, the firm must balance the likelihood of success, cost of litigation, and possible negative press against the amount of the fee to be collected. However, by treating collections as a year-round task, firms can hopefully identify and eliminate most collections issues before they turn into something more serious.