Making collection calls to clients is never fun – and it doesn’t feel good for us or for them. Yet effective billing and collections is a cornerstone of effective law practice management. Here are four steps you can take to improve the cash flow in your law practice and improve profitability – and increase client satisfaction at the same time:
#1: Be Direct about legal fees and expenses. Do not shy away from the money conversation. I use the word “conversation” on purpose because there needs to be two-way communication about financial arrangements. If you only rely on the retainer agreement or fee letter, you are just transmitting information, you’re not communicating. You can’t articulate the value as well as you can in person, and you can’t gauge the client’s reaction to what you are saying.
For new clients:
- Talk to them about their experience with other attorneys. Look for their actual experience with the matter – and ask them about how the financial arrangement was handled. You’re trying to determine how comfortable (or not) they are with lawyers and fees.Explain the difference between fees and expenses. Use examples – preferably from a matter similar to the one you are contemplating. This isn’t about giving an estimate – it’s explaining how the process works.
For existing clients:
- Acknowledge the elephant in the room. If your client isn’t paying you, they know it – and you shouldn’t be shy about discussing it in the right way. The longer you wait to address it the less likely you are to collect.
- Use your knowledge of how your client communicates and find the “right” way to address the unpaid fees. Consider starting with simple questions in a non-threatening way can get the client talking – and can give you the information you need to find a solution.
#2: Communicate your value in the right level of detail – on time, every time. Use Action Words in your Bills. Every client wants to know the value that they’re getting from each key legal activity. Therefore it’s important to use action-oriented verbs to describe your activity. (For more information on this, see our post called “Use this part of speech in your bills – or else“). Give the right level of detail. Some clients are very detail oriented and want to see every entry at a line-item level. Other clients are big-picture, results-oriented people. They may focus on results – and not care as much about the individual line-items. At the beginning of a relationship, try to determine the person’s preference and deliver the kind of invoice that they prefer. Bill on the same day every month. If you are inconsistent about when you bill, then the client will be inconsistent about when they pay. Demonstrate goodwill. Sometimes you have to write off otherwise billable client time. If you have to do this,include the time in your bill and then show the write-off and explain why. It’s an opportunity to build goodwill.
#3: Troubleshoot early. Unlike fine wines, invoices don’t get better with age. When your client is late in paying you should be having a conversation right away. There can be many reasons why clients pay late – including frustration with the invoice and how it’s presented, unhappiness with an outcome or simply the inability to pay. The sooner you are aware of the reasons, the more options you will have to find a resolution. If you can’t get your bills paid in full you should get the client into a habit of making a payment toward the invoice. To get into the habit of paying the client needs to move you up on their priority list – which increases your odds of collecting faster.
#4: Avoid Surprises. Unhappy surprises will delay your invoices. The only way to avoid surprises is to have a solid system of communication and clear expectations. The elements of your system should include:
- Client Orientation: Your “welcome packet” that explains your philosophy, background, experience and approach. Build confidence that hiring you was the right decision. Send a “thank you” for their business before the first invoice.
- Client Education: Explain clearly and answer questions about:
- The legal process and what is going to happen.
- Possible outcomes and time-frames.
- How performance is measured.
- Most effective means of communication.
- Proactive Updates: Clients don’t want to call you to find out what’s going on. Like you, they hate surprises. Be clear about deadlines and developments. Check in regularly, even when “nothing is happening.”
You can do this with existing clients too. We used quarterly business reviews with our clients to check the overall status of our project and relationship. It was a way to get above the day-to-day issues and ensure that we were all on the same page. This helped us avoid surprises and get paid more quickly. If you work on these disciplines you will increase the odds of getting your invoices paid on-time and in-full. And you won’t have to make those uncomfortable collection calls quite as often.