Professional Services Accounting ARTICLE -
Communication Is Key in Avoiding Delinquent Clients

Target Audience: Legal Professionals, Professional Service Firms, Law Firm Partners, Law Firm Accounting, Law Firm Marketing Directors

Does your firm suffer from delinquent client payments? It can be a real problem among professional practices. But, before you lose sleep over it, there are some strategies you can implement to help solve or mitigate the problem.

First of all, accept the fact that you’ll likely never receive payment on 100% of your bills. However, you can get close to that realization rate. The key is to carefully select your clients and cases, and then communicate, communicate, communicate!

Spell it out

The first stage of communication comes when you ask a new client to sign a fee agreement. Make sure it clearly explains all of your fees and how they’re calculated, and states when payment is due. Be sure you get a retainer fee up front, and work with the client as needed. Be clear about the consequences of nonpayment, including your right to withdraw before any work begins.

To make it more convenient for your clients to pay, accept credit card payments or set up an online payment system. And remember, clients are more likely to quickly pay more frequent bills with smaller amounts than they will with one big bill for the same work.

Good cop, bad cop

The second stage of communication comes when accounts become delinquent. Train your staff to respond to them quickly, because the likelihood of collecting on past-due bills decreases as time goes by. If the client is reluctant or unable to pay the full outstanding amount, work out a payment arrangement.

And if it comes down to having to make collection calls, have your staff do the “dirty work” so you aren’t the one coming across as the bad guy. If you’re adamant about making the calls yourself, be diplomatic. You don’t want to strain an otherwise pleasant client relationship.

Stick with the agreement

Resist reducing your original fees, particularly if the client has signed an agreement to pay the full amount. Doing so could set a precedent for future dealings, and that’s something you want to avoid. Then again, you may not have a better option.

An engagement letter and detailed documentation of work performed should defuse any arguments over fee amounts. Disputes over quality are harder to resolve. If the client has a good point, communicate with him or her by offering to make appropriate amends or reduce the fee. Agreeing to a discount — rather than withdrawing representation — might be a better option for eliminating the issue. This can prevent your firm from paying for collection efforts and help it avoid other legal ramifications.

But keep in mind that the ABA’s Code of Professional Conduct states that lawyers are allowed to withdraw only if “the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled.” Some state bars require that you provide pro bono work to the client to fulfill your ethical obligations.

Specify how to deal with unpaid accounts

The final form of communication comes via your written collection policy. It should specify how to track and deal with delinquent and unpaid accounts. The policy should spell out credit terms, fee agreements, and collection guidelines and procedures — including when to use a collection agency.

If your budget permits, consider hiring a collection staff person to help develop a firmwide policy to manage collection efforts. Otherwise, designate someone from your staff to perform these duties.

Communication is key

Regular communication with clients is essential for many reasons: It not only can help head off potential problems that might cause a client to become disgruntled and slow down — or stop — payments; it also can help you gauge a client’s level of satisfaction with your firm’s representation.

Find out how our expertise in professional services accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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