Professional Services Accounting ARTICLE -
Clear and concise fee agreements can minimize billing disputes

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

Fee agreements are just as important for business reasons as they are for legal reasons. Clear and concise agreements can minimize billing disputes with cost-conscious clients and increase the likelihood your firm will get paid in a timely manner.

Services

When finances are tight, clients may be especially concerned about the expense of legal services. Because larger clients often have a multitude of stakeholders closely monitoring what they’re spending, they want to be sure they can show stakeholders exactly what their money is paying for.

Smaller clients who aren’t regular consumers of legal services often don’t understand the breadth and depth of services you’re providing when you take on their matter. They may be shocked at what are considered ordinary legal expenses simply because they don’t know all the work that representing them entails.

Both situations can lead to the perception that a bill is unfair and, thus, to billing disputes. That’s why, for large and small clients alike, it’s critical that the fee agreement identify:

• The specific legal matter (such as the case name or the type of claim being pursued) you’ll be handling, and
• The specific types of services (such as correspondence, phone calls, meetings, depositions, court appearances, plus related research, preparation and review) you’ll be providing.

The agreement also should state that your firm will keep the client informed and respond promptly to client inquiries. Although this may seem obvious to you, stating it in the agreement helps ensure that the client fully understands the scope of services you’ll be providing.

Fees and costs

Clarity on the fees and costs you’ll be billing under the fee agreement can be even more critical in avoiding disputes later. So, again, it’s important to be specific. Include the ranges for the various types of professionals (partners, associates, law clerks and paralegals) who will be working on the matter and the minimum time charged for an activity (such as 1/10 of an hour or 1/4 of an hour).

When going over the agreement with the client, briefly explain how your firm will determine which professional will handle various aspects of the matter. On the one hand, clients will likely be concerned about controlling costs and will want to see some delegation of work to lower-cost professionals. On the other hand, they’ll want to know that each responsibility will be handled by the best person for the job.

Also state in the agreement that, when multiple professionals are working on a matter simultaneously (such as attending a meeting), the client will be billed for each professional’s time. This is something else that may seem obvious to you, but that won’t be obvious to your clients and could cause a billing dispute later.

Clients are often confused about the difference between legal fees and costs, so your fee agreement should have a separate section describing legal costs and how they’ll be paid. This should include both internal costs (such as photocopying) and external costs (such as court filing fees). Again, several examples of each type of cost should be included to avoid unhappy clients later. The agreement should also state whether the firm will pay for external costs and then bill the client or if the client will pay external costs directly to the external entities.

The fee agreement should clearly describe your billing process, including how frequently you’ll bill and payment terms. State that your continued services are contingent on timely payment. If you’re asking for a retainer for fees and/or costs, clearly explain in the agreement how that retainer will be applied.

Other considerations

Minimizing billing disputes is just one important factor you need to consider when drafting fee agreements. You’ll also want to take into account any legal ramifications and state requirements, as well as any unique circumstances surrounding the particular client.

Sidebar: Identify clients’ role

It’s important to spell out the client’s responsibilities, such as to provide your firm with all information requested and any potentially relevant developments as the matter progresses. If there are delays because of the client’s lack of cooperation and the client doesn’t want to pay a bill because of the delays, a reminder of his or her responsibilities can help resolve the dispute.

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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