Billing and Collection Procedures for Lawyers: Best Practices and Strategies
In the legal profession, billing and collection procedures can be a source of stress and frustration. Between the time and effort put into providing legal services and actually receiving payment for those services, there can be a significant amount of time and potential for misunderstandings or disputes. To help navigate this complex area, it is important for lawyers to understand the different billing methods available, how to set up client relationships and provide estimates, how to manage accounting and invoicing, and how to collect payments effectively.
One common billing method is hourly rates, which can be negotiated with clients based on their financial capabilities and the complexity of the case. Rates also vary depending on the lawyer's seniority.
In addition to the hourly rate, other ways to set fees include a flat fee, a subscription, capped fees, and a complementary fee based on results.
Establishing client relationships
When setting up client relationships, it is essential to be transparent about fees and costs. Engagement letters can help clarify who is responsible for paying fees and expenses, set limits of liability conditions, and establish remuneration conditions. Advance payments for costs and fees can also be an effective way to test a client's willingness to pay.
Sending an invoice
The best option is to send an invoice as soon as possible after the service is provided to avoid the risk of clients not wanting to pay. Many lawyers use a monthly billing system for all cases, except when minimal services are provided. This system benefits both the client and the lawyer. The client gets a better understanding of their fees, and the lawyer has improved cash flow and can identify clients who are reluctant to pay and find solutions, such as deferred or staggered payments, or ending the client relationship.
Double-entry accounting is mandatory for liberal professions, providing much better visibility on the figures of the firm and therefore its profitability. In the case of applying accrual accounting, provisions must be made for invoices that are difficult or impossible to collect.
Lawyers also struggle with late payments from clients. European law sets strict payment deadlines and high interest rates for late payments between companies, including lawyers. However, few customers are willing to pay such interest rates, except under forced recovery. Sending payment reminders to clients is uncomfortable for many lawyers, and there is debate over when to escalate the situation with formal notices or judicial recovery. Formal notices are often a prerequisite for judicial procedures, and taxation of lawyer's fees and expenses is usually mandatory in cases of dispute.
This article is written based on the latest Max's publication for LawyersNow #18, which can be found here.