What’s Your Collection Rate?
Every business and professional practice owner expects that some percentage of their billed services will not be paid. Any lawyer who says, “I have a collection rate of 100 percent” is either lying, or simply works for his mom. Businesses actually accommodate for “bad debt” in annual budgeting. And small fluctuations in your collection rate can have a huge impact on your bottom line.
As a director for the dozen or so for-profit boards I’ve served on, I often see a figure of 5-10 percent as an expected range of lost earnings. Knowing this, I’ve often reviewed my year-end billings and determined that I have been fortunate to have maintained a 97 percent collection rate, despite a very diverse practice where real people are digging in their own pockets to pay the vast majority of my bills. To get to 97 percent, I have learned many hard lessons, and I try always to share those in my law practice management speeches.
Let’s start with the basic premise. If you depend on your work to support you, these are the most important questions:
- How can I ensure that all or most of my bills get paid?
- What behaviors, habits, skills, and processes will maximize my collections?
Historical ways lawyers have tried to maximize collections include:
- Demanding “cash up front” in flat-fee situations
- Getting a huge retainer sufficient to cover the expected bill
- Simply restricting a practice to predictable clients or controllable tasks
But all of these restrictive methods are contrary to a growth-oriented private practice. Lawyers know that even if they can turn out excellent work-product, obsolete or rigid billing practices can divert good prospective clients to firms that provide more payment options and flexibility.
The “Good Billing Habits” presentation that I have delivered to multiple bar associations instead focuses on the keys to successful billing and collection. Although the presentation focuses on many specific factual examples, the most important tenets of getting paid are summed up below.
Interviewing the client
Few lawyers are ever trained to carefully, thoughtfully, and intelligently listen to the client. The result of a thorough interview should be reasonable expectations by the client, and by the lawyer, using these steps:
- Determine whether the client’s needs and expectations can ever be realistically satisfied.
- If so, give the client a road map of what the most important next step will be, and the decisions that may arise thereafter.
- Ensure the client understands the cost and the law firm’s expectation of payment, discussing frankly how the client plans to pay and whether the client can afford the firm’s services.
- Exercise your own good judgment as to whether this client is credible and a good risk. (Sadly, it is hard to teach this. But if stories do not make sense, and you’re not the first attorney who has attempted to help this person, alarm bells should be ringing.)
Bottom line: when the interview ends and the client is signed up, both sides should be comfortable and confident in the integrity of the other party.
Communication during the case
Nothing protects the lawyer and firm more than vigorously updating the client throughout this process and controlling the narrative of events as they progress. The single biggest complaint against lawyers in the United States is “my lawyer won’t return my call.”
Failure to communicate not only can get you in trouble with the bar, but also affects the client’s willingness to pay your bill. Instead, create confidence and protect yourself by sending frequent, even if short, messages and updates to the client. Remember, you are, after all, a team!
Billing the case
Effective billing includes all of these elements:
- Carefully craft the bill itself. Use real words and explanations of what you did, and don’t bill stupid things like office supplies. Stupid billing only makes clients angry, offended, and more likely not to timely pay you.
- Save your time entries daily. It just doesn’t take that long to do it daily. Good lawyers don’t need to spend more than five minutes per day with a good, basic billing system.
- Get the bill out on a set schedule at least every month. If you expect your clients to understand billing is important, get the bill out timely, as I do on the first business day of the month. The previous month’s activities will be recalled more readily by the client. Clients routinely complain that all too often, they receive bills 90 days or more after the work is done. That delay astronomically increases the client’s reticence to pay you: “If you can go 90 days without billing me, clearly you don’t need the money.”
- Make it easy to get paid! Nothing has supercharged my own collections more than giving clients a hyperlink and the opportunity to pay immediately with a credit card. Small firms especially need this professional capability. And no one does it better than they do it here at LawPay. In saying this, I’m giving you my personal experience. It works wonderfully in private practice.
These are simply the basics. If you want to learn more, you can listen to my entire presentation.