“How do I get my clients to pay my bill?”
I was asked this question recently, and in thinking about the answer I was reminded of my college days where I played a lot of poker. In stud poker, some cards are displayed up, some down or in your hand. These are your “hole” cards, and no one sees your hole cards until the end of the betting.
One guy we played with regularly won just about every time he played. When the betting was over and it was time to show our hole cards, he almost always had the cards he needed to win. Usually, it was an ace or a “bug” (a joker, which was wild), and it was uncanny the way he always seemed to have the best cards.
How could anyone be so lucky?
I finally found out how he did it, and it had nothing to do with luck. And no, he wasn’t cheating. The reason he almost always had the winning hole cards was simple: if he wasn’t dealt good hole cards from the beginning, he didn’t play the hand. He folded and waited until he was dealt good hole cards and then he played that hand.
The rest of us played almost every hand, hoping we would draw the cards we needed to win, but this guy was smart. He only played when the odds were in his favor (save for the occasional bluff.)
Now with clients, it’s very much the same. If you want to increase your chances of “winning,” that is, getting your invoices paid, doesn’t it make sense to only work with clients who will pay their bills? Instead of taking on every client and hoping they’ll pay, only take on clients who are “winners” from the opening deal. Here are some strategies for picking winners and otherwise making sure you are paid:
** Raise your rates. This will weed out the marginal, price-sensitive clients, and leave you with clients who will pay your bill because they can afford to.
** Get bigger retainers up front. Ideally, you will estimate what the entire matter will cost and get all (or most) of it in advance. Criminal defense lawyers demand payment in full in advance. If the client can’t pay, they don’t take the case. Why can’t you do the same?
If you can’t get 100% up front, get as much as you can in advance and require that the client replenish the retainer before it is exhausted. That way, you either have enough “in trust” to bill against, or you’ll have enough advance warning about the client’s willingness and ability to pay so that you can take steps before they owe you money.
** Get security. If it’s a sizeable retainer, get them to give you a trust deed on their home, or a security interest in their investments.
** Estimate higher. Don’t low-ball what the matter will cost, give them an accurate-to-slightly inflated estimate of the total cost, and help them avoid unpleasant surprises. Your clients will be more apt to pay bills that come in for less than what they expected, more likely to resent a bill that comes in higher.
** Take credit cards. The client can then slow-pay his bank instead of you. Seriously, credit cards give your clients more options and ultimately return more to you than they cost.
** Ask them, up front, HOW they will pay you. Will they pay you from their salary or business, from savings, borrowing, or what? If what they say doesn’t seem possible to you based on what you know about them, talk it out before you agree to do the work.
** Get their commitment. When you take on a new client, discuss your billing practices and get them to acknowledge that they understand that you won’t work without being paid. Ask for their commitment – their promise – to keep their account current, and tell them you are counting on them. (A little guilt goes a long way.)
** Bill immediately. It’s better to send small invoices, frequently, than larger invoices from time to time. Bill no less frequently than once a month.
** Institute a “discount” system. Some lawyers charge interest on the unpaid balance of outstanding invoices, and the interest penalty can be an effective motivator to pay on time. Instead of a penalty for not paying on time, however, you might offer a “reward” to those who do pay on time.
You could say that all invoices are mailed on the 28th of the month and due by the fifth of the following month. If payment is received or postmarked by the fifth, the client can take a 2% discount. After that date, they must pay the bill in full.
A positive reward is usually a better stimulus than a negative penalty. If the client doesn’t make it, he won’t resent you like he might with the imposition of an interest penalty.
** Set up a collection policy and stick with it. A late notice must be sent, a second notice should be sterner, and then there should be phone call. The squeaky wheel does get the grease.
** Make someone else the bad guy. You should not be the one who calls to collect. Have a bookkeeper, administrator, or secretary make the call. Your doctor doesn’t call you when you’re late paying a bill, and you shouldn’t call your clients. Keep your distance; you’ll have to face these people again.
** Be ruthless. If you’ve sent notices and tried to work with the client and the bill remains unpaid, it’s time to ask them to get another lawyer. Be prepared to file a motion to be relieved as counsel. (I suggest you have this prepared in advance, leaving only the declaration.)
** Be flexible. Remember, collection is just as unpleasant for the client as it is for you. You don’t want to collect a bill and lose the client if that client has otherwise been good at paying and has temporarily fallen behind.
** Put things in perspective. Unpaid invoices are something every lawyer faces. See them for what they are, a cost of doing business. Write them off and move on. If you can keep them to a minimum (say 2%), you’re doing just fine and shouldn’t sweat the pennies in the pursuit of the dimes and quarters.
Another attorney asks whether he should negotiate fees. It seems a potential client has approached him and told him that an attorney (a competitor) has agreed to provide the same services for less. The would-be client wanted to know if he would match this.
The short answer is “no”. Here’s why:
1. He’ll come back and say that Attorney X has agreed to an even lower fee and ask you to match that.
2. If he gets a good deal from you, he’ll tell others that if they haggle, you’ll give them a lower “price.”
3. If he hires you in the future, he will expect you to give him reduced fees.
4. Reducing your fees makes you appear “hungry” for business and willing to do anything to get it. This is not a strong position for anyone in business, but especially for a professional.
Tell this person that you appreciate his interest in your services but that you have set fees and you have never discounted them for anyone. Explain that the reason you have a specific fee structure and stick to it is because of your fabulous customer service and dedication to making sure everything is done correctly the first time so that your clients don’t have to worry if they are protected or not. Say that while you may not be the cheapest, you are definitely the best, and that like buying clothing or furniture or cars, when you pay for quality you get quality.
Remind him that when someone lowers their fees, they often cut corners to make up the difference. You don’t reduce your fees because you don’t believe in cutting corners or shortchanging in some areas to make up for the financial difference.
Finally, rather than reduce your fees for a given engagement, offer a less-expensive partial solution instead. Tell the client that for the amount of money they are proposing to pay, you cannot do what was originally comtemplated but you can do [whatever you can do]. No, it might not be everything they need but it might allow them to save face and go ahead and hire you.
Never cut your "price". Offer a less expensive partial solution instead.
