This is a guest post by divorce attorney and firm owner, Russell Knight, of Chicago, Illinois.
Almost all lawyers have a retainer or a large initial payment for legal services. Lawyers and clients enter into engagement agreements which specify how that retainer or payment is to be accounted for. Specifically, the money will be applied towards the lawyer’s hourly billing or specifically itemized tasks.
In a perfect case, this initial retainer or payment covers all the work that is done. Cases are rarely perfect. In litigation, there is another attorney actively trying to make sure your case isn’t perfect.
So, in the not-so-perfect cases, lawyers need to remind their clients of the terms of their engagement agreement and ask for more money to cover ongoing and outstanding invoices.
For lawyers that represent businesses with positive cash flow, these invoices will be paid in full and on time. For lawyers that represent the wealthy, they will find their invoices are paid without much argument. For lawyers that represent regular people…those lawyers are going to need a payment plan.
Payment plans are an agreed amount which the clients will pay towards their balance. These payments are almost always made on a monthly basis. $50 to $500 a month is typical for a payment plan against a legal bill.
A payment plan allows the lawyer to finish his or her work and continue the relationship with the client. This client will appreciate the mutual trust and respect that comes with a payment plan. Clients that respect and trust their attorneys refer other clients.
What if the lawyer needs the money now?
Payment plans, when they work, are a stream of cash flow to the attorney. Attorneys themselves are on several payment plans: mortgage, credit card bills, staff salaries.
The payment plans should be equaling and exceeding the lawyer’s own expenses. If they don’t, the lawyer needs to question the entire basis of their business.
When representing average people who will be presumed to be put on payment plans, a lawyer can guarantee that they will be representing LOTs of those people. In practices such as divorce, bankruptcy and criminal law, the demand for a lawyer who takes payment plans will be enormous.
A hundred payment plans can add up to some real cash flow each month.
But what if the client stops paying on the payment plan?
If a legal client stops paying on their agreed payment plan and there is still outstanding legal work to be done, that work must come to a stop. A stern letter or email must be sent out to the client to remind them of their breach of the agreement and your initial flexibility. An immediate payment is almost always forthcoming. When a payment isn’t immediately made after the lawyer’s warning, a withdrawal letter must be issued.
Even if the client doesn’t pay via a payment plan, they still owe the attorney the money for the work that was done per the engagement agreement. That money is collectible. Attorneys do not hire collections agencies to call and beg clients to pay money owed. Attorneys hire other attorneys to take those clients to court and get money judgments.
Clients who don’t pay do not like the legal process. Otherwise, they would have paid on time to resolve their initial issues. Once clients are in the legal process, they promptly pay in full or make a negotiated lump sum payment. Obviously, these clients cannot be trusted with a second payment plan.
The collections attorney will usually keep 33% of the money they collect from the clients. 66% of something is better than 100% of nothing. Especially when it comes to paying for work that has already been done.
The author, Russell Knight is a divorce attorney in Chicago, Illinois.