We are continuing to talk about the last area of the five areas that make up every business in the world, this fifth area is “collecting.” As you have seen in all of these previous articles, the other four areas that make up every business in the world are: “Clients” or “customers”; “Administration”; “Getting the work done”; and “Billing.”

In this area of “collecting,” we have already talked about the necessity of sending out monthly bills to all of your clients who owe you any account receivable. Additionally, we have talked about the benefit of “cover letters” to anticipate questions that your clients may have and to answer those questions ahead of time in order to facilitate positive cash flow. This week we are going to talk about monthly reminder letters that can be put with your bills.

Many years ago our firm implemented a system of putting reminder letters with the bills that were generated on a monthly basis if there was an account receivable that was owed. These reminder letters became progressively more “pointed” with regard to trying to get the client to pay their bill.

The reminder letters would fit into the following three categories:

1. 30 day letter: Friendly letter to ask the client to pay their bill;

2. 60 day reminder letter: More “pointed” reminder letter that the account was now sixty days past due and asking for payment of the bill or payments on the bill; and

3. 90 day letter: Indicating to the client that the bill would be placed for collection and possible suit if the bill was not paid immediately or arrangements were made to begin making payments on the bill.

In these articles we have previously discussed the difficulty with regard to lawyers suing for their bills. I know I have previously discussed my frustration with regard to this difficulty, because I don’t know of another profession that has such difficulty with regard to trying to collect their bills and being told by their own licensing entities and their insurance companies not to sue to collect their bills. The problem lies with lawyers getting fee dispute complaints, or bar complaints or even malpractice lawsuits if they try to collect their bills. It appears as though the only way to ever be sure you collect your entire bill is to be sure you have everything paid in advance.

Clients have become so much more sophisticated, they are lawyer shopping, they are fee shopping and once they get your bill, they want to “nit pick it” and discount it. If you are like our firm, we oftentimes discount the bill to start with, and usually no charge items we think are legitimately not billable, and when your client then discounts the bill it is a third discount.

I wish I had a panacea for this problem, but I don’t believe there is any “magic solution.” The only suggestion I can make is communicate, communicate, communicate!

Obviously if you get a retainer you need to be sure the retainer will cover what you were going to expend on a client’s matter before you are in need of going back to the client and asking for additional money. Your agreement with the client needs to be very clear about whether or not your fees are capped for a certain amount or for a certain activity. You need to be on top of how much time you have put in a file, so you do not find yourself going over the cap and consistently ending up in a situation where your clients owe you more money than they are ever going to pay you because you have capped their fees. You need to make it clear to clients what things are going to cost and you expect to be paid when your bill goes out to them. You need to be sure to say in your engagement letters that your bills are payable within thirty days of receipt. You need to say in your engagement letters that if your bills are not paid you have the right to withdraw from representation of the client.

In short, any mechanism that you can use that continually puts you in a position where you minimize your accounts receivable, and if you actually have accounts receivable where you continue to communicate with your client about the fact that they owe you money and that you will accept payments, should improve your cash flow.

Next week we will discuss ways to collect your accounts receivable and how to increase your appropriate collection efforts.

Talk to you next week!

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.