Billing Your Clients for the Postage they Use

This week's article is yet another article providing "tips" in the area of billing. "Billing," as you will remember, is the fourth area of the five areas that make up every business in the world. The other areas are: "Clients" or "customers"; "Administration"; "Getting the work done"; and "Collecting."

I hope these articles with regard to the "billing" of expenses are not redundant, but it seems to me that one of the most important things to do is to continually drive home this philosophy about how you can pass on expenses to clients who are actually using the expenses as opposed to having to spread these expenses over your overhead and thus having to keep your hourly rates at a higher level for everyone. If the client uses the expense, bill that client, not every client.

We have a system in our office for billing excess postage to the clients that actually incur the postage. We never charge for anything that is $.37, but we always charge for everything over $.37. As the price of first-class postage goes up, we simply keep pace by charging everything over the cost of a first-class letter.

In many of the articles where I have previously talked about the many areas that make up the five areas of every business, I have talked about one of the best investments to make: the cost of a first-class letter postage stamp. Presently, that cost is $.37. We have a philosophy of sending to our client every single thing that comes in our office and goes out of our office with regard to that client's matter. I cannot remember the last time we received a complaint from a client that we were not communicating enough. When the client gets a copy of everything that is coming in and going out of the office, you are doing an incredible job of projecting effort to that client about the fact that you are timely handling their matter and that you are moving the matter forward. I believe that one of the world's best law firm investments at the present time is a $.37 stamp.

Not everything can be mailed with a single stamp; therefore, you have to have a system with regard to being able to charge your clients when you incur excess postage over the cost of a single first-class letter. Our system is quite simple, because it is a manual system. There are systems where you can tie your postage meter into your computer and punch in a client number that will automatically post the postage to your client's ledger on the computer. We have not felt that this is necessary at this time because the amount of postage we incur on a monthly basis that is over the price of a first-class letter is not so significant as to cause us to have to have a more automated system.

Just like other expenses in our office, we simply have a clipboard right by our postage machine. Anytime you have postage that is over the cost of a first-class letter, you simply write down the amount, the client's name, and the matter on the sheet and it is posted by an input person to our client's ledger that is contained on our computerized system.

Of course, we include this cost for excess postage in the paragraph in our engagement letter with our client that indicates what expenses will be billed to the client. I have never had a client ever take umbrage at the fact we were going to include such an expense in their billing. Most of the time they seem quite pleased that we are organized enough to be able to keep track of excess postage expenses and to bill them accordingly.

We also bill for certified mail charges, express mail charges, Federal Express charges and UPS charges. Again, this is accomplished quite simply by writing the charges down on the clipboard that is located at the mail station.

We most often utilize UPS because we get a substantial discount from UPS through the affinity program with our local bar association. The American Bar Association has an affinity program with UPS as well, but we found that our local bar association was able to get a deeper discount than was the ABA.

As with most office buildings, we have both a Federal Express and UPS pick-up station in our complex. I am often amazed at how often we use these services. Probably one of the best services available is the overnight, guaranteed delivery UPS package. Oftentimes when we are in a hurry to get a document or a check to our client and returned from our client, we will send a UPS package that also encloses a pre-addressed UPS package back to us. I cannot remember the last time we were not able to get a two day turn-around on receiving an executed document or an endorsed check back to our office. Obviously, one of the important concepts with regard to settlement checks endorsed by clients is the ability to immediately put that into your trust account and to pay yourself the percentage you are entitled to by contract. Remember, happiness is a "positive cash flow."

One of the most important things to do with regard to billing expenses to clients is to have the list of what you are intending to bill to the client in your engagement letter. The second most important thing is to train your office staff to actually write up the expenses you incur and to be sure they get put on the client's bill on a monthly basis. If you do not bill on a monthly basis or if you are handling contingent fee cases, I strongly suggest that you put all of these expenses in your engagement letters to be sure that when the case is settled and you are providing a settlement distribution to your client, you can deduct all of those expenses off the top of the settlement amount and get yourself reimbursed for all the expenses you have incurred in the matter before there is any split of attorney's fees or amounts that would legitimately go to the client. I suppose that a case could be made that if your amounts of settlements are large enough, you would simply eat the expenses, but I have always made it a habit over the years to have the expenses be reimbursed by the person for whom they were incurred. If the client advances the expenses, you reimburse the client off the top before the percentages of attorney's fees and the client's share are split, and if the law firm advances the expenses, you do the same thing and the law firm receives their expenses first.

We use the TABS III computerized billing system. The system provides that all expenses get paid first, before there is any allocation for fees. I think this makes great sense because of the fact that it does not make any sense to not have your expenses reimbursed before allocating monies among the attorneys and other staff members who have worked on a client's matter and generated fees. Expenses are an overhead item; expenses should be reimbursed first.

The whole concept of billing expenses to clients who actually incur them is to do your darndest to see if you can make the incurring of expenses a zero net sum on your income and expense statement. Obviously, unless you put an add-on cost on to most of these expenses, you are not actually ever going to re-coop the total amount of expenses you have, but at least you are going to come closer if you bill it and collect it. We do not pass on to our clients the cost of our postage machine or the maintenance contract on it, because we do not put an add-on cost on the excess postage that is billed. This could be done though if you made a disclosure with regard to that in your engagement letter with your clients. Likewise, we do not put an add-on charge on the excess postage for the space that the mailing station takes up in our office. Again, these are the types of costs that are not easily passed on, and therefore you simply need to roll them into your hourly rates and spread them across all of your clients. On the other hand, I think you can see how easy it would be to pass on excess postage to the clients who actually incur it.

Next week we are going to talk about extraordinary office supplies. Yes, we have a system for billing extraordinary office supplies to our clients. I think you will find our system consistent and hopefully you will find it an easy enough system for you to implement in your own office. We are going to continue to talk for the next several weeks about expenses that can be passed on to the clients who incur them and that we have set out in our engagement letters. I think you will see over the next several weeks how this concept can be carried through with almost all the expenses you incur that can be kept track of on a client and matter specific basis.

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.