Preventing Accounts Receivable

By Reid F. Trautz and Paul McLaughlin

How many times have you said to yourself, "I could retire on the money I have written off!" Or "#%*@ it, stiffed again!" It is not fun to deal with clients on the issue of being paid. This is not why we went to law school! Yet many hard working, honest lawyers find that their expectations about getting paid aren't shared by their clients. The result is stress, frustration and deep dissatisfaction with the practice of law. How does this happen? And how can you stop it from happening to you?

Law is one of the last business sectors to aggressively address credit issues. Almost alone in the marketplace, we allow our clients to pay for our services after they have received them, without properly securing ourselves. Even doctors demand a credit card or proof of insurance before they allow the patient into the examination room. Retailers who allow customers to pay later either severely limit credit or thoroughly check credit-worthiness.

The bottom line is, we are often as much to blame for our getting stiffed as the clients. We allow it to happen. And we can take steps to ensure that it happens less often.

The Context: Improved Client Service

How can you stop worrying about collections? Build more consumer-focused client service into your practice and build trust and respect into every phase of the attorney-client relationship. Trust and respect are the hallmarks of positive and financially rewarding service relationships.

Traditionally, we thought we would create a relationship of trust and respect simply by being a good lawyer, as we defined good. If we considered the matter at all, we believed that we could enhance our credibility with an office near the courthouse, particularly a "lawyerly" office with the visual cues associated with the law, such as marble, wood and symbols of justice, and with Latin phrases and legalese-phrases that clients aren't meant to understand but sound impressive.

We also believed that if we provided high quality legal services, as we defined quality, we would build respect. We thought that winning, getting the deal closed, getting the document drafted was enough to cement the relationship.

We are now in a new era of legal consumerism and we need to embrace new ways of building trust and respect. We are part of the service sector in the new economy. It's no longer enough to be a skilled lawyer and have an impressive office. Clients now view a high level of legal skills-what we deliver-as the starting point, and they look at how we deliver our legal services as the primary basis for deciding how they value their relationship with us. We need to figure out how to build relationships on the clients' terms without sacrificing our professionalism, which means addressing problems like tardiness in the production of work, unclear drafting, insensitivity to the non-legal dimension of legal issues and failure to keep clients fully informed (timely returned phone calls, etc.).

If you don't address the service issues in your practice, you can forget about solving the accounts receivable problems.

The Three Types of Delinquent Clients

There are three categories of non-paying clients:

  1. clients who don't pay
  2. clients who can't pay
  3. clients who won't pay

They have different characteristics and require different responses.

Clients who don't pay confront you with a fact that at that point doesn't have an explanation. There could be any number of reasons why they don't pay, and it is important to determine the reason for non-payment. Only some of your clients who don't pay are can't pay or won't pay clients.

Clients who can't pay are those who truly don't have the money or other resources to pay your bill. They confront you with a decision: do you continue working on the matter or not?

Clients who won't pay are clients who can pay and who may once have had the intention to do so, but now choose not to. They are the most difficult type of delinquent client.

Clients Who Don't Pay

Non-paying clients are sending you a message, but you can't tell what it is from the bare fact that the bill hasn't been paid. Maybe they haven't received the bill, or they haven't looked at it. Maybe they have forgotten it or are procrastinating or simply haven't given it any priority. Maybe it has arrived at the wrong time in their cashflow or bill-paying cycle and are waiting for an appropriate time to pay it.

It's up to you to take the initiative to determine the reason for nonpayment. When you clarify the reasons for nonpayment, you can often create solutions that will improve your relationship.

The message you want to send is that you control your financial affairs with the same diligence as your legal work. Don't be afraid to point out that your reputation, your most valuable asset, is on the line: if you are slack about getting paid, people might begin to think you are also lackadaisical about the quality of your legal services.

Who should make the initial contact with the client to discuss the bill? Some experts say the staff person with the best "people skills" should call each client to inquire about payment. Others say the lawyer working on the matter must call. Whoever calls, the purpose of the first call should be clear: it's not to dun the client, but to discover the real reason why the client hasn't paid and to encourage payment. The person making the call needs a healthy dose of scepticism, but should not project anger or cynicism.

Scheduling a meeting to discuss the reasons for non-payment in person is even better than a phone call. Although it feels safer and less confrontational to discuss fees on the phone, more will be accomplished in a face-to-face meeting.

How should you handle this meeting? Start by reminding your client that your bill is outstanding; have a copy available. Politely ask when you can expect payment. Then sit back and listen to the client's words, and as well to the client's voice and body. Don't get angry or defensive. Remain calm. Politely, but firmly, probe and listen to the answers. What is the client really saying? What is the real issue? As you listen, try to determine if the client intends to pay your bill, and if not, whether this is a can't pay or a won't pay situation.

Be prepared for the typical excuses. When clients say they did not receive the bill in time to make the payment when you expected it, ask if there is a better time of the month for them to receive the bill and offer to send it at that time each month. Make a note of the promise and stick to it.

When clients say they have not had a chance to review the bill, you can say that you would appreciate it if they would give the matter priority. Of course, this request is more convincing if you have given their work priority. You should also reassure them that you are always willing to discuss the bill. If the client says that won't be necessary, make a note to call again and insist on a discussion if payment has not been received within a week.

You may be able to obtain new assurances from the client that your bills will be paid, such as

  • a monthly payment schedule of an amount the client can afford to pay (one of us had a client who paid $10 a week for five years; the balance was then forgiven.)
  • a new retainer that the client pays with a credit card
  • a monthly payment against a credit or debit card

You may also be able to provide an opinion letter assessing the likely outcome of the matter for your client to use to borrow money from a relative or friend, but be careful not to create a reliance on which you could be sued if the matter doesn't work out as you expect.

No matter what the reason for non-payment, be sure to keep track of clients who say they'll pay. If the client really is a can't pay or a won't pay, you want to know as soon as possible.

If you find yourself with a practice full of clients who don't pay their bills, you may want to reevaluate how you administer the billing process. You may also want to be more flexible on how they pay you; for example, you might want to offer to take credit or debit card payments-the small discount or service charge is not a significant cost when weighed against the huge cost of nonpayment.

Clients Who Can't Pay

Some clients can't pay their legal bills: they simply don't have the money or other resources. If you carefully screen new work, however, only a small portion of clients will actually fit into this category.

Clients who truly can't pay aren't just insoluble collection problems , they're also credit problems. If you have a significant number of clients who can't pay for services you have already performed, your credit policy and client intake procedures need to be.

When you take on new work, do you analyze whether the client will be able to pay you to solve their legal problems? If you don't, you become the client's banker and loan officer- and odds are you don't get the kind of credit information that banks routinely demand.

We aren't saying that you shouldn't do pro bono work. We recognize that it is an important part of your professional obligation to do a certain amount of work for which you don't expect to be paid.

We are saying, however that you will definitely feel more fulfilled as a lawyer if you carry out your pro bono obligation with cases you deem worthy. If you let your clients turn their matters into a pro bono cases without your consent, you will experience frustration and anger.

We are also not saying you shouldn't accept speculative cases-they are often very interesting and can be quite lucrative. Again, the key here is for you to be in charge of the selection process.

To avoid taking on too many clients who can't pay, determine your clients' credit-worthiness at the beginning of and throughout the course of the representation. With existing clients, a past history of timely payment might be enough, although we are always surprised to see how often lawyers take on new work from clients with a poor payment history. With new clients, ask for financial information on a pre-interview client intake form or in the initial interview. Do a credit check-an expected "cost of doing business" in every industry that deals with the public.You may already have obtained some of this information for the legal matter itself, such as current employer and income, bank accounts and balances; credit card and loan balances; outstanding taxes; other property and resources, etc. Use this information in making your credit decision. The bottom line is, you need adequate, reliable information on which you can make an informed decision about the conditions under which you are willing to accept the client and the work.

What can you do about can't pay clients?

So what do you do when you find yourself with a can't pay client in the midst of a legal matter, and you aren't interested in finishing the case pro bono or on spec?

If all else fails, and you are ethically in a position to do so, you have no choice but to terminate the representation. Do it gently, politely and with civility. Do it in a timely manner, so the client can consider other options. Don't burn bridges. Former clients can be good referral sources-and they can also discourage potential clients with negative comments.

Clients Who Won't Pay

The biggest collection headaches are clients who won't pay-they can pay and may once intended to do so, but now choose not to. They are also the clients most likely to respond to a fee collection suit with a counterclaim for malpractice.

There are, of course, a small number of clients who don't intend to pay from the moment they walk into your office. These are people who think the rules don't apply to them. Often they are promoter types with grandiose ideas and a surplus of charisma, and you are just one of long line of creditors they are quite happy to leave dangling in the wind. There is only one way to protect yourself from these crooks: recognize them for what they are in advance and say "No, thanks!" And don't be too hard on yourself if you get snared by one of these scofflaws. Remember, good judgement comes from experience, and a lot of that comes from bad judgement. Just don't let it happen again.

Then there are the rest of the won't pay clients-the ones whose nonpayment is making a statement about your bill and about how they value your services, your skills and the relationship they have with you. Be very clear about this: the issue is usually not price, it's value-not what you have charged, but what you gave in return.

Trust and respect may seem irrelevant concepts in bill paying, but they are fundamental. The bottom line is, the more your clients trust and respect you and the work you do for them, the more likely they are to value their relationship with you as their lawyer, and to pay your bills on time each month to preserve that relationship.

You can build trust and respect in many ways in an attorney-client relationship. When you don't meet their service expectations, you don't build the trusting, respectful relationships that are demanded by today's clients. When a relationship of trust and respect is achieved, clients reciprocate by paying their bills.

What should you do about won't pay clients?

The won't pay client has decided not to pay you; they have the resources, but not the desire. You now have a two-step process ahead of you: first, discover the real reason for the decision and then determine what, if anything, you can do to save the relationship. This can be a tricky task, but may make the difference between getting paid and losing a client.

Again, the key to resolving the situation is to communicate with the client. It is best to try to arrange for the discussion to take place in person. Call the client and request a meeting. If the client won't come to you, go to the client. When you meet, remember that you are not just trying to get paid for an existing bill, you are trying to repair a relationship so you can turn a dissatisfied client into a happy one who will be a source of revenue and referrals for many years to come. Now is the chance to save the relationship, or at the very least prevent it from damaging your business.

At the meeting, let the client know you understand there is a problem with the relationship and the client's evaluation of the service you are providing. Let the client know you value the relationship and that you are very interested in salvaging it. Ask the client "What can I do to improve our relationship?" Then sit back and let the client talk. Be prepared for some harsh words, but don't respond defensively. Listen. Show the client you are listening. Make eye contact. Make affirmative gestures, such as nodding your head. If you must take notes, do not let your note-taking distract you from listening and showing you are listening.

If the client does not want to talk, ask non-defensive questions to draw out the client's thoughts. Debrief the case and the relationship. What went wrong? What aspects of your legal representation would the client like to see improved? Is it you, or does the client have other problems for which you aren't responsible?

When you understand what went wrong, you can start making some new assessments of your own. Can I improve my services to meet the client's expectations? Can I build trust and respect? Can this relationship be saved? Should I continue the representation or inform the client that new legal counsel is necessary? If I continue the representation, can I obtain payment and assurances of future payment?

Only after you have established that improvements will be made should you discuss the outstanding fees. Ask the client how he or she would like to pay the outstanding bill. If you agree that your service has been lacking, you may agree to a reduction of the bill. Remember, you are trying to seek a resolution.

If you conclude that you cannot provide services to meet the client's expectations, discuss terminating your legal relationship. Keep it civil. Explain that the client will have to find a new lawyer. Offer to help and cooperate with new counsel. Then talk about your fee. Be firm but not strident. Unless you are clearly in the wrong, do not agree to an outright reduction in your fee. Many clients will view this as a sign of weakness or an admission of guilt. If the client insists on a reduction, you may offer to cut a portion of the fee owed after the client has paid the remaining amount.

Most lawyers find these discussions difficult. They fear that confronting their clients about money will taint their working relationship. And they can be uncomfortable-it takes practice and patience to develop the skills you need steer through the numerous shoals that lie hidden under the lawyer-client relationship. But remember, this is your business and your livelihood-take charge of it!

Despite what you see on TV and in movies, getting paid for the work is a critically important activity in every law practice. If you don't get paid, you'll soon be out of business. If you're out of business, you won't be able to help all your worthy clients, the ones who willingly pay your bills.

We can't guarantee that you will be able to completely eliminate delinquent accounts receivable, although we both know many lawyers who have achieved that-even domestic relations lawyers! But we can guarantee that you will be able to reduce your accounts receivable problems, notch by notch, if you apply a new awareness and commitment to your business as you strive to create a practice full of clients who want to pay your bills.

Reid Trautz is a practice management advisor for a Washington, D.C. bar association. He spent nearly a decade in small firm private practice before advising lawyers and law firms on the business of law. He can be reached at

Paul McLaughlin is the Practice Management Advisor with the Law Society of Alberta. He works primarily with solo and small firm lawyers, drawing on his 15 years' experience in private law practice. He can be contacted at

The views expressed in this article are those of the authors, not necessarily those of their employers.