The other day I was working on billing, accounts receivable and collections and I noticed a pattern which shed some light on our cash flow and receivables. I was able to identify 3 types of clients and how they pay their invoices.
Type 1 – The client, who paid an original retainer which has now been depleted and never replenished. Reviewing the bills of these clients, they were starting to accumulate past due balances. I had a feeling that this was happening because they somehow expected that was all they would have to pay.
Type 2 – A client who is on hourly billing without a retainer. For the most part they seemed to be paying consistently as long as the invoices were getting mailed out monthly, without big surprises like large amounts of previously unbilled time now showing up on an invoice.
Type 3 – Clients who we allowed to become late payers. Who’s in charge here?
So let me tell you about a conversation I had with Type 1:
“Good afternoon Ms. Retainer. My name is Peggy with the law firm of GetItDone. I am calling about your past due balance with our firm regarding your legal matter. The original $1000 retainer you paid on date has been depleted as reflected by the prior months’ invoices. (BTW – you are obligated to show accounting details at time of invoicing on how you applied the retainer money you are holding in IOLTA). We need… “
INTERRUTION by client.
“I don’t know what you are talking about. I paid $1000 for lawyer Joe to do my case. I don’t know what this retainer is about. I thought all I had to pay was the $1000. And he’s still not done. I’m not planning on paying more than the $1000 I already paid.”
So I continued the conversation, curious to find out more about her expectations and the fee agreement contract she signed. I asked if the fee agreement contract was reviewed with her during the initial meeting. She said they looked it over – “but it was too complicated to read and we didn’t have time to look it over. I just signed it so you could begin work on my case.”
While the fee agreement clearly stated the retainer, the amount being requested, how it is used and the need to replenish the retainer if requested or to pay monthly after the retainer is depleted, it was quickly apparent to me that the breakdown in communication started with this . The purpose of the is to define the working relationship, set client expectations and review the terms of engagement. Do yourself a favor and spend the time up front doing this to avoid having to spend time doing it on the back end and ruining what otherwise could have been a great and profitable client relationship.
So we, the firm, are now a victim of our own poor client communication, which has led to unpaid legal fees, and a confused client. All of which could have been prevented.
In my next blog, I’ll talk more about Type 2 & 3.