I am very happy to welcome Loretta Ruppert, from LexisNexis Practice Management, as a guest writer. As Senior Director of Community Management, Loretta works to bring together the community of product users, consultants and technology leaders and to create a resource to facilitate better communication and cooperation between these groups. I have extended an open invitation to Loretta to guest post on this blog on any topic related to Law Firm Practice Management. Today, she writes a follow-up post to her two part series on Collections Best Practices. This post focuses on creating a multi-touch collections process. Jeff Krause
This post will complement the two previous posts regarding Collection Best practices – (1) the Problem and (2) the Solution and will focus on the multi-touch collection process.
On September 9th Allison Shield blogged on the subject of talking to your clients about fees on her blog Legal Ease. She mentions an important point – it all starts with the fee or engagement agreement. There is no such thing as too much information when communicating with your client about rates, and what is included and more importantly what is excluded from the fee agreement, don’t be afraid to spell it out.
• The fee agreement should also contain a clause regarding past due accounts and what happens in the event of non-payment. Do you ask for a credit card number in the event of non-payment that authorizes you to charge the credit card for the balance due? Do you have some physical collateral to put a lien against or sell?
• Include aging periods for past due accounts in the fee agreement, these are typical accounting standards of 30, 60, 90 and over 90 days past due. But this is really for reporting purposes. There is nothing preventing you from taking action before or in between these aging periods.
Aging periods are one of the main areas we focus on when developing a multi-step collection process. Below is a list of some steps and recommended do’s and don’ts. As with most business practices and processes, some of them are very obvious, but the ability to implement a multi-step process and stick to it is more important than just developing one.
If you offer an early payment discount, don’t be hesitant to send an email reminder or fax reminding your clients to take advantage of the early payment discount.
Only charge interest if you plan to collect it.
At the 30 day mark, send out a reminder statement.
When the bill is 45 days past due, you have now provided enough time for your clients to get your bill and additional mail time to receive payment. Pick up the phone and call your client and ask straight up when you can expect payment, the conversation obviously should be polite but firm.
At 60 days charge the client’s personal credit card they authorized in the event of non-payment at 60 days. If you don’t have this in your agreement, ask the client if they are having financial difficulty and if they are, negotiate a payment plan.
If you negotiate a payment plan, do not drag out the payment plan beyond three to six months depending on how many months of work it represents and absolutely ask for a retainer for any further work until payment is complete.
When you reach 90 days past due you are at a high risk of not receiving the payment in full or at all.
Consider a visit with the client face-to-face, depending on the amount past due of course, and if a considerable amount, start thinking about the lien on collateral. If you don’t have this to fall back on, go to the next step.
As a last resort, consider negotiating the bill, the timing may be well past the 90 days. E.g. If the client pays the firm 60% we will write off 40% or whatever you think is reasonable. Or you can choose to hire a collection firm. The problem with using collection firms are the fees, but by this time, you have already taken so much of your time and your staff’s time trying to get the fees collected.
The main point you want to take away from this post is to prepare for the exception – the non-payment, and to be consistent in your approach of how to handle them. Automate as much of these steps as possible using a calendaring or billing system. And if you have a repeat client who continually falls behind in payments, consider what the intrinsic cost to your firm is to keep that client versus one that pays you.law firm collections, Law Practice Management, Loretta Ruppert