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Billing problems are communication problems

If your firm billed a client several months ago and has not yet been paid, assume that there is a problem.

That problem may be external, because the economy is still soft and credit conditions are still tight. The client’s cash flow may be temporarily disrupted, making payment difficult; or trouble with the client’s business may be making payment impossible.

If such external problems exist, good communication can uncover them. Meet the client over coffee and ask, “How are you doing?  Is there an issue with my bill that concerns you?  Can I help you in some way?” Given this opportunity, clients usually will give honest answers.  If there’s an inability to pay, it’s better to know sooner and come up with extended terms or some other solution.

However, a more difficult problem arises when a client can pay but does not want to.  Such a client may not realize the benefit of the result you achieved, may not understand either the specifics or the value of what you did, or may think the bill was unfair because you charged for things that weren’t requested or explained.  When this is the case, an unpaid bill is not a collection problem – it’s a communication problem.

Start at the beginning

Proper communication regarding billing starts with addressing payment and collection in the engagement agreement.  Stipulating payment rates and terms up front is the best way to ensure that you get paid. You should combine this with a budget that addresses events, time and anticipated fees, and get the client to sign off on it.  All this increases the chances of collecting your fee because the client understands what to expect.

The engagement letter should also state explicitly that the lawyer will stay in continual touch with the client about expenses. It’s essential that the client knows what the lawyer is doing and approves of the tactics to be used to achieve the client’s strategy/goal. You must communicate with clients at their level of understanding, and do so frequently. Before you send an invoice, provide interim status reports showing that you are on top of the job and are actively working to accomplish what the client wants.

Status reports don’t need to be a detailed administrative burden.  A simple form can easily be saved as a word processing file, with appropriate boxes to be checked and blanks to be filled in for a few basic categories.  For instance, a litigation status report could have boxes to be checked showing current activities (case evaluation, research, pleadings, motions, and so on), what you might need from the client, and what your next steps will be.

A section that shows clients the current status of their account, and how they can make it current if they were billed previously, is particularly useful.  These periodic status reports also make it much easier to construct detailed invoices that itemize exactly what services clients have received for their money.

Be detailed

Because legal services are often intangible, the more information your bill provides about your work and accomplishments, the more likely the client will be to perceive the bill as fair and to pay it promptly.

Be as detailed as possible when listing charges. Too many lawyers make the mistake of brevity in billing – for example, “work on motion for summary judgment, 20 hours.”  Break any such charge into its basis elements, with the amount of time needed for each:  review key documents and deposition testimony, draft statement of uncontested facts as required by court procedure, research precedents in four similar cases, and so on.  Such itemization does not try clients’ patience – it helps them understand just how much you did on their behalf.

Bills can also document how quickly phone calls were returned (if the response time is good) and how often you talked to clients at no charge to learn more about their business. Be sure to note those actions that resulted in “no charge.”  That clearly shows the client that, although your time is valuable, you value your mutual relationship even more. It makes the billing statement more meaningful to the client, and more than a mere laundry list of tasks performed.

Ultimately, the client, not the attorney, defines value. But it’s the attorney who must educate the client about “value.”  Show your clients how highly you value them by communicating to them fully about the benefits you provide as their lawyer.  When that happens, fees are not an issue and clients pay their bills.