There is much talk about alternative fee arrangements (AFA’s) in the legal world today. It seems that clients are pushing for more transparency and guaranteed pricing; and who doesn’t want to know exactly what he or she will pay with a guarantee! But attorneys know that most cases just don’t work that way. Amid all the hype is the missing part of the equation – getting paid!
There are many niche legal areas that will greatly benefit from AFA’s and many that simply cannot take the risk. Whether your practice can offer AFA’s to your clients as a mutually beneficial billing tool is a matter of research and introspection about the way you want to do business. You may make your clients happy at a loss to your business. You might find a way to make things easier on yourself with a net gain of time and profit. Either way, and regardless of your billing structure, you still have to ensure payment!
Traditional thinking says the best way to ensure payment is with a retainer, especially an evergreen retainer. I agree. Anytime you can put cash in the bank against future work you should do it – with one caveat. Unearned money has to be carefully accounted for. Mismanaged trust accounting is a leading reason for disputes and troubles with the state bar. Not all attorneys are good at it.
Here’s an option for attorneys who hate trust accounting or don’t trust themselves to mange them properly. Rather than getting the cash up front how about getting a payment card up front that can be recalled and charged later when the work is done. What am I talking about? I’m encouraging you to run your business like a business and make sure you get paid for the work you do.
A law office can run similarly to a hotel. I make this comparison because nearly everyone is familiar with how hotels operate. Hotels get paid. They check you in with a payment card, hold the card information securely until your stay is complete, and charge all your expenses on the card when you check out. Your office can do the same with nearly the same steps. Here they are.
The Check-In: Give your client a clearly written financial policy at the time you schedule the first consultation (one that explains he or she will be asked to put a credit card on file for later use). If you charge for the initial consultation then get a credit card on file for the payment before the client arrives. If you don’t charge for the initial consult then get a credit card on file once the client agrees to retain you.
The Stay: With your client’s card on file you have the confidence to work on the matter knowing that when the work is done you can simply recall the credit card information and process the charges. You log hours and expenses as normal and submit invoices to the client for approval.
The Check Out: Once the client approves the invoice you ‘check them out’. Using the credit card on file information you stored (in your PCI secure software like Easy Pay) earlier you simply run the transaction for the amount owed. You are paid now – not 30, 60, or 100 plus days or more!
The benefits to operating like a hotel include smoother cash flow, less time spent collecting payments that are due, no bad debt, and peace of mind knowing that you don’t have to chase past due dollars. If you can simplify the payment process with your clients, the business side or your legal practice will become easier.
The Bottom Line: Take care of business so you can practice law!