Table of Contents of this Article:
The Art of Getting Paid
Note: See the Article: How Much Do You Deserve to Be Paid?
By Frederick Hertz. He is an attorney and mediator based in Oakland, has managed his practice for more than 25 years.
An Introduction to “The Art of Getting Paid”
“Getting Paid” wasn’t a course offering when I attended law school some 35 years ago, and last I checked, it’s still not considered a topic worthy of inclusion in the curriculum. But it’s a crucial aspect of practicing law, and if not handled effectively, the consequences can be disastrous.
Hoping to fill that educational gap, this one-year series will provide a comprehensive training to lawyers on the “art” of securing compensation.
The topics we will cover include:
Setting the client’s expectations
Setting and managing your hourly rate
Maximizing payment in full with retainers
Dealing with who pays the fees
Using credit cards
Keeping track of your time
Preparing and sending out bills
Collecting the fees
Dealing with fee disputes
Conducting your annual review
How the Legal Billing Topic Caught My Attention
No one taught me how to get paid as a lawyer, but I quickly sensed, even during my first year as a lowly associate at a small San Francisco firm, that something was not being handled right. Filling out time sheets often was neglected, bills didn’t go out in any regular intervals, and seriously non-paying clients were still being provided legal services. Having grown up in a family where money was in short supply, I knew that something wasn’t right there. Though it was not obvious at the time, my early exposure to economic scarcity seems to have fueled this observation. I knew from the get-go that if I didn’t bring in the cash on a regular basis, paying my own bills was going to be a problem.
Three years later I landed a position in a larger firm, run in a totally professional manner. The managing partner was a master in the business of law, and he knew how to motivate us to meet his high standards. We were taught how to fill in our time cards each day, which were collected weekly for entry into the firm’s billing system. This was before the era of personal computers, but in its place we had Sharon, the office manager to contend with, if we didn’t turn in our time sheets by the end of the week.
The monthly review of the draft bills was a major office event: multi-sheet printouts would be arrayed in the conference room, with each of us scheduled to review our bills, edit out the errors, and confer with the managing partner on any uncertain entries. We also were shown, from day one, the payment status of any matters we were working on, so that any sign of an emerging deadbeat could be addressed.
Even in this well-honed system there were problems, for the simple reason that some clients didn’t pay their bills. I’m not sure why I caught the attention of my boss, but somehow he sensed that this was a topic that interested me, and I was assigned the deeply uncomfortable task of dealing with our non-paying clients. This wasn’t just a matter of sending out dunning notices. I was instructed to speak with the clients and circle back to the attorneys who had worked on their cases. Ironically, this was the best possible education I could ever receive. I would listen to complaints of misleading fee estimates, lack of updates on the case status, bills lacking descriptive detail, and of course, tales of financial woe.
My primary job was to nudge the clients into paying, but of perhaps equal importance, advising on when to compromise the account for fear of a malpractice claim, and educating the lawyers who had worked on the case on what they had done wrong, in the hope that their performance would improve going forward. I don’t recall what percentage of the bills got paid in full or how many of the associates learned the important lessons, but the experience certainly set me on the right track, when I opened my own practice a few years later.
The message here is obvious: If you aren’t certain how to master a particular task like getting paid, pay close attention to your performance and that of others around you. Some of the material is quantitative, such as how many hours get billed and how much money is coming in. Of equal importance is the fuzzier sort of information: how you enter into an effective retainer contract, how the flurry of legal work gets assembled into an invoice, and what factors determine whether the bills get paid. Listen closely to what the facts are telling you!
What Makes the Retainer Agreement Valid?
Reflect back on what you were taught in your first-year contracts class: An enforceable agreement requires a “meeting of the minds,” consent in the absence of duress, and terms that are specific and not unconscionable. Funny how often lawyers forget these basic principles when they are signing up new clients! There are ample reasons for the flawed process: oftentimes the nature of the work is not all that clear in advance, clients are distracted by the very crisis that is bringing them to your office, and the desire to “land” the client can cloud the lawyer’s ability to present a full sense of the likely trajectory of the representation.
These are explanations, but they aren’t excuses for a poorly-handled retention process. Spending time on the retainer agreement may seem an unnecessary distraction from getting down to work, but neglecting this first step can have terrible long-term consequences. Look at it this way, you should be modeling for your client how to enter into a contractual relationship. Moreover, it’s a way of getting to know how your client thinks about money, which will greatly increase the likelihood that you will avoid getting stiffed.
It’s essential that you talk about the likely fees in realistic terms—before you send out any agreement for your client to sign. I recently went through the billing records of the twenty or so premarital agreements I’ve handled recently so that I could accurately tell my new clients what the realistic range of fees would be. Monetize each of the tasks involved in litigation. How many hours does a deposition (including preparation time) generally take? How long will the negotiation process likely be? Remind your client that outcomes are unpredictable, especially when you are dealing with disputes that could end up in litigation.
Craft your written agreement in user-friendly terms; again, with express discussion of likely fees and costs. If you aren’t able to have an in-person meeting or telephone call with the client before the agreement is sent out, talk about it in your next meeting so that you are confident that the client understands the terms. And confirm that your client has signed the agreement! Not surprisingly, it’s the clients who fail to sign agreements who are most likely to cause you problems later on. It’s not certain if this is the result of sloppiness on their part or a deliberate strategy to avoid liability for fees, but regardless of the reason, discovering three years later that the fee agreement was not signed, just as you are preparing for a fee arbitration, is a nasty experience you want to avoid at all costs.
Be open to discussing the fee arrangements with your clients. You need to hear about their financial condition, and if they can’t pay a retainer you want to know why so you can figure out a reasonable solution. Some clients want to discuss a sliding fee scale, or a cap on fees, and even if the answer is “no” you need to hear their concerns. Again, your goal is to be transparent, to be unafraid to talk about money issues, and to proceed with a clear sense of how you are going to be paid.
Don’t forget to update the agreement if circumstances change. Sometimes a simple email will suffice: You tell the client that you’ve retained a new expert and significant costs will be incurred, or you agree to defer payment for a few months while a settlement payment is being processed. But if there’s a major change—switching to a contingency fee or flat fee, for example—a newly-signed agreement is recommended. Remember, you are demonstrating that you take the money issues seriously, and that you are not afraid of talking openly about how the fees are going to be paid.
How Much Do You Deserve to Be Paid?