Tackle Billing Now to Avoid a Year-End Surprise

Although rarely a time when attorneys want to do this, now is a good time to review all of the law practice's work-in-progress to determine if invoices for work during the first half of the year have been sent. If no bill has been sent to the client, that needs to be investigated.

The best systems flag client matters that have not been billed after a set period of time. Six months is typically the outer threshold for not billing a client. The longer the time period, the more likely the bill will not be well received.

Clients do not like to be surprised by large and unexpected bills. The most effective way to avoid that surprise is to ensure that invoicing is timely. Monthly, digestible bills reduce the risk of a fee dispute and increase the chances of prompt payment.

In addition to good client relations, regular bills avoid the risk that the firm or practice has a substantial amount of fees invested before learning that it has a client problem. With frequent, regular bills, nonpayment or fee disputes typically involve a much smaller amount than disputes resulting from a single bill covering six months or a year of legal fees and expenses. Given the reluctance of most firms and practices to sue for fees, these smaller amounts reduce the risk of a dramatic hit to the bottom line if there is a dispute.

With all that said, one of the most important reasons for monthly or regular billing is to address one of the most common reasons why clients do not pay: They never received an invoice. Systematic billing in regular intervals ensures that one necessary step for getting paid in fact gets done: A bill is sent.

Accounts Receivable

Assuming bills are sent regularly, six months is plenty of time to see who is not paying, why they are not paying and what can be done about it. If a client has not paid after six consecutive months of invoices, there likely is a problem. Now is the best time to figure out what that problem is. In December, the firm has few options and little time.

Obviously, clients vary in how and when they pay bills. Some are automated, while others require approval and processing. However clients are set up internally, the failure to pay over an extended period of time is a reflection of a problem. There are several possibilities for what that problem might be. The bills might have been sent to the wrong person, or it could be that the firm or the invoices are not in the client's system. Or there might be another logistical reason that the bills are not being processed. Regardless, identifying the problem now makes the collections task much more manageable in December.

It is possible that a client is receiving the bills, but nonetheless is refusing to pay some or all of them. When this happens, there are several potential explanations.

Many clients use computerized payment systems that deduct certain amounts for failures to comply with billing guidelines and/or procedures. Typically, these systems offer an appeal mechanism for challenging the deductions. Now is a good time to start the process of addressing any appeals so that they are resolved before the year ends.

Some clients refuse to pay because they dispute the amount of the bill. If the client says the bill is too high, then a conversation about the amount of work done undoubtedly would be helpful. This conversation should address the bills that have been sent, as well as anticipated future work and billings. Getting everyone on the same page about both the amount of work a matter requires and the cost of that work is important to avoid even bigger disputes down the road.

If the client is dissatisfied with the quality of work, then the firm or practice has an even greater interest in addressing the issue. There is no substitute for listening to and addressing client concerns over the quality of work performed. These issues never get better with time, and ignoring them never makes them go away.

Typically, in-person meetings are the best approach for learning, understanding and addressing client concerns regarding the quality of work performed. They are the most productive way to avoid deteriorating client relations, costly fee disputes and potential legal malpractice claims.

Because most attorneys cannot divorce themselves from defending the quality of their own work, such meetings should include an attorney who is not involved in the representation. If the client's concerns are valid, the law practice should take appropriate remedial steps and make fee adjustments. If they are not, the practice should explain its work and specifically address the client's concerns.

Often, fee disputes reflect little more than a misunderstanding about what attorneys are doing and the costs associated with that work. After all, billing is one way of informing the client of the work being done and the time being spent on their case. Clients want to feel they are getting value for their money, especially when it comes to legal services. If a client does not understand a bill or thinks they are being overcharged, it might be because the bill does not provide enough detail or because it is hard to read. The solution could be as simple as revising billing entries so they provide more information.

Unfortunately, sometimes nonpayment means that the client simply does not have the financial resources to pay. It is always better to find that out sooner rather than later.

This kind of client payment problem might be resolved by a change in the scope of the representation or the type of fee arrangement going forward. Regardless of the specifics of the change, it is important that the managing attorney makes sure the change complies with the applicable state bar rules and that it is confirmed in writing with the client. Courts often do not look favorably upon mid-representation changes in billing or fees that benefit a firm or practice over the client.

While many billing disputes can be resolved by a simple one-time reduction in the amount the client owes, if the fee arrangement is changed, the impact of that change, short-term and long-term, on both the client and the firm or practice must be closely scrutinized. In addition, the changes should be thoroughly explained to the client, in person and in writing.

The State Bar of California, as one example, has available a low-cost fee arbitration service for the resolution of fee disputes. The advantage of fee arbitration is that it typically shifts the focus from whether the attorney collects to how much the attorney collects. On the other hand, many attorneys believe the trade-off for avoiding the risks of a counterclaim for legal malpractice is a discount from the amount of fees sought.

December might be the month for the final push for collection. However, now is a good time to start making sure that the fundamentals for effective fee collections are in place.

Randy Evans is a Partner and Shari Klevens is a Partner and Deputy General Counsel at Dentons US LLP, which has six offices throughout California. The authors represent attorneys and law firms, and regularly speak and write on issues regarding the practice of law, including the books The Lawyer's Handbook: Ethics Compliance and Claim Avoidance (ALM 2013) (http://bit.ly/1IfSK5R) and California Legal Malpractice Law (ALM 2014) (http://bit.ly/1MmUzE6).

Attorneys rarely think about billings and collections in the summer or early fall. Instead, those are topics often left to the year-end collections push. By waiting, however, attorneys lose money, assume risks and otherwise miss important red flags for potential problems that can be avoided or resolved.

The best time to start taking a serious look at work in progress, accounts receivable and overdue accounts is now.

Work in Progress

Although rarely a time when attorneys want to do this, now is a good time to review all of the law practice's work-in-progress to determine if invoices for work during the first half of the year have been sent. If no bill has been sent to the client, that needs to be investigated.

The best systems flag client matters that have not been billed after a set period of time. Six months is typically the outer threshold for not billing a client. The longer the time period, the more likely the bill will not be well received.

Clients do not like to be surprised by large and unexpected bills. The most effective way to avoid that surprise is to ensure that invoicing is timely. Monthly, digestible bills reduce the risk of a fee dispute and increase the chances of prompt payment.

In addition to good client relations, regular bills avoid the risk that the firm or practice has a substantial amount of fees invested before learning that it has a client problem. With frequent, regular bills, nonpayment or fee disputes typically involve a much smaller amount than disputes resulting from a single bill covering six months or a year of legal fees and expenses. Given the reluctance of most firms and practices to sue for fees, these smaller amounts reduce the risk of a dramatic hit to the bottom line if there is a dispute.

With all that said, one of the most important reasons for monthly or regular billing is to address one of the most common reasons why clients do not pay: They never received an invoice. Systematic billing in regular intervals ensures that one necessary step for getting paid in fact gets done: A bill is sent.

Accounts Receivable

Assuming bills are sent regularly, six months is plenty of time to see who is not paying, why they are not paying and what can be done about it. If a client has not paid after six consecutive months of invoices, there likely is a problem. Now is the best time to figure out what that problem is. In December, the firm has few options and little time.

Obviously, clients vary in how and when they pay bills. Some are automated, while others require approval and processing. However clients are set up internally, the failure to pay over an extended period of time is a reflection of a problem. There are several possibilities for what that problem might be. The bills might have been sent to the wrong person, or it could be that the firm or the invoices are not in the client's system. Or there might be another logistical reason that the bills are not being processed. Regardless, identifying the problem now makes the collections task much more manageable in December.

It is possible that a client is receiving the bills, but nonetheless is refusing to pay some or all of them. When this happens, there are several potential explanations.

Many clients use computerized payment systems that deduct certain amounts for failures to comply with billing guidelines and/or procedures. Typically, these systems offer an appeal mechanism for challenging the deductions. Now is a good time to start the process of addressing any appeals so that they are resolved before the year ends.

Some clients refuse to pay because they dispute the amount of the bill. If the client says the bill is too high, then a conversation about the amount of work done undoubtedly would be helpful. This conversation should address the bills that have been sent, as well as anticipated future work and billings. Getting everyone on the same page about both the amount of work a matter requires and the cost of that work is important to avoid even bigger disputes down the road.

If the client is dissatisfied with the quality of work, then the firm or practice has an even greater interest in addressing the issue. There is no substitute for listening to and addressing client concerns over the quality of work performed. These issues never get better with time, and ignoring them never makes them go away.

Typically, in-person meetings are the best approach for learning, understanding and addressing client concerns regarding the quality of work performed. They are the most productive way to avoid deteriorating client relations, costly fee disputes and potential legal malpractice claims.

Because most attorneys cannot divorce themselves from defending the quality of their own work, such meetings should include an attorney who is not involved in the representation. If the client's concerns are valid, the law practice should take appropriate remedial steps and make fee adjustments. If they are not, the practice should explain its work and specifically address the client's concerns.

Often, fee disputes reflect little more than a misunderstanding about what attorneys are doing and the costs associated with that work. After all, billing is one way of informing the client of the work being done and the time being spent on their case. Clients want to feel they are getting value for their money, especially when it comes to legal services. If a client does not understand a bill or thinks they are being overcharged, it might be because the bill does not provide enough detail or because it is hard to read. The solution could be as simple as revising billing entries so they provide more information.

Unfortunately, sometimes nonpayment means that the client simply does not have the financial resources to pay. It is always better to find that out sooner rather than later.

This kind of client payment problem might be resolved by a change in the scope of the representation or the type of fee arrangement going forward. Regardless of the specifics of the change, it is important that the managing attorney makes sure the change complies with the applicable state bar rules and that it is confirmed in writing with the client. Courts often do not look favorably upon mid-representation changes in billing or fees that benefit a firm or practice over the client.

While many billing disputes can be resolved by a simple one-time reduction in the amount the client owes, if the fee arrangement is changed, the impact of that change, short-term and long-term, on both the client and the firm or practice must be closely scrutinized. In addition, the changes should be thoroughly explained to the client, in person and in writing.

The State Bar of California, as one example, has available a low-cost fee arbitration service for the resolution of fee disputes. The advantage of fee arbitration is that it typically shifts the focus from whether the attorney collects to how much the attorney collects. On the other hand, many attorneys believe the trade-off for avoiding the risks of a counterclaim for legal malpractice is a discount from the amount of fees sought.

December might be the month for the final push for collection. However, now is a good time to start making sure that the fundamentals for effective fee collections are in place.

Randy Evans is a Partner and Shari Klevens is a Partner and Deputy General Counsel at Dentons US LLP, which has six offices throughout California. The authors represent attorneys and law firms, and regularly speak and write on issues regarding the practice of law, including the books The Lawyer's Handbook: Ethics Compliance and Claim Avoidance (ALM 2013) (http://bit.ly/1IfSK5R) and California Legal Malpractice Law (ALM 2014) (http://bit.ly/1MmUzE6).