CASH FLOW IS KING It is not uncommon for lawyers’ invoices to get paid late or not get paid at all. For a (short) period of time, I worked for a small law firm where it was quite common for client relationships to deteriorate and become adversarial (lawyer vs. client instead of lawyer + client) over unpaid invoices. And I have heard complaints from many lawyers wondering how they should go about collecting on all of their old, unpaid invoices.
I, too, have had this problem. I’ve had two instances of unpaid invoices since starting my law practice. It sucks. Luckily, they weren’t huge bills and my practice was probably not the best fit for those clients anyway.
It’s pretty obvious why this is a problem – cash flow is king. If your invoices aren’t getting paid timely, then you probably have a cash flow problem in your business. That means you can’t pay your bills and cover your overhead in a timely manner because you are not getting paid by your clients on time. But guess what? Your virtual assistant, subscription provider or utility company doesn’t want to hear about your clients who didn’t pay their invoices. They expect to get paid on time. Late paying clients is a quick way to sour relationships with your providers and can even cause services to get cut off, if you don’t have savings or other funds available to cover them.
If your invoices aren’t getting paid at all, then you have an even bigger problem. Having multiple invoices go unpaid for weeks or months can rapidly lead to the shuttering of your doors (whether physical or virtual). You cannot continue to function as a law practice if there is no money coming in. Even if you have very low overhead, your own personal finances will likely take a hit that you may not be able to recover from. I’ve heard from plenty of solos who closed their doors due to unpaid invoices and a general lack of actual revenue collected.
So how can you avoid this fate and ensure that your invoices are not only paid but that they are paid on time?
Here Are Three Surefire Tips That I Use To Obtain Timely Payments From My Clients:
NO. 1: CLARITY IS QUEEN.
The first step to getting paid on time is being as crystal clear as possible with clients on that first initial client interaction and throughout the relationship. I make sure that before a client becomes a client, they know exactly how much my handling their matter is going to cost them. I make it very clear when and how they will be invoiced. If it’s the type of matter that could possibly incur additional fees depending on currently unknown outcomes, I let them know what the possible variables are and am sure to get any additional fees required approved before they are incurred. I go the extra mile to provide clarity on my fees because: The key to paid invoices is no surprises!
I want my clients completely prepared for any invoices coming their way. I know I don’t like getting an unexpected bill or an invoice for an amount much larger than I anticipated – so I avoid doing that to my clients like the plague!
For this reason (and many others), flat fees are superior to billing hourly. Hourly billing is usually not predictable, which is why so many lawyers don’t get paid. Even if you have a litigation practice, you can implement flat fees in phases and take other steps to make your fees (and therefore invoices) predictable.
NO. 2: SEND INVOICES IN A TIMELY MANNER.
If you want to get paid on time, send your invoices on time. This means putting the effort in to systematize your billing process to ensure that your clients are getting their invoices close to when the work is being done. Additionally, if you tell the client their payment will be due every 30 days. Make sure you send the invoice at least two weeks in advance to give them time to pay it. In my experience, giving clients less than 14 days to pay your invoices (meaning you send them a bill that is due in less than 14 days from the send date), leads to late payments. Give your clients as much lead time as possible. Twenty-one days seems to be the magic number to get your invoices paid faster than if you request immediate payment.
NO. 3: FOLLOW UP.
People are busy. People forget. People are people. Therefore, if one of your invoices goes unpaid, follow up … immediately! Have a system in place to contact the client immediately after the due date on an invoice passes – as in, the very next day. For example, my invoice system automatically sends an email message to the client that their invoice is now late the day after the due date. If the invoice is due the 15th and has not been paid by midnight on that date, the very next day they will get an email reminder. This reminder is usually enough to cause the client to make the payment immediately. (More often than not, the client just forgot about the invoice.)
If this doesn’t result in payment, the next step is to contact the client via telephone three days after the invoice due date. Yes, I am suggesting that you actually pick up the phone yourself and call your client to find out what’s going on rather than have an assistant or some outsourced collections company do it. Maybe you think it’s a waste of your time, as a lawyer, to talk to your client about why their invoice isn’t paid. I don’t. In my experience, my client would rather talk with me directly then get an email or phone call from an assistant or unknown party demanding payment. I find giving them a call to find out what’s going on is a more compassionate approach, usually leads to immediate payment, and improves the quality of the ongoing relationship with the client rather than destroying it.
Using these strategies, I have not had an invoice go unpaid in a long time. Try them in your practice and see if they don’t work for you. Rachel Rodgers