Handling And Collecting Legal Fees
Not only must lawyers do the hard work that is necessary to earn their fees, but they must also handle and collect them, which are processes that are both time-consuming and detail-laden. Lawyers must not only be attorneys, but they must also be accountants and bill collectors.
Lawyers are subject to special ethical rules when handling client funds, which are funds in which the client still has an ownership interest. The rules require all client funds to be maintained in an interest-bearing trust account while they are in the lawyer’s possession.
Safekeeping client funds in a trust account improves client-relations since clients know that their funds are safe and available as required. It may improve the operations of the practice through a more streamlined cash flow while increasing the professionalism displayed by the proper handling of trust funds. It also eliminates the stress associated with worrying about cash flow, client funds, and the financial requirements of the practice.
Accounting for clients’ trust accounts requires identification of all deposits and disbursements for each client. trust monies must be accounted for by each client. Deposits should be recorded in a register or client ledger, separate from disbursements, which should have its own register as well. It is crucial, and I mean crucial, that the bank account is reconciled each month to assure that all deposits and disbursements are recorded and that all client records are properly reconciled with all bank account balances to ensure that all transactions are properly recorded for each individual client.
And then there are the clients from which fees must be collected over time. Often, over long periods of time. Of course, once an attorney bills a client, the attorney becomes a bill collector. If it is not clear at this point, it should be later, that collections and payments, not billings, are what pay the bills and represent income. The collection process begins on the first day of representation and continues over the length of engagement with a client. To facilitate this process, the following are useful practice tools:
- A clearly worded fee agreement that states the basis for the fee and how payment will occur.
- An advance-fee or cost deposit that represents the client’s willingness to invest in his or her legal matter.
- Billing statements prepared and mailed promptly at agreed-upon intervals.
- Detailed descriptions of the work performed, and effort expended included in each client billing.
- Phone calls to clients who have not met their payment obligations.
- deferred payment schedules for clients.
- Acceptance of credit cards for fee payments.
- Use of an “evergreen” advance fee deposit agreement where the client replenishes the deposit before the balance is exhausted.
An “evergreen advance fee deposit” is where the client replenishes their fees on deposit before they are exhausted. Sample language may include the following:
This letter acknowledges receipt of your advance fee deposit for fees and costs in the amount of $15,000. Payment for our services and costs will be drawn against this amount and reported to you. We will bill you for an additional advanced fee and cost deposit, if necessary before the current balance is exhausted. Our efforts on your matter may cease if an advanced fee and cost deposit are not remitted. We thank you in advance for your timely remittance.
The last thing an attorney, or client, wants is a withdrawal from representation due to nonpayment of fees. Any time that an attorney withdraws from representation, the attorney must be careful to not damage the interests of the client. Otherwise, the attorney may be subject to ethical rules violations.
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