Law Practice Management Class 9 Billing Billing Essentials

Law Practice Management Class #9 Billing

Billing Essentials • • Fee Contract Fee Sharing Setting Fees Credit Card Payments Creating and Sending Invoices Keeping Clients Satisfied Withdrawing for Non-Payment Handling Client Costs

Fee contract • • • Must be in writing Define the matter involved Amount of the fee – if non-refundable, cite the relevant ethical requirements • • • Payment terms What the fee covers What the fee does not cover

Fee contract (cont. ) • • Out-of-Pocket costs Right to terminate services Client signature on agreement Many other possible clauses – See Foonberg, pp 255 -260 for examples

Private Practice FL Attorneys Using Written Fee Agreements

Non-engagement/disengagement • Need contact info for all potential clients – Name, mailing address (street address preferred), email address, fax number • Confirm in writing if you will not be taking case • Confirm in writing when representation is completed – Useful to trigger running of statute of limitation on possible malpractice action

Non-engagement letter • Protects both lawyer and non-client • Important because you can be responsible for both malpractice and ethics violations for even minimal contact: – No money asked for or received – Single telephone consultation – Casual conversation with friend or relative – Pro bono consultation or bar assoc project – Response to email inquiry

Content of non-engagement letter • • Specify nature of contact(s) with non-client Refer to the nature of the matter discussed Give a reason why you are not taking the case Don’t give advice on statute of limitation problems • Encourage non-client to seek advice from other lawyers (include number of local lawyer referral service) • Return client papers (and mention that in letter) • Make it clear that you are not taking case and will take no further action

Fee Sharing • Division of Fee – Usually requires some sharing of work and responsibility • Referral Fee – Generally no requirement of shared work or responsibility • Sharing Fees with Non-Lawyers Prohibited – Except bonus plans within firms – Out-of-jurisdiction lawyers are often deemed non-lawyers

General conditions for fee sharing • Fee must be no higher than if only one lawyer were being compensated • Client must be notified in writing or consent in writing to the fee sharing arrangement

FL rule on fee division • Rule 4 -1. 5(G) – Division between lawyers in different firms must be: • Proportionate to the services performed by each lawyer • With client’s written consent

FL rule on referral fees • Rule 4 -1. 5(F) – 25% referral fee permitted in personal injury cases – Must be a written agreement to assume joint responsibility and be available for consultation – Can’t collect referral fee if you referred the matter out due to your own conflict of interest

Setting type and amount of fees • Easy to make a mistake, must learn from those mistakes • Read surveys on law office economics sponsored by local or state bar associations • Talk to other lawyers in your community and/or doing similar work

Some clients are willing to pay more for good advice – others not

Types of Fees • Hourly – remains most common • Contingent fee – mainstay in personal injury work • Flat or fixed fee – becoming more popular • Value – also increasing in popularity, may include bonus for good result • Blended – combining one or all of above

Primary Billing Method for FL Firms 2012 Survey

Hourly fees • May not be appropriate for brand new lawyers – Hours devoted in first few cases will be high as you learn, then drop with each successive case – High hourly rates can scare away working class clients who want to know what the cap will be

FL hourly rates 2012 survey

Breakdown of hourly rates 2012 Survey

Comparison of hourly rates 2010 to 2012 Survey

Hourly Rates by Region 2012 Survey

Billable hours 2012 Survey

Private Practice Attorneys Who Keep Time Records (%)

Attorney Salaries 2012 Survey

Salary Trends 2012 compared with prior surveys

Contingent fees • Know state limitations on percentage – See FL Rule 4 -1. 5 which specifies varying % depending on: • Stage proceedings at which case is settled or resolved • Amount of recovery • Contingent fees prohibited in some practice areas such as criminal and domestic relations

Contingent Fees % of Firm’s Cases Handled on Contingency

Contingent Fees Prohibited – FL Rule 4 -1. 5(f)(3) says that a lawyer shall not enter into an arrangement for, charge, or collect: • (A) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony or support, or property settlement in lieu thereof; or • (B) a contingent fee for representing a defendant in a criminal case.

Flat or Fixed Fees Foonberg calls them “lump sum” • Fixed fee no matter how much or how little work is done – More common in criminal and domestic relations – Many clients like to know that they have a fixed fee – Starting to penetrate into business and commercial law firms • Fixed range of fees with a minimum and a maximum

Value Billing • Lawyer and the client determine the fee together – Focus on client needs, wants, expectations, and values – Focus not on lawyer’s time or specific services provided – Must define scope of the engagement, the results the client wants to accomplish, and establish value with the client up front • The fee, or a substantial portion of it, is paid up front

Bonuses • Fees related to results – Increase fee for unusually good result – Reduce fee for unexpectedly bad result • Requires client’s agreement in advance • FL does not permit result-based fees in domestic relations, but other states do

Consultation charges? • Foonberg does not – Thinks it creates wrong impression – Lawyers concerned only about money • I did (in my trial court divorce practice) – Clients don’t appreciate what is free – Consumes otherwise billable time (assuming you have a full case load) – Small compensation for being conflicted out of representing other party

Unbundling legal work • Report by Florida Bar on 2003 rule for unbundling of legal services in family law cases (860 So 2 d 394) • Florida Family Law Rule of Procedure 12. 040 permits limited appearances for only specific matters or proceedings in family law matters • Designed to make legal services more available and affordable

Quoting fees • Don’t quote fees over phone or by email • Don’t give legal advice over the phone or by email • Get potential client into the office – Impress them over phone only enough to get them to come in – Save your efforts to impress for the face-toface consultation

Fee “bedside manner” • Be firm • Use phrases such as “my standard fee in matters like this” to instill confidence • Don’t ask client what the fee should be • Distinguish between uncertainty in the final amount of the fee and uncertainty n the manner of setting the fee • Don’t back down • Don’t be swayed by client reports of what other lawyers are charging

Fee “bedside manner” (cont) • Don’t reduce fee on promise of future referrals (they never materialize from clients who use this tactic) • Discuss fees at initial conference • Use “ 5” in quoting fees (i. e. $195 rather than $200 per hour) • Suggest the client borrow the funds or use a credit card to pay fee

Cash up front Foonberg’s rule • Client who won’t pay cash up front likely won’t pay later • Your choice – Do the work and not get paid – Don’t do the work and not get paid • Hint: The latter is better for you • You, not the client, should decide when you do pro bono work

FL Lawyer Receivables

Getting the cash • Consider “evergreen” retainers – Client expected to keep a certain balance in trust account to be used for costs/fees – Time/billing software can make this easy to manage • • Make it clear to clients that you are not a banker Let them find another source for financing the fees • Always discuss fees at the initial meeting – Clients need the relatively certainty of knowing what the legal services will cost

Handling cash fees payments • Call in a staff person to count the money and give receipt to client • Deposit the cash intact in the bank, with the deposit ticket indicating the source of the fee • Make sure the client knows that cash payments are recorded in your books and will be reported on your tax return • May need to report to IRS large cash* payment (over $10, 000 in single or series of transactions) on Form 8300 *includes cashier’s checks in some circumstances, money orders, etc.

Alternative fee/billing arrangements • Credit cards • Client borrows – from family, friends, financial institutions, credit card cash advances, etc. • • • Client refinances assets Client sells assets You offer a contingent fee arrangement – Whole, or in part

Alternative fee/billing arrangements (cont. ) • Sharing work with client – Outsourcing clerical or other work • Flat or fixed fee • Outsourcing some work to lower-priced persons – Law students, underemployed lawyers, etc. • Matching payments to client cash flow (installment payments)

Credit card payments • No longer considered unprofessional – Florida Bar Approved Credit Card Processing (Law. Pay) • New lawyers should be especially eager to accept credit card payments • Look for state or local credit card merchant arrangements or ISO’s (Independent Service Organization) • Client paid for honeymoon trip to Hawaii with second wife from miles earned using credit card to pay fees in divorce from his first wife

Credit Card Requirements • LOMAS article on requirements: – No commingling of client and firm funds • Requires multiple Merchant Service Accounts (MSA’s) – One tied to General or Operating account – Another tied to Trust (IOTA) account – Firm must absorb merchant fees or “discounts” charged by merchant service provider – can’t charge back to client

Credit card options • Web-based – Pay. Pal – works, but fees are on high side – Virtual Payments Systems (formerly e. Pay. Ops) – client pays “convenience fee” for using system • Integrated with software – PCLaw – time/billing/accounting software includes credit card processing • Traditional merchant accounts (swipe terminal) – Bar-approved member benefit (Law. Pay) – Independent services for lawyers • Chard. Net – Your bank

• Mobile Credit card options – Pay. Pal Here – Square – Intuit Go. Payment

FL Lawyers Accepting Credit Cards

Preparing invoices • List every document you prepared or reviewed • Include all drafts and revisions • Vary wording for similar service to avoid client mistakenly thinking you are doublecharging for same work • List dates, services, and time in detail (depending on client needs/desires)

Preparing invoices (cont. ) • Clients hate being billed for telephone calls – Include something tangible that resulted from call, such as a letter or memo (which should be sent memorializing every call – even if by email only) • Make reference to court and case number in litigation billings – Clients know litigation is expensive • Proofread carefully – Invoice errors (accounting and grammar) create bad impression, clients then doubt accuracy of entire bill

Preparing invoices (cont. ) • Ask clients where they want bills sent • Ask clients how much detail they want – Some prefer simply “Professional Services Rendered” with detail in separate document – Bills often not within attorney-client privilege, so may not want to tip off other side concerning strategy – Redact (black-out) description of legal services rendered if you must produce invoices in discovery process or a fee request

FL Private Practice Attorneys What is Included on Invoice?

Billing frequency • Bill at least monthly – Need constant cash flow to pay your bills – Serves as a status report to client on what has (or hasn’t) been done on case – Tells you early in representation which clients cannot or will not pay so you can alter fee arrangement or withdraw • Consider billing one-quarter of clients each week • For problem-pay clients (or if client requests it), may want to bill weekly or twice/month

Final billing • Final bill often large due to amount of work needed to conclude matter • Get it out immediately – Client is about to pay or receive a large amount of money – be first in line either way – Clients “curve of gratitude” will decline quickly after case is done. See Foonberg, p 309

Client’s Curve of Gratitude

Making clients happy to pay the bill • Foonberg’s rule #1: Bombard clients with paper (or emails if client is tech savvy) – Get an “FYI – No reply necessary” stamp or create standard enclosure letter or card • Foonberg’s rule #2: “cc” means “client copy”

Attorney-Client Disconnect • What you think you are selling isn’t what clients think they are buying – You may think you are selling your advice and counsel – Clients think you are selling a product (paperwork) • Client who gripes about $35 telephone call charge will gladly pay $95 for letter that memorializes info from that call

Key to client satisfaction (and prompt payment) • Related to how well client thought he/she was informed about pending matters • ABA survey – 84% of satisfied clients say lawyer kept them well-informed – 66% of dissatisfied clients say lawyer failed to keep them well-informed.

Leverage keeping current on the law into dollars for your practice • If you find something (new case, statute, article) that will help a current or former client, let them know • Foonberg thinks snail makes a better impression for this type of communication, but may depend on client

Withdrawing for non-payment • Don’t let a drowning client take you under too • Psychologically hard to zealously represent client who isn’t paying • Get out as soon as a client gives indication that she/he will not live up to fee agreement

Rule governing withdrawal for nonpayment • FL Rule 4 -1. 6(b) says a lawyer may withdraw from representing a client if: – (3) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled; – (4) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client

How to withdraw • Cleanly and honestly • Sufficient advance warning to client in writing • Letters serve as basis of motion to withdraw

Client costs • Don’t go broke advancing client costs • Have client pay estimated costs in advance (into trust until used) • May need to ask experienced lawyer what costs to expect for certain types of cases • If case is meritorious, but neither you nor client can afford to advance costs, consider referral and accepting lesser fee

Typical client costs • Litigation – Filing fees – Police reports – Court reporter appearance and transcript fees – Medical examinations – Investigators – Expert witnesses – Lay witnesses – Process servers

Typical client costs (cont. ) • Business – Advance payment of franchise fees – Taxes – Filing fees for administrative agencies – Permit fees – Transfer taxes – Recording costs – Travel – Title searches