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Collections for Deadbeat Clients

So, our retainer slash attorney-client agreement takes great pains to specify that we're a small organization operating on a charitable/non-profit basis, that we offer significant discounts on market-rate, etc. etc. Part of the agreement also explains that we depend almost entirely on client fees in order to continue that charitable mission, and that if bills become past-due to a certain point late fees will apply, we may withdraw representation, and that if they're past-due by more than 90 days AND no attempt has been made to make a payment arrangement, we reserve the right to send their account to collections.

So, after a year of operations this is coming up for the first time, where we have a few clients that owe us amounts which are significant to us at this small/early stage (500-1,000 dollars each) and where the clients have made it clear through unresponsiveness and avoidance that they have no intention of paying us.

As I said, the informed consent of the client in writing has been established, but I was wondering 1) if anyone has experience with the possible ethical issues in sending a client account to a collections agency and 2) If anyone has any experience with collections agencies and can recommend how to find one

Comments

  • samgloversamglover Minneapolis, MN Admin
    edited October 2016

    Disclaimer: I used to sue debt collectors, so I suppose I have a rather one-sided few of them.

    The only time I would use a debt collector is if I had sued another collector, won or settled the case, and they weren't paying up. Serves them right. Otherwise, I would never send a debt collector after a client, deadbeat or not.

    Instead, write off the loss and use it to help you figure out how to avoid getting clients like that in the future.

  • paulspitzpaulspitz Cincinnati, OH ✭✭

    I agree with Sam - and I've also heard that suing a client for unpaid legal bills is pretty much a guarantee that they will retaliate with a disciplinary/malpractice claim.

    So how do you protect yourself going forward? First, get retainers from your clients, and bill against the retainer. The client that doesn't want to give you a retainer is the client that doesn't want to pay his bill when it comes. Remember that.

    Second, once the retainer is gone, get the client to replenish it. Include evergreen language in your engagement agreement if it isn't already there. But beyond asking the client to replenish the retainer, STOP WORKING until they do, and let the client know that.

    Third, consider getting the client to sign a credit card pre-authorization, so that you can just charge their credit card to ensure that your invoices are paid. Your credit card processor should be able to provide you with a good form. I use LawPay, and they just sent out a really good form that I'll be using.

  • samgloversamglover Minneapolis, MN Admin

    I realize you have a non-profit firm focused on low-income clients, @Jamie Sutton, but I think you either have to be a hardass about your payment terms or you have to get paid up front.

  • If they can't pay you up front, they can wait to hire you until they can pay you later. If they can't wait, they can find some other source of credit, but I'm not set up to make responsible lending decisions, and you probably aren't either. And ultimately, if they can't afford the rate, no matter how reduced it is, you're not doing them a favor by representing them now and sending debt collectors after them later. That is not a charitable arrangement. It may feel charitable on your end, but it certainly isn't on theirs.

  • Catherine StaffordCatherine Stafford Bloomington, Indiana

    Evergreen. All the way. And I don't recommend stopping work, but withdrawing when they don't replenish. I think it could be unethical to be on the case but to not be working on it.

  • Catherine StaffordCatherine Stafford Bloomington, Indiana

    p.s. Jamie, I sue nonpaying clients, but rarely. And only if the client is not a nut job and I feel VERY confident that the case went well and I did a great job and I'm not risking malpractice exposure. Our local judges (I'm in Jamie's county) will often want you to provide a full bill to sue, which is a different ethical problem for many of us with detailed bills that include work product that is subject to confidentiality. I wouldn't want a bill with our strategy and my former client's secrets part of public record in a small claims case.

  • @Everyone - Yeah, more or less what I suspected the consensus will be. It's just so irritating seeing those unpaid invoices. The thing is, this is not our client's who are at the lowest incomes and ability to pay. The clients that are at the absolute bottom of our sliding scale, they will scrape pennies off their car floor to pay us. The clients that are at the very top of our scale and make twice as much as our poorest clients and have more than enough ability to pay, they are the ones stiffing us. Which just seems to somehow make it more insulting.

    We do require a full retainer of 10 hours upfront, and for most of our cases that's enough, but we all know occasionally things happen and cases scrape on longer than anyone expected. And we do have evergreen provisions and make payment arrangements with people. We've even taken 50-75 a paycheck for months until a bill is paid off. So it's not a matter of flexibility or ability of the client to pay - again we're not getting stiffed because the client can't afford it, we're getting stiffed because they don't want to pay us.

    @Catherine Stafford specifically - Hi! How do you handle the 10-day requirement? That's the BIGGEST part of this problem in my opinion, is that our jurisdiction requires a minimum of a 10-day notice letter before we're allowed to withdraw, and often at the point in the case where the retainer has run out and they're starting to owe us money, it's too late for us to be able to do that and withdraw before a hearing. The only alternative my board has come up with, which we hate, is to issue 10-day notice letters that we're going to withdraw from the case more or less IMMEDIATELY upon non-payment of an invoice, basically a zero day grace period.

    As an aside, it sounds like you're including way too much detail in your bills? Do you find that to have been helpful in your practice? We try to provide robust descriptions, but more along the lines of 'dicussed trial strategy with client' ,'interviewed witness A".... never more than a sentence's worth, and certainly never any information that would be specific enough to be considered work product

  • Catherine StaffordCatherine Stafford Bloomington, Indiana

    We handle the 10 day notice by using evergreen trust deposits. Our initial trust deposit is 3k to 10k, depending on complexity of the case. Clients must keep half of that initial amount in trust at all times. If they get to half and don't replenish, we give a 10 day notice. Most pay within the ten days. If they don't, we move to withdraw. It gets us out prior to the day/week before a hearing, when the client has time to find a new attorney and we can actually get a judge to sign an Order to Withdraw.

    I don't want to reduce detail on client bills--they love the detail and it helps get my bills paid. But, I do a summary of the bill and invite the client to either stipulate to the amount due or to consent to the detailed tickets being submitted. Usually the client stipulates as they aren't actually contesting the amount due.

  • I don't know how germane this is but I have a little box which has three pieces of paper in it.
    One says "cheap", one says "fast", and one says "done right". When I get a new client who wants all three, I pull out the box and tell the client they get to pick one. They won't get the two they didn't pick. I tell them what they want [all three] does not come in the same box.
    Sometimes the light goes on. When it doesn't, I politely refer the client somewhere else. This cuts my receivables way down.

  • @Denis Jodis Wow, you're being stingy there - I've always seen people say you can have any two, but not all three.

  • DLCDLC San Francisco Bay Area

    It may be time consuming, but I wouldn't give up on the old receivables until you are forced to especially if you know they can pay. If you have a secretary or clerk who can call all of the old receivables once a month or write letters or in some way, keep telling the client you aren't giving up, it may be worth it. It took me a year to collect an old receivable connected to an attorney who left the firm, but I just kept calling and resending the bill until it was paid. They got tired of hearing from me. It may be something a VA can do for you. You can include the threat of collections.

  • If you can make it through the growing pains of the first couple years, the billing/collections problems should be alleviated as experience will lead you to more accurate client/matter assessments and as a larger base of paying clients cushion the negative impact of the delinquent payers.

    I also second DLC. I sometimes take on cases (particularly detained immigrants) where there might be many more hours of work done immediately than the client can pay for in a month. Satisfied clients will find a way to get it together, but often not for a year. Send the bills and make the calls and remind them of what you have achieved.

    That said, if the outcome was not in client's favor, you may never get the balance. So pick you cases and structure your payment schedules wisely.

  • nofearnofear New Jersey

    My take on all of this is once I started taking credit cards I avoided many deadbeat clients. You simply make sure charge enough up front to protect your interest. After many invoices to collect the balance if they client is ignoring you can withdraw if allowed. If you need to do a motion to withdraw you do it. Even if the judge does not let you out of the case the client now knows that in reality you are not on their side. They will certainly find a new lawyer and save you plenty of aggravation.

  • @nofear said:
    Even if the judge does not let you out of the case the client now knows that in reality you are not on their side.

    Well that's not something we should get behind.

  • nofearnofear New Jersey

    @adam Lilly
    What actually happens is that the client takes you seriously and will usually move on or figure out how to pay you. My point is that most of the non-payment issues come down to the clients not respecting the lawyer. When you do nothing you are always the "last bill" they need to pay. Before you know it you are the doormat attorney getting burnt out and not really getting paid. Like I said, from my experience, taking credit cards and being willing to take some adversarial action against clients pays off in the long run. It is a situation where we often overthink these issues. The client has not paid you and they know it. It is theft. If any deadbeat client tries to ruin your career with any "so called" ethical action YOU ARE THE LAWYER. Fight that client tooth and nail so that the person knows that you are not a softy. Lawyers sometimes forget that the deadbeat clients will tell other people that you are a softy and they will come to you thinking that they can get away with not paying you. At the end of the day, the rules of ethics do not say I have to be a slave.

  • WhitneybStoutWhitneybStout Florence, SC
    edited December 2016

    @Jamie Sutton I am a small solo practitioner with the same problem. The other issue I have is that a lot of my clients are undocumented immigrations so the threat of collections or small claims has absolutely no effect as many have no credit.

    Have you looked into "Fundbox." That has worked well for some people. The only problem is that they pay you the invoice price, then you have to pay them back as you collect. So it helps with cash flow, but you have to be confident you will eventually see the funds or you'll just be in debt.

  • @nofear I'm not suggesting becoming a doormat - I'm saying get paid up front. But regardless of how you want to interpret the ethics rules, I'm pretty sure every state requires that you be on your client's side whether you've been paid or not. I've read plenty of disciplinary decisions (that I've agreed with) regarding lawyers who share the sentiments you've expressed. Though I have no hope of changing your mind - you do you - I thought a disavowal of your position was warranted.

  • It has taken me some time but I have a handful of solutions to dealing with deadbeats.

    First, market more and keep your pipeline full. That way you won't take a case that might have sketchy payment issues.

    Second, accept credit cards and/or ACH drafts. I started with lawpay.com and if the client can't pay some via credit card, maybe I shouldn't be their lawyer.

    Third, use the "last month" retainer. I used to bill from the retainer but I was still getting stuck with deadbeats. I modified my plan to ask for a retainer that was in the amount of two months of billable work. And I would hold that till then end and bill monthly. If the client stiffed me on the first bill, half of that retainer would or could cover it and I would send my 30 day discontinue letter and rebill. If they didn't pay and I had to do more work, the remaining half of the retainer covered it and I withdrew. This method has worked excellent for me.]

    Fourth, project-based or milestone-based billings are a great way to keep things on the plus side. I often bill appeals on a flat-rate basis broken down into milestone payments. If an appeal is 15k for example, half is required up front and half before the brief is filed. If you don't pay, I don't file the brief and I withdraw. (of course I'd move for an extension of time).

    Good luck.

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