CLIENT COMMUNICATION a Client Expectations

There is an old saying “A client does not care how much you know until he knows how much you care” – that points to the relationship side of the attorney / client interaction. A side that is so often overlooked or ignored by the attorney. Yet it is the relationship between the client and attorney that will set the tone and determine the level of success with that client for the duration of the association with the firm. Clients typically only have an involvement with the law once or twice in their lives; they really don’t understand the process the lawyer lives with on a daily basis. That is why it is so important to establish a clear line of communication with the client. The client has four basic needs: they want to tell their story, they want to be listened to, they want to know that they have come to the right place, and they want their problem solved. Once the client feels that you can meet these needs, he also wants to know how much it will cost him.

With as many choices as the client has for legal representation, he is naturally looking for the best service at the most cost effective price. It is the lawyer’s responsibility to communicate clearly if and how the firm can meet the client’s needs.

b. Firm Expectations

A successful attorney/client relationship is based on two-way communication. The attorney’s responsibility does not just consist of listening to the client’s needs, but also to express the firm’s needs and expectations of the client. In particular, when it comes to billing issues. During the initial client interview the attorney should

explain the firm’s process of handling the case. Who will be working on the case, at what billing rates, and how often will the client be billed. It may be helpful to show the client a sample bill to make sure the format and extent of detailed information meets the client’s needs. If the firm’s policy is to ask for a retainer, the client needs to know how the retainer will be applied to the charges, and whether or not he is responsible for replenishing the retainer. Equally important is to let the client know the firm’s expectation regarding payment of the bill. What are the firm’s payment terms? Will there be interest accruing on late payments? How does the firm handle fee disputes, etc.? In some firms someone other than the attorney, i.e. the business manager or bookkeeper, conveys this type of information to the client. This distinguishes the attorney as the legal service provider from the business side of the firm. However, regardless of the policy you adopt, the information must be given to the client before the case is accepted. The client needs to know, and has a right to know, all aspects of the relationship before he hires the firm. This will also contribute to payment by the client according to firm expectations.

c. Internal Procedures for Communication

Internal procedures must be established to handle ongoing communication with the client. From the first office visit by the client a process should be in place about what type of information to obtain from the client and how, i.e. by way of ‘intake form’ or ‘client information sheet’ or a personal interview. Secondly, there should be a process for providing the client with information about the firm, i.e. a firm brochure or resume. Once the client has hired the firm and the firm has accepted the case, each client should be treated as if he was the only client in the firm! Following are a few examples of how to accomplish that:

1. Return phone calls promptly – your internal systems should be able to identify

which calls must be returned by the attorney and which calls can be answered by someone else.

2. Make sure your clients know your staff, and your staff knows your clients. This

will prevent the client from insisting on speaking to the attorney if he knows that your staff is part of your team.

3. Create a regular flow of information to the client. You can do this by sending

copies of everything to the client, use your invoice as a status report if you bill on a regular basis, or send out a separate status report – even if nothing is happening in the case at the time.

4. Ask the client for feedback. Your internal systems may include a tickler to remind

you at certain intervals of the case to get client feedback and input. This will include the client as a ‘team member’ and will make him feel more in control of his own case, and give him a better understanding of the legal system.

5. Under promise and over deliver. Be realistic in forecasting your work. Your

internal systems should give you reliable information about deadlines and commitments already booked, so that you can give the client a good estimate as to when the work can be completed. Don’t promise something ‘to make the sale’ and then find yourself unable to deliver. It makes a much better impression on the client if circumstances are explained honestly and then the work is delivered when promised or even before!

d. Fee Agreements

When all the necessary information has been shared to make the hiring / accepting decision, all terms of the agreement should be reduced to written form. The written agreement should explain all charges to be made and the need for timely payment by the client.

III.

FEE STRUCTURE

a. Market Analysis / Observations

In order to price your services competitively you must know what the market around you is doing. That does not mean that you need to fall in step with every one else, it simply means that you should be aware of what similar services are priced at in your market. It is just one part of the billing rate equation. Additional sources of billing information may be your local bar association as well as other professional organizations.

b. Firm Financial Needs

Regardless of what other firms are charging, you must look at your own financial needs as the second and equally important part of your billing rate equation. What does it cost you to provide one hour of service? What does it cost you to keep the doors open per hour? Your overhead expenses may be very different from the firm down the street. Does that mean your billing rates should / could be different? When you examine the firm’s financial needs, also keep in mind any upcoming expenditure, i.e. computer upgrades, other equipment acquisitions, new furniture, planned expansion, etc. You will find a sample fee calculation formula under d. Setting Fees.

c. Clients’ Ability to Pay

When establishing your fee schedule a number of variables must be taken into consideration: the market, your own needs, and the client’s ability to pay. Economic downturns can have a devastating affect on your own firm as well as your clients’ business. If your research shows that your client’s business is about to be impacted by an economic or other event, which will render him unable to pay your bills, your overall fee structure may need reviewing to work with the client through this down time. The key is to seek a balance in your cash flow sufficient to meet your firm’s needs and continue to serve your clients. The best way to accomplish that is to keep informed, have a good communication system with the client, and engage in advance planning.

d. Setting Fees.

Today’s market and increased client sophistication when selecting legal services are making it necessary to carefully evaluate billing practices. Whether you prefer task based billing, value billing, hourly billing or other alternative billing methods, it is crucial to know what the cost of each billable hour is. Only after you have determined the cost of each billable hour, will you be able to

structure your fee arrangements. Your calculations will show you where your break-even point is, as well as what your profit margin is.

Following is a sample formula (by Jay Foonberg, author of How to Start and

Build a Law Practice) you can use to determine the cost per available hour. This

formula is for a solo practitioner with a monthly salary of $5,000, and a secretary at $2,000 per month. The office rent is estimated at $2,500, a part time runner/clerk at $500 and taxes, insurance, supplies, etc. at a total of $2,600 per month. This formula may be adjusted for groups:

Total monthly expenses: $12,600.00

Less attorney’s salary $ 5,000.00

Overhead costs: $ 7,600.00

Divided by available hours (160)

Overhead cost per available hours $ 47.50

Plus attorney’s rate (5000:160) $ 31.25

Total cost per available hour: $ 78.75

This calculation results in a cost of $78.75 per available hour. If you billed your time at $78.75 and billed 40 hours per week, and your fixed and variable expenses were the same as in the above example, you would be at break-even. Any billing above $78.75 would result in profit. The danger in this analysis is that it makes no allowance for billing adjustments, such as write-downs or write-offs, nor billing at less than full time each week.

Therefore, while it is absolutely necessary to know the cost of each billable hour, you must take the collectibility variables into consideration when setting your fee.

e. Disbursements Recovery Policies

Some firms establish a policy whereby the firm will advance client expenses such as filing fees, court costs, court reporters, expert witnesses, process servers, etc. up to a certain dollar amount and then bill it to the client. The witness, the court reporter, or any other third party will bill anything in excess of this dollar amount directly to the client. Other firms have policies where no expenses will be advanced, instead the client will be asked to pay a certain amount of money up front to cover anticipated third party expenses. What ever your policy may be you need to take these situations into consideration when making your financial projections.

f. Discounting Fees

I have yet to meet an attorney who has not discounted his fees for whatever reason. May that be as a favor to a friend, neighbor, family member, or simply a client who cannot afford the regular fee. I am in no way advocating changing this. However, in planning for financial success I am strongly suggesting that you keep track of discounted fees. When you practice the exercise above to determine what

your cost per hour is to deliver legal services, you know how far you can discount your fees before jeopardizing the economic health of your practice. For example if your per hour cost is $80 and your regular billing rate is $125, your profit margin is $45 per hour. This is the range in which you can discount. Of course I must cautiously point out that you should also calculate your realization rate to know what your effective billing rate is and you will find that the profit margin shrinks somewhat. For example: Total dollars collected per month divided by the number of hours billed per month results in the effective billing rate. Take that rate and compare it to your per hour cost and you will have a more realistic profit margin.

Your internal accounting system should be able to give you this information on a regular basis so that you can make the appropriate management decisions on a day-by-day basis. Without this knowledge you will still discount your fees, but how do you know what kind of discounts you can give before you find yourself taking shortcuts in the services you provide.

g. Collecting Fees

According to Jay Foonberg, the author of ‘How to Start and Build Your Law Practice’ “ if a client doesn’t have the money up front to hire you, he won’t have it after you have done the work either”. Therefore, his motto is “Cash Up Front!” For all the other lawyers who have accounts receivable to collect, here are some suggestions:

1. Have a clear fee agreement that is signed by the client and the lawyer.

2. Bill clearly, accurately and regularly.

3. Try to get retainer fees in advance.

4. Stay on top of your accounts receivable.

5. Have form letters in place for quick mail out when necessary.

6. Be aware of slow down in payments that may signal future problems with

collections.

7. Develop script for someone other than the lawyer to use when making

collection calls.

8. Offer discounts before writing them off completely.

9. Remember that a lawsuit for the collection of outstanding legal fees may

invite a complaint or even a malpractice claim.

h. Accounts Receivable

If you are using an automated time and billing system, chances are very good that you have a built-in aged accounts receivable schedule. Be sure to print it out after each billing cycle and review it carefully. You may have various options for the format of the print out, i.e. names only or names with addresses and phone numbers. The latter makes it easier to initiate contact at the time of review. You may also want to check your software program to see if it has automatic reminder letters. Some applications have form letters already as a part of the system. Review them and add your own touches as needed. The advantage of these form letters is that you might be able to tell the system that you want letter No. 1 generated for every one in the 30-day column, or letter No. 2 for

every one in the 60-day column, etc. You can substantially minimize your collection problems by staying on top of your accounts receivable. This means that if your payment terms are ‘Upon Receipt’, and your accounts receivable schedule shows someone in the 30-day column, that is the time to pick up the phone. The client may not have received the invoice but is ready to pay as soon as you fax him a copy. The client may have a question about one item on the bill, but hasn’t had the time to call yet. Answer the question and ask when you might expect payment. If you do not follow up on a regular basis, the item will move another column to the right and in doing so will become increasingly harder to collect. Uncollected accounts receivable affect your realization rate. To become financially successful means to be in control of your practice. That includes working the accounts receivable. If you as the lawyer are not comfortable with this task yourself, hire someone on a part time basis – once a month – to make the collection calls and keep your accounts receivable manageable.