Law firms that discount or write off legal fees prior to invoicing clients, also tend to also have more past due clients.
That was one of the most interesting findings from a cross-tab analysis stemming from a law firm billing survey published late last week. The chart published nearby compares the percentage of past due accounts between law firms that said they “never” discount legal fees and those that said they do so “often.”
“I can’t say I’m all that surprised that there is a correlation between discounting and collections,” said Heidi S. Alexander, Esq., a law practice advisor with the Massachusetts Law Office Management Assistance Program (LOMAP). “We see all too many clients who do free consults, offer discounts, or don’t collect fees upfront, and suffer in the end.”
The Message Discounting Sends
The survey also found, perhaps unsurprisingly, that the single largest reason clients fall behind on legal fees is financial challenges. For many law firms, discounting is an act of compassion – 29% reported discounting legal fees in an effort to bring an account into good standing. Some experts say discounting past due accounts sends a message – a reward of sorts for those shaky accounts that encourages past due clients to ask continued discounts.
In an earlier episode of the Un-Billable Hour, a podcast on invoicing and collections by the Legal Talk Network, the panelists noted, “There’s an old saying that the best way to handle a client that is behind on legal fees is to double the retainer.”
Register to download a LexisNexis white paper:
Seven Secrets to Climbing out of the Underearning Rut
Client Selection as the First Step
The survey also found that while most law firms own integrated and billing software, there may be client analysis features that go unused. Just 17% of law firms say they conduct root cause analysis to look for trends and themes among habitually late paying clients. Yet that information could provide insights into the profile of ideal clients – and the profile of clients to avoid.
“Collections begin with client selection,” says Mass LOMAP’s Ms. Alexander. “My first piece of advice to attorneys struggling to collect fees is to review and revamp their client selection process, making sure they do their due diligence before accepting a new client.”
“A good client will not be looking for discounts and write-offs. Beginning a relationship with a free consult or discounting bills gives the wrong impression to clients – that the value of your services are not worth what you charge. It’s no wonder a client then doesn’t feel the need to pay. Attorneys must define and demonstrate their value proposition to clients. And, this all starts with selecting the right client.”
If you enjoyed this post, you might also like:
Top 10 Law Firm Collections Challenges and How to Solve Them