Collecting the Professional Debt: Discretion with Aggression

Harry has been a client of your firm for several years. Eventually, you have come to regard him as a trusted client who promptly pays for services rendered. This morning he called you with an urgent message. It seems that he is involved in a large matter and your fees will go well beyond any amount previously billed to him by your firm. If you are successful, you know there will be funds available to cover your fees and costs, but you are not certain it will succeed.

While all businesses have credit extension concerns, professionals have factors to consider that require special considerations. The services of a lawyer, doctor, CPA, architect and other professional are unique and, once engaged, cannot generally be suddenly terminated. The savvy professional improves the chances of avoiding collection problems by conducting prudent credit checks like other businesses, even for existing clients who request more extensive credit.

Prevention

Additionally, the professional should candidly discuss the prospects of success in the enterprise, e.g. the risks of the medical procedure or the likelihood of reversal of the IRS ruling. Explain in detail the estimated fees and what factors can effect these charges. Do not forget to reveal expenses such as photocopies, travel, filing fees, investigations, subcontractors, etc. Tell the client how to keep the total bill down. Very importantly, tell the client when bills are expected to be paid. Not only will these types of explanations allow the client to budget, but it will avoid surprising the client with an unexpectedly large bill.

Do not assume that your client can afford your services. Ask for an upfront retainer even with a good credit history. Bills can be monthly, at project stages or other predetermined dates. For example, architects normally obtain a 5% retainer, 15% upon production of the schematic design, 20% upon detailed sketches drawn to scale, and so on with varying percentages due at specific phases of construction. Put the payment agreement in writing to avoid differing recollections.

Unless the matter is handled on a total contingency fee, the final bill should not be the majority of the account due. The final bill is the most difficult to collect, especially if the work is unsuccessful or the bill is unexpected.

Dunning the Client

When, despite your efforts, your receivables become delinquent, the part of the business that most professionals find disagreeable has to be undertaken. Most lawyers would rather argue before a jury than with a slow paying client. Furthermore, if you too vigorously emphasize prompt payment of bills, your client may feel you are more concerned about your fees than his case. Still a balance must be struck between a too-strident policy, at the cost of a lost client, and one that is too permissive, at the cost of profitability.

When it becomes necessary to go after a delinquent client, the question arises as to how the contact should be made and who in the firm should make it. A carefully edited letter, which is sent soon after payment is due, can be a good reminder. Relationships will not be damaged if regular, reasonable reminders are provided. In some cases a letter will not be sufficient and a telephone call must be made. A call from the professional handling the matter is not advisable because it can tarnish the working relationship and can be very awkward for the professional and the client. The bookkeeper or a secretary, whose duties are removed from the client, should place the call. As a final effort, an associate or partner should speak to the client about the implications of a failure to pay.

Firing the Client and the Fear of Counterclaim

Firing the nonpaying client creates a set of particular concerns to the professional.