A wise woman once told me, “[Account] collection is the lifeline of a small firm.” It doesn’t matter how large the accounts receivable are, if they aren’t collected, they turn into bad debt at year-end. Today I’d like to share  tips for small law firms on better collection on accounts receivable.

On Retainer Money

• It’s easier to get money before the work starts. Get some money before you go on the record or dive into jurisprudence analysis.

• Rather than asking for a large lump-sum retainer, try to arrange small but frequent payments into the trust account by pre-authorized credit card payments or post-dated cheques. (Not recommended for new clients.)

• Give your clients adequate notice when the retainer money is running low, or the unbilled fees are approaching the amount held in trust, so they can arrange their cash flow accordingly.

On Billing

• Bill frequently. Rather than sending out a massive bill every three months, give clients smaller, more manageable bills every few weeks. This way, your bill doesn’t come as a disruption to the client’s cash flow.

• Be clear on how the fees are calculated. If you charge a block fee, be clear about what’s included and what’s not. If you charge by the hour, tell clients that revisions, correspondences and telephones all cost money. This reduces the risk of post-bill confrontations, which tend to lessen the chances of full collection.

On Accounts Receivable

• Offer payment plans, including installment payments and postdated cheques. Unless your firm is strained financially, the point is to collect the full amount at some point, rather than not collecting at all. If the client can’t pay the entire amount at once, ask for a few postdated cheques in manageable amounts.

• Accept credit card payments. It’s a fact of life in the 21st century that people no longer keep large cash reserves – there are bills to pay, investments to make. With credit card payments, – you receive the funds in your account (less processing fees) upon daily settlement. Even if clients are in financial distress at the time of payment, they can sort out the balance with the credit card company in the future. (Make sure you document the authorization properly to avoid future disputes, though.)

• Charge interest. The point is not to make money off the interest accrued. It’s to create a sense of urgency that the bill will only grow larger if it’s left unpaid. However, it’s important to keep in mind that under the Solicitor Act,* lawyers may only collect interests at the prescribed rate with their client’s consent.

The article above will appear in the newsletter of Ontario Bar Association, Solo and Small Firm Section, winter 2009.

*R.S.O. 1990 c. S.15

Please Note: This article is provided for information and educational purposes and is protected by copyright. It does not constitute legal advice and should not be regarded as such. Regulation referred to may have been amended or repealed since the publication of the article.