Chasing after unpaid client accounts can be a huge headache—many solo and small firm practitioners consider it one of the most challenging aspects of running a firm.
The best way to avoid collection problems in the first place? “Get a sufficient retainer ahead of time so that you’re not chasing clients for money,” says Cambridge, Ont., sole practitioner Mark Silverthorn. By doing that, lawyers “may get 10 per cent fewer clients but they’re going to eliminate virtually all of their accounts-receivable problems.”
Request retainers for different phases of client work, says Silverthorn, who has worked for some of the largest collection agencies in Canada. Each phase would require an additional retainer and inform the client that “work will not start on these subsequent phases until a satisfactory retainer has been provided.”
Ask a potential client if they’ve met with any other lawyers about their issue. If you’re the fourth lawyer they’ve talked to and the other ones weren’t too keen on working with them, you might want to think twice about taking them on as a client, says Or Regev at Hobbs Giroday in Vancouver.
Collect as much information about a new client as possible, including where they live, work and what type of job they have. Some clients will ask a lawyer to take a file on a contingency basis because they don’t have enough money to pay up front. That doesn’t necessarily mean you won’t get paid, but it does let you know they don’t have a lot of money.
Ask for the first payment to be made by cheque. “Then you have their banking information,” says Regev. “That’s important because if you want to garnish their account, you need to know where their bank account is located.”
Set expectations about the billing process as soon as a client retains you, advises Chuck Merovitz, the managing partner of Merovitz Potechin in Ottawa, who says the retainer is essentially his guarantee that he’s ultimately going to get paid. He makes it clear to his clients that in addition to the retainer, they will be billed on a regular basis for remaining work. Still, he adds, “we never estimate correctly, so there’s inevitably some money that’s outstanding.”
Don’t wait too long to collect an outstanding debt since the longer it’s put off, the less likely it is to be paid. Use a computer program that provides alerts when invoices are 30, 60 and 90 days old but start collection attempts earlier rather than later. Send the client an email after 30 days as a reminder or simply pick up the phone and call. As Merovitz says, phoning clients about unpaid bills provides an excellent opportunity to connect with them, and a simple call can sometimes clear up any problems or questions they have with the bill.
Persistence pays
Be persistent. If an account is still unpaid after a call or an email, follow up with a letter. Make a note of every call and notice that’s sent and ensure that the client’s acknowledgment of the debt and commitment to pay are in writing.
The most important part is to keep trying, says Merovitz. “If an account is outstanding for too long, then not only might you not collect that account, but you’re going to lose a client too. They’re not going to come back to you, they’re probably going to be embarrassed to refer people to you. It’s really bad for business to have uncollectable accounts.”
Determine whether a client “can’t pay” or “won’t pay,” says Merovitz. “If it’s a reasonable person, they’ll tell you if they can’t pay and why they can’t pay.” If the client is of the “can’t pay” variety, get post-dated cheques from them, he says.
If a client has paid on time for several months straight then is late one month, “you’re probably going to be a bit more lenient and just wait until that next invoice comes and let them know that these are still outstanding,” says Regev. But if it’s the first invoice sent and the client hasn’t paid, it’s a good idea to reach out to them before too much time passes. “You don’t want to set a precedent where you’re waiting a month and they think they can just get away with not paying your invoice for a month.”
Many firms that send out monthly invoices will wait until the next invoice is overdue before contacting a client, Regev says, but if “you think it’s reasonable to assume that they may have trouble paying you, then you might not want to keep working for them until you get that payment.”
Beyond reminders
If a client is ignoring you after several reminder calls and letters, “then you’ve got to get a little bit heavier,” says Merovitz. “You can either sue or you can assess the account,” he adds, and usually an assessment will get to court quicker. Once a judgment is made, the client’s pay can be garnisheed. “If it’s a doctor, you can garnishee OHIP. You can have a judgment debtor examination to find out who their clients or customers are and you can pick one or two good ones and garnishee them.”
If the account isn’t paid, you can indicate that you “have the right to report this to credit reporting agencies. This may have a serious impact on the person’s ability to obtain credit,” says Silverthorn. Some lawyers give delinquent accounts to collection agencies, which cost about a third of the account, so leave that option for last.
If all else fails, “there’s nothing stopping a lawyer from suing a client for non-payment,” says Silverthorn. Once a judgment is made against a client, a lawyer “has access to the same extraordinary remedies available to a judgment creditor as any other judgment creditor,” including wage or bank account garnishment or putting a lien on the client’s real property.
But sometimes it’s best to let an unpaid account go. “If you get too aggressive about collecting, very often the response is a lawsuit against you for negligence,” says Merovitz, even if you haven’t acted negligently. “If I know there’s a client who hasn’t been happy and it’s just a one- or two-thousand dollar collection, I might not bother because I don’t need the hassle of a counter lawsuit.”
Ann Macaulay is a frequent contributor to CBA PracticeLink.