Small Law Firms, Solo Practitioners

Back In The Race: What To Do About A Deadbeat Client Who Won't Pay Your Fee?

As service providers, lawyers are at a disadvantage when it comes to collecting unpaid bills. What can you do?

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resume girlJust about every self-employed solo or small-firm lawyer will have to work with clients who want some kind of payment plan for their services. Now, I understand that the golden rule is “cash up front,” and payment plans should be avoided. But most working-class folks either do not have that kind of money or prefer to work with someone who can accept a payment plan. The consequence is that some of them at some point during the representation will stop paying your bill.

So what causes generally honest clients to do this? Most of the time, it starts with a financial downturn or some unexpected emergency. The client can’t afford to pay basic necessities and you at the same time. So the client explains why she can’t pay you and requests an extension. Being the nice, empathetic guy that you are, you agree. Unfortunately for you, that money was supposed to pay your monthly student loan nut. For some strange reason, when you ask your student loan servicer for an extension, they are not as empathetic and tack on a late fee. This is when you start to feel less empathetic and more pathetic.

Clients are reluctant to pay if they get the feeling that their case is not going to be resolved in their favor. After all, why pay the attorney if they are going to lose and pay the other side? They usually get this impression if the case moves very slowly or if their attorney is not giving them straight answers.

As service providers, lawyers are at a disadvantage when it comes to collecting unpaid bills. For example, when dealing with tangible goods, if a client does not pay his supplier, he doesn’t get the supplies he needs to make his product and sell at a profit. So it is in the client’s self-interest to pay the supplier as soon as possible. But if a client does not pay his lawyer, it is not that easy to withdraw representation. Sometimes he may be ethically prohibited from doing so. Other times, a client might convince a judge to put proceedings on hold until he can pay his lawyer. While the lawyer may eventually get paid, this also slows things down. I have heard that judges are pretty generous about this, possibly because they want to avoid yet another pro se case in their docket.

There are times when it is better to withdraw from the client and not try to collect on a balance due. If a client accuses you of malpractice or incompetence (whether this is true or not), she may have second thoughts about filing a claim if it means that you will file a counterclaim for the past debt.

Here are some suggestions to minimize uncollectible debt in your practice. The first three are preventative measures.

First and foremost, keep your client happy. This means keeping them informed of what is happening on a regular basis. Also, the client should have an impression that progress is being made on their case. Finally, send them monthly statements, even if nothing is done on their case. Don’t give them the impression that their case is falling apart or that you are disorganized or they will react accordingly. You want them to be happy to pay your bill.

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Second, limit your empathy. Life sucks sometimes. People unexpectedly get sick, robbed, or laid off. While it might feel good to give clients a break at their moment of hardship, do not give them the impression that you will be overly flexible as many will take advantage of this. Think about how your landlord and your student loan servicer will react if you tell them you are unable to pay.

Third, if the client is habitually slow in paying, you will need to talk to him about this. Depending on his reasons, you will need to withdraw or change your representation strategy to minimize billable hours for the client and time spent on your part. If the client truly has no money, you can either withdraw or continue the case pro bono.

The next suggestions are remedies in case the client either can’t or won’t pay the balance in full.

First, try to get a lump sum settlement quickly. Chances are you won’t be getting future business from the client because he thinks that you are expensive. And keep in mind that the time and money spent collecting on the balance may not be worth it. So it is best for everyone to settle this as soon as possible.

Next comes a lawsuit or a collection action, although it should be used as a last resort. If possible, wait until the malpractice statute of limitations expire so clients can’t come back with a malpractice claim which can complicate things. In most states, the statute of limitations for filing malpractice claims is shorter than breach of contract or collections suits.

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Finally, there are times when it is best to let it go and chalk it up to experience. Sometimes clients disappear, file bankruptcy, or become judgment proof. By trying to collect on the debt, you may be throwing good money after bad. Some have said to write off the debt, which implies that the forgiven debt may be tax deductible. This is wrong. According to the IRS, you cannot take a bad debt deduction for unpaid fees.

Obviously, the above suggestions will not work for everyone and other strategies may be more effective depending on the client’s financial situation and other factors. But the overall goal is to minimize uncollectible debts by working with clients who are able to pay and taking necessary action to collect as much of the debt as quickly as possible.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

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