In the competitive legal sector, maintaining and enhancing law firm profitability is crucial. A key aspect of this is ensuring swift payment from clients. Timely payments not only ensure fair compensation for attorneys and staff but also significantly contribute to the overall financial health and growth potential of a law firm.
When fees and invoices go uncollected and realization rates drop, it pumps the breaks on profitability, cash flow, and growth goals. But payment lags aren’t always the fault of the client. Inefficient workflows, poor communication, and inconvenient client processes all contribute to delays in payments. However, there are a number of simple steps law firms can take to get paid faster.
Law firms often wait weeks or even months to be paid after an invoice is sent, but there are ways you can take control over your payment timelines and improve your firm’s profitability. Here’s where you can start.
Developing and communicating payment policies
To solidify the foundation of your law firm’s profitability, it’s essential to focus on establishing and enforcing robust payment policies. This not only streamlines your billing processes but also sets clear expectations for your clients, contributing to a more predictable and efficient payment cycle. The following steps will guide you through the process of creating transparent payment terms and conditions and the importance of communicating these effectively both within your firm and to your clients. By doing so, you can improve cash flow management and take a significant step toward enhancing your law firm’s profitability.
1. Establish clear payment terms and conditions
It’s a best practice to set clear payment terms and conditions before signing on a client or completing billable hours. Clear payment policies don’t just provide you with legal protection if a client disputes charges. They also establish expectations for how the payment process should unfold and define obligations for you and your client.
These expectations are vital for building trust between you and your client. When clients understand their obligations, they can:
- Budget for legal expenses more effectively
- Understand their payment options
- Inquire about alternate arrangements for fees
- Avoid late fees
- Clear up questions before they become an issue
They can only do this if your payment policies are transparent, though. If your payment policies are long and packed full of legalese, your clients are less likely to follow them.
2. Share payment terms and conditions internally and externally
Once you’ve developed payment terms and conditions, your clients and your staff should be fully aware of them. For clients, this is something that should be addressed during the client intake process, ideally before signing any contracts or agreements. To ensure full transparency, consider including your payment policies on invoices.
Your team should also be looped into payment terms and conditions so they can answer questions confidently. In addition to training staff, it can also be helpful to add this information to any internal knowledge base you may have.
Better invoicing practices
A key element in enhancing law firm profitability lies in optimizing your invoicing practices. Efficient and clear invoicing not only facilitates quicker payments but also reinforces the professionalism and credibility of your firm. The upcoming steps will delve into how you can create user-friendly invoices that promote transparency and ease for your clients. By focusing on timely, detailed, and well-structured invoicing, you can significantly reduce payment delays and misunderstandings, thereby improving your cash flow and overall profitability.
3. Create user-friendly invoices
Invoices are the unsung hero of law firm profitability. They may seem like a simple document that tells what a client owes, but they are much more than that.
A good invoice helps your client render payment with confidence that you have completed legal work in accordance with your contract. When you omit necessary details, however, such as details of work completed or precise due dates, you can damage client trust and increase the risk of compliance violations.
This is where using legal invoicing software can be of great help, providing guardrails that ensure your invoices include critical information like:
- Name and contact information of the lawyer or law firm that is sending the bill
- Client’s name
- Description of the legal services offered
- Date the services were rendered
- Trust account balance (if relevant)
- Date of last payment (if relevant)
- Total cost of services rendered
- Terms of payment (e.g. due upon receipt, net 30, etc.)
- Date the invoice is sent out
- Any sales tax or other fees that are due
- A link to submit electronic payment
Make sure to include your logo, brand fonts, and colors on your invoice. A professionally designed invoice template enhances brand recognition and adds to your law firm’s credibility.
4. Send invoices out on time
When your invoices are sent late or inconsistently, your clients may think that the same rules apply to their payments (even if your payment policies are clear). As a result, they will be less likely to take their payment obligations to your firm seriously.
When you send invoices out in a timely and consistent manner, you give your clients the opportunity to budget for legal services, review their legal fees, and ask questions if necessary. This demonstrates that you’re committed to client service.
Offer client-friendly payment options
Even if you serve limited practice areas, your clients have a range of payment needs. One client may need support with setting up a payment plan, for example, while another client may want to schedule withdrawals. Providing client-friendly payment options can make it easier for clients to settle their invoices and for your practice to maintain a strong cash flow.
Consider the options below:
5. Provide online payment options
Paying with cash or check is becoming less and less common. Clients expect to be able to pay for services with debit and credit cards, no matter the industry. In fact, some younger clients may not even use checkbooks.
However, the legal industry has historically been slow to embrace credit cards. Law firms have been particularly cautious about the implications for trust accounting compliance and credit card usage.
Law firms can mitigate compliance risks while still meeting client expectations by working with a legal-specific payment processor that’s embedded in their practice management system, like Tabs3Pay. Not only does this streamline the billing process (saving you lots of billable hours every month), it can provide clients the choice to pay by:
- Credit card
- Debit card
- ACH bank transfer
- Scheduled payments
Electronic payment options speed payment up for several reasons. To start, they are more convenient for clients. After all, it takes less time to click on a link in an email and pay via credit card than it does to hunt down a checkbook.
Funds also reach your bank account faster. When clients pay via credit card, payment can be accessed in as little as 24 hours, depending on your payment processor.
6. Allow for different types of fee agreements
Fee-based billing is a legal industry stand-by, but it’s not the only option out there. What’s more, it may not necessarily be the best option for your practice. Depending on which practice areas you serve, you may find that clients can pay faster and easier if you implement different fee agreements, such as flat fees, retainers, or contingency fees.
If you determine that a different fee structure is the right fit for your law firm, avoid surprises with your clients. Update your payment policies and communicate changes to your clients immediately to avoid confusion, payment delays, or write-offs.
Improve your law firm’s profitability with Tabs3 Software
Tabs3’s suite of client and law firm-friendly payment tools offers a fully integrated suite of billing, accounting, and practice management tools designed to help law firms run more efficiently and profitably.
Tabs3 Software offers:
- Compliant online credit card payment processing with Tabs3Pay
- Calendars and matter organization tools
- Easy-to-use time-tracking functionalities
- Conflict of interest searches
- Client relationship management tools
- Cloud and mobile access
- And more