Keeping the head of one’s boutique firm above water is up there with the most critical of considerations for any business owner. In the age of coronavirus, however, such a consideration is heightened, in light of economic uncertainty and turbulence, and therefore potential constraints on a client’s capacity to pay their legal bills.

At this all-important juncture, with the nation experiencing a second wave of COVID-19, boutique leaders cannot afford to be complacent, said Rise Legal managing director Helen Kay.

“The most important thing right now is to be clear with your clients about how and when you expect to get paid,” she told Lawyers Weekly.

The need for good payment practices

Any boutique law firm that does not have proper processes in place regarding payment from clients will inevitably struggle to get paid, Ms Kay observed.

“Too many let debts build up for fear of upsetting a ‘good’ client, but in my view, a client who doesn’t pay you on time, however much work they promise to send you, is not a good client,” she told Lawyers Weekly.

“Obviously, the safest way to ensure that you get paid is to get paid upfront. But not all firms have trust accounts. Lawyers should also consider how their clients would perceive being asked for payment before they have received the services.

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“I have experienced first-hand NewLaw firms that require full payment [upfront] and conversely traditional law firms that wait until the end of every month to bill all their matters and then allow clients a further period (up to 30 days) for payment. So, another month of unpaid time for a client. Often, there is poor communication between accounts teams and legal teams, so lawyers are not made aware that their client hasn’t paid their bills until there are months outstanding and then they are expected to chase large accrued debts, whilst falling behind on their own billable targets.”

Tips to ensure payment

There are a number of different ways, Ms Kay advised, to ensure that you have a better chance of getting paid.

“For example, firms should consider different payment structures like collecting money upfront, charging in stage payments and changing payment practices,” she said.

“If firms invoice more regularly and have shorter payment terms their cash flow would be greatly improved.

“If you do decide to charge in stages your client agreement will need to set out clearly what each stage of the work involves and then make it clear what the payment expectations are associated with reaching each stage.

“You need to review your client agreement and your payment processes to make sure they are tight enough. Your client agreement needs to contain all the clauses you need to ensure payment.”

Ms Kay said that she assists a lot of professional services advisers (including lawyers) with their client agreements, many of which are often “too basic and are missing crucial clauses which they would have otherwise sought to rely on if they weren’t getting paid”.

One has to send a costs agreement to every client, Ms Kay outlined.

“Even for those [lower-value] transactions where it is not a legal requirement. Ideally get it signed before starting work, but I put deeming provisions in my client’s costs agreements so that, if a client continues to engage with the practice this is deemed acceptance of the costs agreement,” she argued.

Finally, firms must be discipled about their invoices, Ms Kay concluded.

“You need to have a system for invoicing and follow it: Map out all stages and billing timeframes for each job; ensure invoicing is done regularly (at least fortnightly); diarise all payment due dates; have a system to contact clients with friendly reminders as soon as they are due for payment; set overdue reminders,” she said.

Moreover, boutique law firms should “look outside of the legal industry at other professional services – accountants for example – [to] see how they go about this”, Ms Kay suggested.

“There are so many better ways of doing things outside of ‘law land’ that we should all be investigating,” she said.

Be creative

Boutiques should also, Ms Kay added, keep an eye on fee estimates and WIP.

“Set up systems to warn you when you are at 50 per cent, 75 per cent of the fee estimates, etc. so you can see if you need to review your costs estimate. Debtors should be part of your weekly reporting not just new matters opened,” she warned.

“Teach everyone in the organisation to be more prudent, i.e. make sure a different team member can’t open a new file for your client where you are chasing large debts.”

Ultimately, “don’t keep doing [things] the way you have always done them”, Ms Kay surmised.

“You have to keep evolving with your systems and processes. Be strict about your payment practices and be clear with your client what your expectations are. Invest in good software that will help you with these processes and procedures and for goodness sake, get your client agreement reviewed and improved!” she said.