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What to Do When Clients Can’t Pay

The economy is in rough shape right now. More than 40 million Americans applied for unemployment during the pandemic, while 7.5 million small businesses around the country may close forever due to the crisis. The entire world will likely experience a long-lasting recession.

Kylie Ora Lobell

While the legal industry is typically more recession-proof than others, it cut 64,000 jobs this past April, reduced employees’ pay and gotten rid of summer associate programs in order to cope with the economic downturn.

It’s not helping that clients may be unable to pay right now due to a loss of income. While you certainly don’t want your law firm to go under, you do want to be empathetic to your clients’ issues.

“Aside from the fact that it's morally responsible, clients will remember you for your compassion,” says Caroline J. Fox, Principal Attorney at CJFox Law, PLLC. “They will trust you. They will come back to you and refer people to you. That ROI [return on investment] is priceless. In addition, we owe it to our profession and the bar to show that lawyers aren't all heartless ‘sharks.’”

When dealing with clients who can’t pay right now, here are some tactics to ensure your firm will survive while showing consideration for your clients at the same time.

DIFFERENTIATE BETWEEN CLIENTS

How you handle clients who can’t pay will depend on whether you’re serving them one time or for the long term, says Elliott M. Portman, Managing Partner of Portman Law Group, P.C.

“In either case, it is best to keep a dialogue open and get voluntarily payments. With many businesses now reopening, the cash flow problems for them and their principals will resolve over time.”

BE PROACTIVE IN REACHING OUT

If you anticipate that your clients are going to have trouble paying or will be late on their payments, then give them a courtesy call, says Andrew Taylor, Director of Net Lawman.

“Speak to them openly about their situation and see if a direct debit in incremental amounts can be set up to assist this.”

SET UP A PAYMENT PLAN

Clients may be able to pay their bills, but not all at once. If this is the case, then have them agree to a payment plan.

Sharon Oberst DeFala, Managing Attorney at Law Offices Gary Oberst, PC, says she will allow clients to set the rate and amount of payment because they are more likely to pay what they have committed to than if she comes up with an amount.

“My engagement agreement includes interest on unpaid balances,” she says. “When a client sets up a payment plan with me, I agree to waive the interest in any month in which I receive timely payments as promised.”

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PUT FUTURE PROTECTIVE MEASURES INTO PLACE

Though you can’t go back in time with current clients, you can put protective measures in place for any future clients, especially if you take them on during this recession.

Oberst DeFala says that before she commences any work for a client, she collects a retainer amount. She’ll estimate the retainer slightly beyond what she expects the matter to cost with the understanding that she will return any unused portion at the end of the matter.

“At the end of each monthly billing cycle, I check if any clients are at or near the end of their retainers and I send them an individual email before they receive my bill letting them now that I will be requiring an additional retainer,” she says. “The invoice then serves as a reminder. Since COVID began, I have been offering clients the option of paying by monthly credit card with their permission to keep their credit card info on file.”

GET CREATIVE

These are unprecedented times that nobody could have seen coming. In this moment, you’ll need to think outside the box in order to get through them.

Oberst DeFala says that when the courthouses started shuttering and merging, judges joined virtual bar association meetings and urged the attorneys to also act as commissioners of the court, meaning that they needed to help their own contacts and associates find ways to work around the crises and look to a stable law future.

“We were asked to be more creative and more resourceful than we have ever been before,” she says. “I took this admonition to mean not just in my work, but in my broader life as well. This is our opportunity to use our privilege of being attorneys and actively seek to give back in new and expanded ways at work, at home, online and in our neighborhoods and towns.”