These days it’s not enough to do the work and expect to be paid. Most lawyers are outstanding technicians who are experts in their field. They have to be good to stay on top of the continually changing legislative and regulatory framework they operate within.
So, you do the work – and do it well. But when it comes to billing we see all manner of different experiences.
If you are expecting to get paid promptly, and in full, you might have a misplaced faith with many of your clients. Law is a sensational profession to be in – but doing the work and not getting paid is just bad business.
In this three part series we examine options when billing for work and suggest a few ideas on how to maximise your cash flow and minimise debtors.
The result is less heartache, happier staff and a better overall experience for your clients.
Part 1 – Success is in the setup
Have you ever been involved in a conversation that went something like this?
Client: “How much do you think this will cost?”
Lawyer: “It’s hard to tell. We’ll work hard to be as efficient as we can and turn it around as soon as possible.”
Client: “That’s great, but how much do you think we’re looking at?”
Lawyer: “My rate is $400 an hour, but for you, I’ll cut that to $350 and we will also try to use some of our lower priced staff to keep the costs down.”
Client: “I appreciate that, but how much do you think we should be budgeting?”
Lawyer (knowing that if every single thing goes right, and nothing goes wrong, the issue can probably be handled for $5,000): “Well, you should figure between three and five thousand dollars.”
Sound familiar? It happens all over Australia, every day of the week – and it’s the absolute worst way to start out on a long lasting and mutually profitable relationship.
This leads to four common problems in ongoing work.
Problem 1 – Discomfort discussing cost for services
Some lawyers feel uncomfortable charging for their services.
In our example above the lawyer is oblivious to the budgetary process of the client. The client simply needs a number to put into the budget for the upcoming period(s) and/or to conduct a cost/benefit analysis.
No client looks forward to paying for professional services. But you should take comfort knowing that most clients are more comfortable talking about the cost of the services they buy, than you are selling them.
Problem 2 – Negotiating against yourself
In the second part of the exchange we see how this lawyer lost 25 percent of their potential revenue just because they failed to listen to the question and started to negotiate against themselves.
This client didn’t ask for a lower rate, only what the price would be.
Too many professionals substitute their own assumptions and hear what they are afraid a prospective client might ask, instead of what is actually being said.
Problem 3 – Discounting ‘value’ or discussing levels of charges
The discussion of various charge-out rates between principals and other staff has the potential to detract from the real value of the work being done.
Remember, this client had expressed no concern about the costs. So why then does our example lawyer start to detail the inner working of their firm, who does what and imply junior staff will run some of the job?
Worse still, this may lead the client to conclude that any time a senior lawyer spends on the job is unneeded.
Problem 4 – Sowing the seeds of doubt
In the last part of the exchange the lawyer sets him/herself up for ultimate failure.
No matter what price range the lawyer gives, the client hopes they’ll only have to pay around $3,000, while the lawyer hopes they can bring it in under $5,000.
If by some miracle everything does go right and the final bill ends up being $4,000, the lawyer will expect a hero’s welcome for saving the client $1,000; whilst the client will inevitably feel that they paid 30 percent more than expected.
So, what are the solutions to these problems?
While this series does not intend to fully discuss the positives and negatives of ‘Value Charging’ versus ‘Time and Cost’, you must appreciate that your clients will want to know “how much will this job cost?” Your clients are prepared to pay a premium for certainty.
If you don’t value charge, and cannot therefore give a fixed fee to your clients for a service, then you must ask for time to analyse the facts and get back to the client the next day with a real and accurate estimate of the cost. Be smart and provide an estimate that builds-in a reasonable margin of error on your side.
Part 1 – Summary
- Don’t be afraid to discuss your billing basis and estimates – be prepared.
- Clients appreciate certainty – their initial queries are probably designed to seek certainty not to grind you down. Don’t immediately negotiate against yourself.
- Focus on the value of your solution, not the cost or who does the actual work.
- Avoid broad, banded estimates – either value charge or invest some time to give an accurate estimate.
Dave Birch is the Managing Director of smartAR who provide innovative cash flow solutions to Australian & New Zealand businesses. The team at smartAR work with Accountants, Lawyers, Architects and professional service firms to help their businesses get paid… faster!