Pay Problems
Tamara Holder
Photo courtesy Tamara Holder
“I’ll gladly pay you Tuesday for a hamburger today,” was the oft-repeated plea by Popeye’s friend J. Wellington Wimpy. Increasingly, law firm clients appear to be adopting that modus operandi.
“Clients are hanging on to their money longer,” says Larry Wolfe, the Cheyenne, Wyo.-based former managing partner at 410-attorney Holland & Hart. “We track that daily and see that clients who used to pay within 30 days are stretching it out to 40.
“Clients are saying they want a discount off this bill, a reduction in fees, discounts on future work, or ‘Here’s all I can pay now. Can we set up a payment plan?’ ”
Though large firms are less likely to talk about the problem (10 BigLaw firms didn’t respond to interview requests or declined to comment on their collection rates), the collection conundrum has hit firms across the spectrum.
“Our data supports the idea that collections have become a challenge, which is best seen in the lengthening of the collection cycle and risk of default,” says Hildebrandt International’s Mark Medice, who is based in Pittsburgh. “Early indications for full-year 2008 are that the cycle has increased by 5 percent or more from years prior. It’s also seen in the higher percentages of aged receivables, especially those greater than 180 days.”
“A lot of clients who were good payers in the past are now bad payers,” says Mike Lober, the Roswell, Ga.-based managing partner of the six-attorney firm Morriss, Lober & Dobson. “We had a group of clients you always knew would pay 45-60 days out, and now they’re starting to pay a little slower or always have an excuse—a line of credit’s been drawn down or something like that.”
The problem is more crippling for Chicago solo Tamara Holder, who specializes in criminal defense and expunging the records of the formerly convicted. “Expungement clients are becoming more aggressive in not wanting to pay or wanting discounts,” she explains. “It’s hard for me to finish the work, and it puts me in danger of committing malpractice.”
Holder’s criminal work has also taken a hit. “In the past, people were paying bonds by refinancing their home,” she notes. “Now they can’t post bond. Therefore they can’t afford an attorney. It means less criminal defense business.” Holder is considering letting office staff go.
As much as they can, law firms are trying to be patient and creative. Lober’s firm has begun to offer 5 percent discounts for clients that pay within 10 days, and has opened discussions about monthly retainers and flat-fee projects.
Firms are also retooling their billing systems. Wolfe has asked his attorneys to step up the pace in turning in time sheets, and reviewing and sending out invoices. When that happens, he says, collections increase substantially.
At Hiscock & Barclay, a 160-attorney East Coast firm, two full-time staff members troubleshoot when clients fail to pay. They’re busier than ever, according to managing partner John Langan, who works in the firm’s Syracuse, N.Y., office. The outcome is often a negotiated payment plan.
And invoices practically fly out Hiscock’s door. “I started communicating with partners every week about recording time and getting bills turned around,” explains Langan. “We shortened that cycle so that bills that would have gone out the door between the 15th and 30th of the month now go out by the 10th or 12th.”
IF THE SLIDE CONTINUES
Much bigger changes could arise if the economy continues to suffer.
“If the downturn continues through the third and fourth quarters of 2009, the entire legal profession will probably have to rethink forever how we package, sell and bill our services,” says David P. Branfman, principal at Branfman Law Group in San Diego. “My firm is working up a 10-page menu of services. We’re packaging as much work as possible and trying to deliver services on a fixed-fee basis because we think clients want it.
“Firms that use this as an opportunity to change will be more successful than ones that don’t.”
Still, though the data from Hildebrandt shows hourly billing rate growth slowed in the fourth quarter of 2008 to 5.8 percent—down from an average of 7 percent throughout the year—Medice isn’t ready to declare the billable hour dead.
“There’s more opportunity to explore creative rate structures,” he says, “but I think the billable hour is safe for the time being.”
