'Plastic payments' have their risks and their rewards
But if you’re a lawyer, your preferred payment method is probably still a paper check.
While it may be a long time before lawyers move to mobile phones for their payment processing, law firms are finding it pays to accept credit cards from clients to operate in the 21st century.
Pankaj Raval started his own Los Angeles-based law firm several years ago to serve startup tech companies, among other clients. He says that getting paid was too slow and complicated for many of the young entrepreneurs he was trying to serve.
“It can be hard enough to get through an engagement letter and processing to bring in a new client,” Raval says. “But then you have to get them to bring a check, which seems so clunky and last century. A lot of clients don’t even really use checks anymore.”
Law firms do not traditionally accept credit cards because, unlike checks, credit card payments don’t just go into a trust account and remain, unmolested. Banks often require processing fees and other charges that force a law firm to either use trust account funds or business account funds to cover these fees.
Rule 1.15 (PDF) of the ABA Model Rules of Professional Conduct requires that lawyers don’t commingle funds of clients and third parties with those of the lawyer. Many state bar ethics opinions, including an ABA opinion, have approved of credit card payments for legal services, but with reservations. In particular, there is concern that credit card fees and the difficulty in reversing charges lead law firms to commingle business and trust accounts.
“Within the legal field there is still a stigma around accepting credit cards,” says Amy Porter, CEO of LawPay, a credit card processing service for law firms. “It’s not just complicated and ethically risky, but there is the concern that clients are going into debt to pay for legal services.”
If funds can be processed with less risk, firms may be able to accept credit card payments, which can improve cash flow and client intake.
“Lawyers need to learn that if you can accept payments up front,” Porter says, “there is less discounting when you have to chase after clients to get paid later.”
And large corporate clients increasingly rely on procurement or corporate purchase cards to make big payments, Porter says. Using a purchase card, large organizations can authorize a one-time payment. If a law firm can process these credit payments, it is possible to accept more payments from large organizations.
According to a recent report from the Mercator Advisory Group, small businesses increasingly find it difficult to obtain flexible lines of credit or credit card processing from the financial services industry.
“It’s not just law firms,” says Alex Johnson, a Mercator senior analyst. “The banking industry is not interested in providing flexibility or special allowances for small businesses.” In response, businesses such as Lex/Actum Merchant Services, PayPros Legal and LawPay have sprung up to handle law firms’ credit card needs.
To provide flexible credit card processing that prevents commingling, LawPay deposits funds into the appropriate operating or trust account for a law firm, and it will cover processing fees so funds are never moved from a trust account.
Of course, credit card processing opens law firms to additional risk if client data is stolen or credit card information is misused. However, Johnson says some services allow businesses to process payments without collecting or storing any credit card data from clients. If no one in an office handles a client credit card, the risk for card fraud is minimized. Accepting credit card payments is one way for law firms to get paid more easily. Raval works with LawPay to accept credit cards, but says he believes it is also important to provide alternative payment arrangements. He has accepted payment via PayPal and thinks bitcoin is an “interesting option.”
More flexible payment options, he adds, allow him to accept payments and get on with the work of serving his clients.
“In some situations we streamline payments by accepting a flat fee or some sort of upfront arrangement so we don’t have to worry about commingling,” he says. “I want things to be as simple as possible, not just for the clients, but for me as well.”
This article originally appeared in the February 2016 issue of the ABA Journal with this headline: “Taking Credit: ‘Plastic payments’ have their risks and their rewards.”