How to Not Work for Free
On this blog and my Twitter, I write a lot about gathering the data from our businesses and utilizing it to implement systems to spark growth.
But it does not matter how many systems we implement or processes we optimize if a single metric is out of whack: collection rates. In other words, the amount of money you collect on hours billed.
3+ Years of Free Work
Data from Clio showed that law firms did not collect on an estimated 12% of billable time in 2021. Taken at face value, this essentially means that more than 10% of your work is done for free. At scale, this a 1 month per year and 3+ years over the course of your career of work that you are doing for free.
Why are we settling for dedicating so much of our working lives to working for free? Either a) we do not realize we are doing this and are not taking any active steps to resolve it, or b) clients either cannot or refuse to pay.
The first problem is now solved because you are reading this now and have realized 3 years of your legal career will be for free (even if you never do pro bono). The second problem is a bit more complex.
Use this calculator below to determine how much additional revenue you could make by optimizing your collection rate by a couple percentage points 👇 (open in browser if viewing from Twitter app).
Clients that Cannot Pay
Everyone going through a legal issue is encountering one of the worst experiences of their life and as lawyers we understand this.
However, if the client’s file is nowhere near resolution and they are consistently unable to pay their legal fees, then it is our responsibility to make the difficult decision to cease work until they are able to pay or come to an alternative arrangement (i.e., payment plans).
Clients that Refuse to Pay
This is a more complex issue. If you are an altruistic person who is fine with working for free for clients that do not value your time then that is your choice. But, as lawyers, our skillset and value is directly related to our time. We spend years building up the specific knowledge to provide legal services and we charge a lot by the hour to apply that knowledge to complex situations.
If a client refuses to pay then it is probably best to stop working on the file immediately (subject to your professional rules).
Strategizes to Increase Collection Rates
Everyone has access to money to pay their lawyer. Whether it is through home equity, credit cards, retirement savings, or family/friends. Your time is valuable.
I recently published a tweetstorm on 10 things your clients want to pay for. But here are some actionable steps to take tomorrow to get those unrealized hours paid.
1) Keep the invoices low
It is estimated that 64% of Americans are living paycheck to paycheck. Most clients simply do not have the cash on hand to pay the invoice at the time. With this in mind, clients are going to be much less inclined to pay a large invoice opposed to several smaller ones spread out.
Break up the invoices so clients do not feel overwhelmed and are actually able to make it work with their budget.
2) Describe what it is for
This is beyond whatever the docket description says. The number one complaint clients have about lawyers is responsiveness. So taking the extra step to jump on a call with them and talk them through any issues they have with their bill will go a long way.
3) Stop working on the file
If a client has consistently not paid their legal fees then you need to stop working on the file. You are just adding to your to your total annual pro bono hours at this point and people will only value you as much as you value yourself.
Advise them that you cannot continue to take time away from other clients and that you will resume work once the outstanding balance is paid.
4) Consider incentivizing your accounts specialist
If your firm has an issue with collecting on work completed then punch into the calculator above how much money you are leaving on the table. To further implement systems that spark your growth, consider hiring or assigning a team member to solely focus on accounts and collecting on your fees. If you really want to spike your collection rates, consider giving this individual a target percentage to shoot for and give them a bonus when they hit it.
There is little point to optimizing business systems when we cannot get paid for the work that we put it. Optimizing collection rates is low hanging fruit. Run the numbers above and see the value that small optimizations can have on your bottom line.
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James