When law firms use payment plans, clients can pay for legal services in installments instead of upfront. Given that 44% of law firms say clients don’t pay their bills because they lack the funds to pay at once, according to the 2017 Legal Trends Report, implementing payment plans at your law firm can go a long way towards helping you get paid.
However, it’s important to set up plans the right way, for the right clients, and to use the right tools to reduce rather than add to overhead spent on collections.
Read on for everything you need to know about using payment plans at your law firm.
How to set up payment plans for your law firm
By investing a bit of extra time up-front, you’ll make it easy for yourself and staff to set up payment plans.
1. Create an internal protocol for when to offer payment plans
Payment plans can help you get paid, but there will be times when offering them may not make sense. Before you start presenting payment plans as an option for your clients, make sure that lawyers and staff are clear on when to offer them—and when not to.
Here are a few factors to consider:
- Can your client afford to pay in reasonable installments? If a client can only afford to pay $100 per month, letting them agree to pay in installments of $250 per month for a $5,000 bill won’t do either of you any favors. Again, have an honest conversation about your client’s financial situation before agreeing to anything.
- Will this payment plan work for your firm? Before you agree to have your client pay in lower, longer-term installments, take a frank look at whether this arrangement will work for your firm’s cash flow. You won’t be able to help other clients if you’re out of business, so be objective about what sort of payment plans your firm can and cannot take on.
It can be helpful to create a checklist to guide staff and lawyers on whether to offer payment plans, including the considerations above, plus anything else that might be important to your firm. For example, you may want to add a certain percentage to bills handled via payment plan for the convenience of clients being able to pay installments rather than up-front.
Another note: Payment plans can also be useful for replenishing funds held in trust—if it makes more sense for your client to pay an upfront retainer that they can replenish on a regular basis, consider using an evergreen retainer.
2. Draft an agreement template
Every client needs to sign an agreement before you confirm you’ll bill them using a payment plan. The terms of each payment plan can be specified as part of your engagement letter, or as a separate agreement.
Either way, it’s a good idea to draft a templated agreement to help streamline the process of setting up clients on payment plans. This template should include:
- When payments will be collected. Bi-weekly, monthly, or quarterly?
- What payment methods you’ll accept. Will you take cheque or credit card? Note: Law firms that accept payment via credit card get paid 39% faster, and clients increasingly value the option to pay via credit card.
- What happens when a payment is late. Will you allow a grace period? Will you charge a penalty in the form of interest for late payments, and if so, how much? Check ethics rules in your state before confirming how you’ll handle interest on late payments.
Include anything else you need to help clarify the terms of your payment plans for clients—clear communication is key for setting expectations, and ensuring you get paid.
3. Set up a system for billing clients and collecting funds
Will you send paper bills, or will you email your clients? Will you accept credit card payments? How will you keep track of multiple payment plans, making sure that all client balances are correct and up-to-date?
You can have a staff member set up a system of personal calendar reminders to manually send out invoices, process payments, send invoice reminders, and double-check balances at regular intervals—or you can use a tool to automatically set up and execute payment plans.
For example, with payment plans in Clio, you can easily automate online billing and credit card payments: Once a plan is set up, your client is automatically charged the recurring payment amount on each scheduled payment date (or the remaining balance on the account, if that’s lower). Both you and your client are notified each time a card is charged, so that you’re both clear on what’s been paid. It’s that easy.
Using payment plans in Clio to automate much of the process significantly lowers the risk of error that comes with managing payment plans manually, and also reduces time spent on invoicing and collections.
Benefits of using payment plans
For many law firms, collections are an ongoing issue. According to the 2017 Legal Trends Report, the average collection rate for law firms is 86%—meaning that 14% of bills go uncollected.
Set up payment plans for your law firm, and you’ll:
- Collect more. The main reason clients don’t pay their bills? 44% of law firms say it’s because they can’t afford to pay the full cost up-front, per the Legal Trends Report. Offering to let clients pay in smaller, recurring payments helps solve this issue.
- Spend less time on collections. If clients are paying in more manageable installments—and you’re making it easier to pay—you’ll likely spend less time chasing down payments. And, if you’re using an automated tool like Clio Payments, you may not even have to follow up with clients at all, since they’ll be automatically charged and will receive automatic notifications of their new balance.
- Take on more clients. Using payment plans, you may be able to help clients that otherwise might not be able to afford your services. If you can agree on a recurring payment amount that works for both of you, you can expand your client base while providing increased access to legal services.
- Deliver better service (and get more referrals). If you’re willing to offer payment plans, and you can implement them in a clear and consistent way, you’ll offer an excellent experience that will leave clients ready to refer you friends and family, helping your business grow.
Use payment plans for easier law firm collections and increased growth
When done right, payment plans can be a boon for both law firm cash flow and long-term growth. Make sure you and your staff know when to offer payment plans (and when not to), ensure all agreements and invoices are clear, and use technology to make the day-to-day management of payment plans a breeze.
Before you know it, you’ll be taking on more clients and spending less time on collections than ever before.