When your client is sorting through their bills, are they even considering paying you? As they scan through what they owe, they are mentally deciding which bills need to be paid first. Anything that has a penalty attached is probably at the top of the list. Electric? If it doesn’t get paid, no power. Water? The kids need clean clothes for school and I could use a shower. Credit card? Need to pay something, the late charge alone is probably as high if not higher than the minimum due. Lawyer? No need, there is no penalty if I don’t pay them this month…
Are you charging interest? If not, what is the incentive for your client to pay you? If they have any extra money, why bother with your bill if they can take a vacation instead? Interest is a great incentive to have a client pay their bill on time rather than waiting months, years, or never to collect. By charging simple interest, you are less likely to have your clients use the money due you to float other bills or luxuries.
Also, by charging interest, you have another way to collect overdue accounts. If your client hasn’t paid in a few months, you can always offer to waive the interest if they pay off the balance due. By waiving the interest, the client feels they are getting a deal on their bill, and you aren’t out the time you spent on the case.
Check with your local bar about any rules that may be required in charging interest. For example, you may need to include language in your retainer agreement about when interest will be charged so the client is aware of it. Below are some examples:
The bar may also limit the amount of interest you may charge annually so, again, check with your local bar.
As a lawyer, you put a lot of time and effort into doing what is best for your client. Don’t short change yourself when it comes to collections. Most billing software should have a feature to charge interest so make sure you turn it on.