By Cliff Ennico
Many if not most clients are operating on extremely tight profit margins these days; people are obsessed with controlling costs of all kinds, including legal fees. Consultants and other professional service providers must be clear at all times about how their fees are calculated, how much a project will cost, and when payment will be due.
To put it bluntly: You are certain to have angry clients if you:
• Send bills the client is not expecting;
• Exceed your fee estimate without informing the client in advance; or
• Send bills to a client without a detailed explanation of the work performed.
Here are some billing rules of thumb which have worked for me the past 40 years of working with clients of all types:
Include Fee Estimates in Every Retainer Agreement. When billing a client by the hour, include an estimate of the number of hours the project is likely to take. This can take the form of a range with a minimum and maximum dollar amount. When charging a flat fee for a particular matter, state clearly that the flat fee is based on the total number of hours not exceeding a certain number, and that additional work requested by the client may cause you to reopen the flat fee for further discussion. Always include a statement that if circumstances require you to exceed the fee estimate, you will contact the client before incurring excess charges.
Bill Early and Often. Hard as it may be to believe, many professionals commit the sin of not billing their clients frequently enough. Most clients prefer to pay reasonable monthly bills instead of a large bill rendered at the end of an engagement. Set aside one day each month (for example, the 15th of each month or the anniversary of your birthday) and draft your bills in the morning, before you are distracted by other matters. If you delay sending out bills, your client will delay paying you, and that can lead to accounts receivable problems.
Always Send Detailed Bills. Seldom will you be able to submit a bill saying merely “For services rendered ... $XXX” without pushback. Clients expect and should receive a detailed bill showing the number of hours you worked on their project each day. You should always prepare bills yourself; never delegate them to a bookkeeper or administrative assistant, as the billing narrative will need to tell a story that only you can tell. By drafting the narrative yourself, you will also be better able to determine if and when time should be written off.
Stick to Your Estimates. Clients hate billing surprises. If you see that your original estimate of time or expenses was too conservative, call the client to discuss the situation and submit a revised estimate before incurring additional charges. Most clients will be reasonable and will respect the fact you are helping them manage their budgets.
Stay on Top of Late Payments. On the last day of each month (assuming you bill monthly), review your invoices from the previous month and compare them to your check register to determine if any clients are running late with their payments. If a client has not paid you within 30 days, call or email the client and ask (professionally) whether payment will be forthcoming in a few days. Large accounts receivable problems almost always start out as small problems that get out of hand. So, by addressing late payments promptly, there is a greater chance you will prevent the hole from getting deeper. If a client needs a payment schedule, by all means, be reasonable, but also reduce the time you spend on the client’s matter until they catch up with payment.
Never Quote a Flat Fee If You Can’t Control Your Time. Clients always appreciate a flat fee quote, but there are times when flat fees should not be charged. Generally, you should charge a flat fee only when you are absolutely certain of the number of hours a project will take. If a project requires discussions or negotiations with other people, or if there are factors outside of your control that will impact the amount of time spent on a matter, it is always preferable to bill on an hourly basis, with an estimate “minimum” and “maximum” number of hours the project may take.
When Billing, Emphasize the Difficult. Let’s face it: Clients do not pay you to perform tasks that are fun and fulfilling. They pay you to do tasks they do not want to do themselves, either because they are too tedious and boring or because small mistakes can lead to disastrous results. It is becoming ever more difficult to bill a client for research time (the client will not be willing to pay for what they perceive as your education) or telephone calls (even if you time each call with a stopwatch, the client will insist the call took less time). When drafting bills, allocate the most time to the most difficult, unpleasant tasks you performed for the client. Doing so makes it much less likely the client will question the bill or your ability to manage your time.
Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”
COPYRIGHT 2021 CLIFFORD R. ENNICO
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