From an e-mail exchange with a Coaching Client:
From:XXXX@aol.com
Sent: Monday, December
25, 2006 2:12 PM
To: rjon@howtomakeitrain.com
Subject: Credit
card fees
Rjon,
Say we wanted to
use a credit card as a vehicle for clients to pay for legal services.
If there is
about a 3% per credit card charge from the credit card company.
How do
we pass this added charge onto the client.
1. Do we have to
say, there is this added charge
as a service if they want to "charge it"?
2. Do we say
"only office visit charges" at $275 an hour can be charged, and for
that we charge $5 extra. The separate retainer fee (which can run in the
thousands, be only paid via check?)
3. Lxxxx is now
lets say retainers (in the trust account) of $15,000 for construction cases.
$2500 to $3000 on estate plans. On that amount it is a significant "add on" cost if the fee
is charged via credit card. We are aware that large law firms are
allowing clients to charge a significant fee on the credit card. How do they do it and NOT lose money?
4. Is credit
card use by "law firms" shown to produce more revenue and/or cash flow?
FYI::: In our area, most clients have
"no limits" to their credit cards.
Thanks so much
for your prompt response…we are trying to improve…..
From:
rjon@howtomakeitrain.com
Sent: Friday,
December 29, 2006 4:36 PM
To:XXXX@aol.com
Subject: Re: Credit
card fees
Hi XXXX,
Sorry for the delay. We’ve been swamped with end of the year stuff. I replied to Lxxxx’s e-mail yesterday to
suggest that we schedule a call for the first week of the year to discuss what he’s looking to accomplish and some
options.
Also, I saw the e-mail about the issue of accepting credit
cards. Suggest you look at a site I’ve
contributed some articles to called www.lawyerbillingtips.com. Long story short, when you consider the
hassles and expenses associated with trying to collect past due accounts
receivables, not to mention factoring-in the ones that “get away” and must be
written down or abandoned entirely, credit cards start to make a whole lot of
sense and as you’ll see I’m a big advocate.
As you mentioned, you certainly could charge extra to cover
the cost you incur for the discount rate but I’d discourage you from doing so
to avoid pissing off your clients over
what amounts to a cost of doing business that we all expect our vendors to
absorb. Plus, in the big scheme of
things, it’s not alot of money anyway.
For example, you have a client who is willing to save you
the hassles of having to send them a reminder bill (or two, or three), and then
interrupt your day to call and remind them about the outstanding bill of let’s
say $5,000 by charging the whole amount to their credit card.
Figure that each time you prepare a bill, reminder, carry it
on your books to the next month, and then make the phone call, you’re going to
waste 15 minutes of your time. And let’s
say you use a bookeeper who charges you $30/hour. You’re talking about at least an hour of the
bookeeper’s time, plus your time to supervise the bookkeeper, plus Lxxxxx’s
time to worry about it instead of cultivating a stronger relationship with the
client. Weigh that against the $150 in
discount points you have to eat to collect $5,000 up front and have that peace
of mind and working capital.
I know $150 seems like alot when you look at it by itself,
but wouldn’t you take $150 off the bill three months down the road if that’s
what it took to get the client to pay it? I would expect that you probably talk yourself into writing down much
more than that on most of your bills right now, either before you even give
them to your clients or afterwards in compromise to get them to pay.
Being good at the business of running a law firm is less
about being "tough" and more about knowing where the leverage points
are to maximize the value of your time. And at the end of the day, it’s much easier and healthier for the
long-term financial well being of a law firm not to mention the peace of mind
of the owners, to focus on leveraging your time with positive things that cultivate
better relationships with clients, initiating welcomed communications with
clients that demonstrate value to them, and using your limited time and energy reserves to perform
great services that get talked about, rather than looking for ways to save a
few percentage points of expense.
Put another way, in the hour or so that it would otherwise
take for you or xxxxx to have to work yourselves up for the call to a client
whose bill is delinquent, make the call, negotiate the bill down anyway, and
then recover your energy and state of mind to a point where either of you can
be productive again, you’d be better off to use that time marketing to get
another $4,850 client. In other words, you could spend ten miserable hours chasing down ten bills, and save yourself $1,500, or use that same ten hours to do some positive Rainmaking and sign-up ten new clients who will contribute another $48,500 to your firm’s revenues. See what I mean?
RJON
Dan Hull over at What About Clients? has just made a post that EVERY business owner should consider to be mandatory reading. And that includes owners of law firm businesses.
Admittedly his firm has about a dozen attorneys and so qualifies as a “mid-sized” firm in my book, but the approach they take to year-end associate review I think is even more valid for small firms or solos looking for an exit strategy – where there is much less margin for error.
In short, Dan describes his firm’s approach as follows: "Dude, if you can’t steal our clients, you’re fired."
I LOVE THIS APPROACH! For years I’ve been coming at it from the other way around with my
Rainmaking Clients, telling them that "If one of your associates leaves
& steals a client, you deserved it!"
The fact of the matter is that "owning" a law firm
is one of the biggest lies the equity partners of law firms tell
themselves. When your most valuable
assets are free to walk out the door, take your best sources of revenue with
them and leave you holding the bag with a long-term lease and expensive
overhead you don’t "own" the firm, the firm owns you!
Harsh Reality, I know. But here’s what to do about it. . . cultivate relationships between your
firm and its clients. Offer clients
something they couldn’t get if they went somewhere else. Be a 21st Century Law Firm Manager and give
your associates and support staff too for that matter, something no-one else is
smart enough to do for them by taking a realistic look at the balance of power
and adapt the job to so perfectly fit their needs that they couldn’t possibly
go anywhere else. And don’t hire losers
just because you need to get the work done. Losers may never steal your clients. They’ll do worse. . .they’ll
drive your clients into the waiting arms of your competition.
This advice applies equally to support staff. I know of several support staff who have a
bigger book of business than some fairly successful lawyers out there. There’s just no good reason your secretary
shouldn’t be able to steal your clients too!
By the way, if you want some practical tips on how to
cultivate relationships between your firm and its clients, I suggest you check
out How To Have A More Enjoyable Small Law Firm.
And if you want to learn how to be a S.M.A.R.T. 21st
Century Manager, you should consider joining either my Silver or Gold Attorney
Coaching & Support Program because Members of both these Programs get to
listen to leading experts each month teach us about a wide range of law firm
marketing, management and lifestyle topics.
As the Holiday season settles in around us and the new year approaches, everyone’s talking about all the great reasons they can think of to set goals for your law firm:
- Studies have proven that people with written goals are ten times more likely blah, blah, blah.
- Having goals gives you something to measure and pace your activities against, etc. etc. etc.
- "Those who fail to plan, plan to fail" or any one of about a dozen equally valid cliches or quotes from famous people, including my favorite from Alice In Wonderland: "If you don’t know where you want to go, then any road will get you there!
Like all the Holiday Special re-runs that get dusted off every year about mid-December we’ve all heard all the same old reasons why it’s a good idea to set goals and make plans to grow your law firm year, after year, after year.
But here’s one my 2 Year Old Neice recently taught me: Because Kids Don’t Care How Much Things Cost!
That’s right, you can make all the excuses you want to your Coach, your friends, your colleagues about why you don’t get off your ass and Make It Rain for your law firm. But at the end of the day, if you have kids. . . or if you’re ever planning to have kids you know that the bottom line is that no matter how shallow you want to say this is, you know or will soon learn that it’s the truth.
Happy Holidays!
I don’t normally like to just share other people’s content without expanding upon what they’ve said. But this post over at AdamSmithEsq. is really fantastic and I don’t think there’s much I could add to make the point any better.
I suggest that afterwards, you take a few minutes to revist my main website and reconsider whether and to what degree you have ever been a victim of the Doctrine of Sacrifice in your own career or life.
The following is from Bruce over at Adam Smith Esq, a blog I highly recommend:
I want to discuss a theory floated by two economists posing an alternative explanation for large firms’ "up or out" partnership structure, which was covered <http://r.vresp.com/?AdamSmithEsq./dce3de9b79/794184/6842a3ca22/386fff6> in The Wall Street Journal last week.
As you know, the conventional explanation for what is essentially a binary personnel policy—associate or partner—is usually referred to as the "tournament" model, positing that associates compete to win the "tournament" of election to partnership, and that both the carrot of tremendous rewards should they succeed, and the stick of unconditionally being forced to leave if they do not, provide ample incentive for them to work, shall we say, with extreme diligence for 7 to 10 years.
In lieu of that explanation, the professors theorize <http://r.vresp.com/?AdamSmithEsq./12b42c24eb/794184/6842a3ca22/386fff6> that the real explanation has to do with "property rights," and specifically with the one key asset the firm has, its relationships with its clients. After making the commonplace observation that law firms have no material physical assets, they hypothesize: "The one-sentence summary of the model is when knowledge assets are very valuable, the structure of the organization is going to adapt to try and take advantage." More specifically, the risk to any firm is of course that people can walk out of the firm with a critical asset—a client relationship—and one way to control or minimize that risk is to put very tight limits on membership in the circle of people who truly have high-quality contacts with clients and who therefore pose a threat of taking them away. Thus, a small partnership cohort vis-a-vis the firm as a whole.
Add to this the practice of keeping associates effectively at arm’s length from clients and, our professors theorize, the firm has as solid a handle on clients as feasible. As one reader put it to me in an email: "Once associates get too experienced, keeping them around as anything less than partner is too dangerous. It seemed pretty persuasive to me, at first glance."
The problem is that 80% of the AmLaw 200 do precisely that, as document in Prof. Bill Henderson’s paper <http://r.vresp.com/?AdamSmithEsq./2d649d2b4a/794184/6842a3ca22/386fff6> on Single-Tier vs. Two-Tier Partnerships in the AmLaw 200 (80% of AmLaw 200 firms have a non-equity "partner" tier). How, then, do the professors deal with this?
Essentially, through flatly denying reality. With straight faces, they say:
You’d think the second prize, instead of getting fired, would be a somewhat smaller salary than being partner. And firms don’t do that, which may seem surprising. To us, it’s not surprising at all. The worst thing you could, in our conception, would be to keep a bunch of people around who are competent but underpaid because they’d be the ones who walk off with all the clients.
And when called on this contradiction by the WSJ interviewer, who asks "How do these people [non-equity partners] fit in?," they demonstrate a basic misunderstanding of the role non-equity partners play, describing them as "people that are very good at some aspect of the job," and nothing more.
Now, is this a fatal defect in their theory?
My take is that it doesn’t entirely knock it off the table, but it certainly is not going to dethrone the "incentives/tournament" theory any time soon in my mind. Yes, firms obviously know that their only assets are client relationships, and as the shockingly rapid implosion of some firms over the past decade has shown, those assets are highly portable and the firm’s hold on those assets can be fragile. But I think firms respond to that more by how they manage their own partnership structure than by the far blunter instrument of the up-or-out structure. Which, we know, only holds true for 20% of the AmLaw 200 today.
