Profitable Practice


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All the opinions expressed are those of the contributors, are based on personal experience and are given in good faith. The ideas and suggestions here have worked for us but every situation is different. As a result, we are sure you will understand that no liability can be accepted for anything that may arise from following advice on this site.

Debt Collection

Once you have put the right disciplines in place at the start and during the conduct and at the end of each matter (see Finance - Billing) the rest is straightforward and a system that you simply put in place and stick to. At the collection stage, make it a routine admin function, probably carried out in your accounts department, for 3 good reasons:

  • FEs are always too busy and they tend to see debt collection as low priority
  • Their skills are better employed doing legal work than doing what is in practice a clerical function
  • They need to be able to maintain a relationship with the client. If necessary, your accounts department can be the "bad guys" while the FE remains on good terms.
    • The bill has gone out (on time!) and we need simply to make sure it is settled. Set up a series of reminders, something like these:

      1) Sent 30 days after the bill date: A Statement
      2) Sent 14 days later: A courteous reminder letter, polite, friendly. You have no desire whatsoever to upset a client who may simply have overlooked sending payment.
      3) 14 days later still, a letter in disappointed terms - you are slightly upset that although you have worked hard for the client they have not met their side of the bargain and paid.
      4) 14 days further on, and now two and a half months after the invoice was sent, a firm letter advising that you cannot be expected to wait any longer and that unless payment is made within 7 days you will be forced to consider legal action. You then allow this seven days, plus seven more so as to be completely reasonable, and move on to the next step.

      You now have two choices. You can proceed to issue a claim in the County Court. The only drawback here is that there is a cost and you may be throwing good money after bad, and even when you get judgment it may be difficult or impossible to enforce.

      The alternative is to use a debt collection agency. They will usually take a percentage of whatever they collect but invariably this will be all, so you will incur a cost only when you receive something. They may agree to take collection on through whatever steps are required, including legal action.

      The choice is yours but I have found agencies very effective. If you do decide to try this method get two or three firms in and question them carefully on how they work; you will be anxious to ensure that they do no damage to your reputation or your public image by such things as over-heavy tactics. You will also need to be very clear about how they charge, when you get paid and by whom. Does the agency collect and then send the poceeds on to your firm or do they only collect cheques payable to your firm? Make a careful judgement on this - it is not unheard of for agencies to themselves suffer from financial difficuties and you don't want a further bad debt. A client that has paid your agency has settled their debt and cannot be expected to pay again if the agency fails.

      A couple more thoughts:

      Make sure that you communicate debtor problems around the firm and put a stop on further work being done for a client that would simply add to the debt. You would be amazed how often I have found ongoing work being done even when there have been serious problems. BUT - If they are aware, FEs may find themselves in a good position to collect outstanding balances. If, for example, a client has an unpaid bill for some litigation but then wants to sell their house they may very well agree that the outstanding bill can be settled out of the proceeds.

      Ensure that your reminder letter system is supported by telephone calls. It is much harder to ignore a call than a letter and you will gather useful information on the client's financial position. With private clients this will require some evening work, I'm afraid, but there is no alternative.

      And take credit and debit cards. When you are on the phone to someone who has not paid you can then offer to take settlement there and then over the phone. It can often resolve things very quickly.

      Finally, are you aware that you can get funding for clients for matters such as litigation. For PI work of course this is routine but there are also funders who will finance other types of work as well. You make an application on their behalf and they enter into an agreement to borrow the likely cost of their fees. The money is then released to your firm against bills as the matter progresses. There are several providers of these.