Why You Might Want to Consider Charging a Flat Fee

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Too many lawyers have the misconception that flat fees are only appropriate for small, simple matters such as basic wills and trusts or entity formation. There is, however, a much broader range of work where flat fees are appropriate. Flat fees should be considered when one of the following factors is present:

 

  1. The value you provide in expertise is greater than the time you’ll spend. If you’ve been in your practice area for 10+ years, you likely have a level of expertise that means you don’t have to spend as much time researching as you once did. You know the issues your clients face, and you can apply your knowledge quickly. In a case like this, charging by the hour isn’t an effective way to value your work. If you want to avoid charging less and less for more and more expertise, consider a flat fee.

 

  1. Your work spans a short period of time. When a lawyer provides a lot of value quickly, it can be cumbersome to charge the client on an hourly basis and then bill them monthly. Doing so runs the risk that you’ll have to collect from the client after completing your work – once you’ve lost a lot of leverage. In this scenario, using a flat fee can serve to avoid collections issues.

 

When both factors are present, it is more likely that a flat fee can be substantial. It is not uncommon for appellate lawyers to ask clients to pre-pay most of the fee for a brief that needs to be drafted in 30-45 days, and that can easily run into the high five figures or beyond. Likewise, corporate internal investigations, especially involving white collar criminal matters, often command significant flat fees.

 

Charging and collecting a flat fee does raise some specific accounting issues, so be sure to comply with your jurisdiction’s rules. For instance, Rule 1.15(b) of the State Bar of California’s Rules of Professional Conduct, which was approved in November 2018, addresses when a lawyer charging a flat fee may withdraw money from their client trust account.

 

If you have only been charging hourly rates, it may be time to add flat fees to your repertoire.

How to Avoid Getting Stiffed by Clients at the End of a Representation

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Clients are less likely to pay their lawyers toward the end of a representation. This is especially true for hourly work and those situations where the client has already paid enough to feel justified in stopping payment. For attorneys, the risks of non-payment are especially pronounced when a representation approaches a game-changing event, such as a hearing on a dispositive motion or a closing date for a transaction. In these scenarios, the law firm is likely to send out a final bill after it has completed the lion’s share of its work if the matter suddenly ends. As consultants to lawyers and law firms, we have seen that these bills are especially difficult to collect in full because, at this point, the law firm has lost its leverage over the client.

Fortunately, there are ways to minimize the risks of non-payment which are consistent with the firm’s ethical responsibility not to withdraw from the representation when doing so could prejudice the client. The best strategy is to alter the billing cycle to avoid sending out a bill after the major event in the case has already taken place. Ideally, you want as much of the bill paid off before the hearing, closing, or other key event as possible.

Too many attorneys treat the billing cycle as fixed and as something that they need to serve rather than the other way around. It is generally advisable to maintain a monthly billing cycle – but not always. There are times when bills should be sent out off-cycle.

If you work at a firm where billing off-cycle is likely to be met with resistance, the best approach is to begin raising this issue more than one billing cycle in advance. We have advised lawyers to raise this issue in writing about 45 days before the date of the hearing, closing, or other event that could end the representation. If you anticipate pushback from the people who handle your invoices, provide a written estimate of how much money will be at risk for non-payment if the firm adheres to its normal billing cycle. This is especially effective for non-equity partners, Of Counsel, and associates who often don’t play a large role in sending out client bills.

In addition to changing the timing of the invoice, it can be helpful to change who provides the last significant bill to the client. Specifically, when the risk of non-payment is predictably high and the amount at stake is considerable, the client is more likely to pay attention to the bill if it is transmitted by the lawyer leading the representation. One way to do this would be for the lawyer to add the handling of the fee as an agenda item to a meeting or call with the client.

If the prospect of talking to your staff about making an isolated and fully justified exception to the monthly invoicing cycle causes heartburn, that may be a symptom of a larger problem. At too many firms, the billing cycle is run for the convenience of the staff. There are many aspects of creating an efficient cash flow system that justify making lawyers adhere to deadlines. Requiring attorneys and other timekeepers to submit their time by a set deadline, for instance, is perfectly sensible. But your invoicing system should be flexible enough to accommodate lawyers who request that bills be sent out at a specific time because of their knowledge of a particular client or matter.