How Lawyers Bill

Billing practices in the legal profession are changing.  This does not necessarily reflect a change in the way attorneys work or the work they do, but rather reflects a change in how others view the legal profession and a shift in the perceived value of a lawyer’s services.  Ultimately, an attorney is a service provider.  An attorney makes a living by providing information, advice, guidance, and support, and by acting on behalf of a client.

When you hire an attorney, you are paying for a combination of time, knowledge, education, experience, wisdom, and access to specialized resources.

To make this clear, here are some definitions:

Fees

Fees are the costs incurred for the effort an attorney expends on behalf of the client.  Fees cover services like drafting documents, appearing in court, meetings, etc.  Fees are calculated in a number of ways.

Hourly Fees.

Hourly fees are the “traditional” method for billing an attorney’s services.  Hourly fees will generally vary with expertise (senior attorney, associate, paralegal, etc.), firm overhead (bigger firms tend to have higher fees), and other factors like location (city firms tend to have higher fees than suburban or small-town firms).

Different attorneys charge different rates based on many factors, and a given attorney may charge different rates for different kinds of work.  These variations result from differences in the amount of research required, the resources available to the attorney for that kind of work, the need to engage outside resources, the ability to engage internal support staff to assist, and the extent to which the attorney’s schedule must be rearranged to accommodate the timing and complexity of your matter.

Flat Fees.

Flat fees are increasingly common.  Some people feel that hourly fees have the potential to motivate an unscrupulous attorney to “pad” time, charging more than the amount a matter reasonably requires.  Flat fees reduce this risk, shifting the burden and risk of estimation to the attorney; the client knows what a matter is going to cost going in.  Some matters – complex litigation, for instance – are difficult or impossible to estimate accurately in advance, and the scope of the matter may expand or contract as evidence is discovered.  In these cases, where an attorney has quoted a flat fee, it may be necessary to negotiate the fee in phases as the case progresses, or to adapt to changing scope, settlement options, etc.

Whenever the nature of my services makes it feasible and practical, I will offer a flat rate for my work, such as for preparation of a power of attorney, a straightforward will, or a real estate closing.

Contingency.

In certain cases, the client and attorney agree that the outcome of a matter is highly uncertain at the outset; some matters could result in expensive litigation that yields no reward or a trial or settlement that produces great rewards.  In short, it’s risky.

In these cases, the attorney and client often agree to share the risk and the rewards between them, because the client acknowledges the potential rewards, but doesn’t have the resources to go it alone, and the attorney has the resources, and is willing to take the risk.  In a contingency case, the client will generally agree to bear some or all of the costs and expenses (see below) of pursuing the case, and the attorney agrees to bear all of the fees (see above).  In exchange for this, the client and attorney agree that they will split the award or settlement amount according to a pre-determined percentage.  Even if the attorney has agreed to “front” expenses and costs of litigation, those costs will often be deducted from the client’s share of the award.  This approach is often used in personal injury or accident cases and certain types of employment matters where the litigation cycle is long (often, years).

Value Billing.

There is disagreement on just what value billing means.  The consensus seems to be headed toward regarding the lawyer’s contribution to the client’s life or business as having two components:  process, and outcome.

One approach to value billing is a combination of flat fee and contingency billing.  Here, the attorney agrees to undertake the process – typically litigation or negotiation – for a flat fee.  The parties then agree on a range of possible outcomes, from losing the case to a huge award or settlement.  They then agree on how various awards will be shared.  This approach may solve several problems:

  1. The client establishes a value for the process of litigation:  “How much is it worth to you to sue, even if you lose?”
  1. The attorney avoids the all-or-nothing risk of a contingency (where the process is acknowledged to be expensive), but still provides the client with a “worst-case” cost for the litigation process.
  1. The attorney has a share of the award as an incentive to maximize the effectiveness of the process for a better outcome, and at the same time, to keep cost and efficiency in control, to maximize the profitability for the firm (law firms are, after all, businesses) and compensation for the client’s losses or damages.

Retainer.

‘Retainer’ actually has two meanings.  The first and more traditional use refers to a fee paid to an attorney to keep the attorney “on-call,” for dealing with small matters as they arise, and for the burden of shifting priorities if it becomes necessary to move that client’s matters to top of the stack, inconveniencing others.

Now, retainer more often refers to the practice of asking a client to pay a deposit on fees in advance, and bills are charged against this amount.  The retainer balance – which is held in a trust account – is then replenished by the client when bills are received.  This occurs for several reasons:  It provides the attorney some assurance that cash flow will be forthcoming; it raises the motivation for the client to actively participate in the matter and be more responsive; and it helps to ensure that a client will not cease paying simply because she is not happy with the direction a matter has taken, among many others.

Costs & Expenses.

‘Costs’ means payments the attorney has had to make on the client’s behalf.  These may include court filing fees; express or postage fees; hiring experts and court reporters; or other costs directly related to the client’s case.  Expenses include charges for travel, mileage, or other indirect and out-of-the-ordinary expenses.

Security Interest.

When I agree to handle a matter on a contingency basis, you agree to grant the firm a security interest in any settlement, recovery, or judgment that results from the matter, to the extent of any unpaid costs, expenses, and fees stipulated in your Fee Agreement.  (For the purpose of determining the gross award to be split in a contingency case, I aggregate any award identified as “attorney’s fees” into the overall award.)

Fee Agreements

Regardless of the method used to arrive at the fee, you should ensure that you understand and agree with the scope of the engagement (what I’ll be doing for you), the method chosen for establishing the fee, and the calculations that will be used to arrive at the final amount due.  The firm will not engage in your matter until an agreement has been reached and an agreement signed by you and the attorney.

Billing:  Invoices & Statements

It is my practice to bill semi-monthly:  mid-month and end-of-month.  Case load and calendar may cause this to slip.  I will send an invoice or statement by electronic mail unless you have stated a preference for receiving statements via First Class mail.  Charges are due upon receipt of notice unless other terms are specified on the invoice.  Failure to pay invoices promptly is grounds for suspending work on your matter or withdrawing from representation.

Please review your invoices promptly upon receipt; invoices will be deemed approved and the fees earned five (5) business days after the statement or invoice is mailed (2 days for e-mail).

If you have a retainer balance with the firm, the retainer will be applied at that time.  Prompt replenishment of the retainer is expected, including payment of any charges over the available retainer balance.  Failure to replenish the retainer promptly is grounds for suspending work on your matter or withdrawing from representation.

If you have requested billing by credit card, your credit card will be charged at that time.  Credit card payments will not be accepted unless and until the client has agreed in writing to the terms related to credit card billing below.

If you have questions or concerns about the bill, or if you dispute the amount, contact the office promptly to discuss your concerns.  Disputed amounts will not be paid out of trust while reasonable discussion is ongoing.

Delinquent Accounts

The firm reserves the right to charge late charges on unpaid balances, to render delinquent accounts for collection by an outside agency, and to report delinquent or unpaid accounts to the credit bureaus, as allowed by law and the Rules of Professional Conduct.  Unless otherwise agreed, a late charge will accrue at 1.5% per month ($5 minimum) and accumulate monthly, beginning three days after the invoice due date.

Accounts may be referred for collection if not paid in full 60 days after the due date.  I will make reasonable accommodations whenever circumstances allow; if you have contacted the office to arrange payments on your balance and if you are current under that payment arrangement, your account will not be referred out.  If your account is referred out for collections and is in litigation, I will request permission to withdraw at that time, as those circumstances make continued representation infeasible.

Trust Accounts

Most law firms are required to have a trust account for holding client funds not yet billed and earned.  Most states have very strict accounting rules regarding these accounts.

Interest on Lawyers’ Trust Accounts

This law firm participates in the North Carolina state bar’s Interest on lawyers’ trust accounts (IOLTA) program.

Under this plan, funds deposited on behalf of a client that are nominal in amount or that are expected to be held for a short period of time will be deposited in an interest-bearing trust account and the interest generated will be remitted to the North Carolina State Bar to fund programs for the public’s benefit.

The cost of maintaining an interest-bearing account on an individual client’s funds when the funds are nominal in amount or held for a short period exceed the amount of interest earned on such funds.  Therefore, such client funds are placed in one trust account from which distribution is made at the client’s direction.  Under current law, a trust account is permitted to earn interest under certain circumstances.  It is only when all client funds are deposited into a single account with the interest going to a public purpose that such an account can be established.  Under no conditions, including any request that the funds not be placed in such an account, can the client benefit individually from the interest earned.  The attorney will not receive any of the interest generated under the plan.  All interest earned is sent directly from the bank to the North Carolina State Bar monthly.

Approval for Payment

You will be given the opportunity to review and approve charges before funds are transferred from the client trust account to the firm operating account.  If the client does not raise a question about an item on a bill within five business days from the mailing (two days if e-mailed) of the Invoice or Statement, the bill will be presumed correct, and the transfer made.  If the balance remaining in trust is 80% or less of the invoiced amount, the trust balance will be applied immediately.  Please review your billing promptly upon receipt.

Idle Balances

If a trust account balance remains after a matter is resolved and closed, the balance will normally be refunded to you when it is clear the matter is finalized.  However, if you believe you may have occasion to engage the attorney’s services at some time in the future, the balance of your retainer may remain in trust until such time as you reengage the firm, at your request.  Any interest earned on the balance held in trust will, of course, be subject to the standard rules regarding interest on lawyers’ trust accounts, as described above.

While the firm may, in its sole discretion, send you occasional reminders of the availability of this prepayment for services, your final statement will reflect any trust balance outstanding, and this will serve as your primary notice of the outstanding balance.

Credit Cards

For any number of reasons, cash flow does not always match up with necessity for funds.  For this reason – and to ensure my own cash flow, so that I may continue to serve you – I strive to make payment as convenient and flexible as possible.  Where circumstances justify it, this includes accepting payment by credit or debit card.  Because of strict state laws and professional ethics rules governing the handling of client funds by attorneys, however, I must work to ensure that certain procedures are closely followed.

When you pay by credit card, you agree:

You understand and agree that credit or debit card billing is a service extended by the firm for your convenience at the firm’s own expense.

Bills authorized for payment by credit card will be submitted for payment on the fifth day following invoicing, for such amount as is necessary to pay all fees incurred in excess of the retainer in trust, plus the amount necessary to restore the retainer in trust to the level agreed upon in the fee agreement.  It is absolutely essential that you review bills promptly upon receipt, and promptly raise any questions or concerns you have about the bill.

Payment for services already rendered will be deposited directly to the firm’s operating account.

Payment of retainers will be deposited to the client trust account.  Withdrawals from client trust accounts are strictly controlled by law and state bar rules.  Therefore, you agree that if you make a payment by credit card, you will NOT cancel, charge back, or revoke the card, nor dispute the charge with the credit card company, or otherwise demand a reversal of the charges by the credit card company, unless such an agreement is prohibited by law.  Instead, you agree to notify the attorney if you wish to revoke the retainer and terminate services, and the attorney will promptly refund any unused and/or undisputed trust account balances.  Any disputed billing that cannot be resolved between you and the firm within ten (10) business days will be submitted for resolution according to the rules of the state bar.

If you do dispute the charges and cancel, revoke, or charge back a previously entered charge on your credit card such that a fee, penalty, overdraft, or other unanticipated charge is posted to the client trust account, and it is later determined that the charge was properly authorized, you agree to pay all out of pocket fees and costs (including legal fees) incurred by the firm as a result of the improper cancellation, revocation, charge back or dispute.