Protecting Your Firm’s Cash Flow: Ways to Deal with Late or Non-Paying Clients

client late payments, cash flow

Cash flow is the lifeblood of any business, and, as a growing law firm, your primary source of cash is obviously your clientele. When clients start paying late (or worse, stop paying altogether), it doesn’t take long before you feel the strain on your business, especially if you get several late payers at once. When this happens—and it will happen, at least from time to time—what can you do to restore your cash flow? Of course, check with your local bar to see if there are any ethical issues or other requirements that might affect collections, but let’s look at some strategies that might be work for you:

Reach Out Immediately, but Diplomatically

Collection activity doesn’t need be aggressive, but it can and should begin the first day a payment is late. Emails can be easily ignored, so start with a friendly phone call reminding the client that payment is due. Ask if the late payment is due to an oversight, and if so, when payment will be made.

If it’s the client’s first time to be late, feel free to extend a bit of grace, but be sure to set a new date. This tactic doesn’t need to be done aggressively, but it will send the client a message that you are watching payments closely. If tardiness or non-payment continue, begin collection activities with phone calls and letters that gradually increase in urgency.

Look for a Mutual Solution

There’s always a reason why someone doesn’t pay on time. Perhaps it’s mere oversight; other times, it might be financial hardship, or even a dispute with your services. Don’t just demand payment; try to find out why payment is late, and see if you can work with the client to find a mutually acceptable solution.

Avoid “Going Lawyer” on Them

You’re a lawyer, right? If a client doesn’t pay, you can just threaten to sue, right?

Sure… if you want to lose the client permanently (so much for cash flow). Here’s where you need to show some restraint. This person is your client, not a defendant. Resist the urge to write that intimidating or terrifying collection letter, at least for now. A softer approach will likely be far more effective in getting the income stream flowing again. Don’t even consider a hard line approach until you’re certain the working relationship can’t be saved.

Legal Action as a Last Resort

If a client simply stops cooperating, if the relationship is unsalvageable and if the amount owed warrants—and there are no other requirements that may bar you from action—then official collection and legal recourse may become the most appropriate response. Begin with a final demand letter that details your rights and theirs, establishes a final deadline and details what may happen if the client doesn’t pay. Your options may include turning the debt over to a collection agency or initiating legal action to collect the debt.

You can usually help most late-paying clients become current without aggressive collection strategies—but don’t be tentative about using them if the situation calls for it. For more information on preserving cash flow for your law firm, our team is available at (888) 375-2573.

Richard James

As a result of his track record for achieving what most describe as “phenomenal” growth rates for his clients, Richard James, CEO of Automated Business Results, LLC, is quickly gaining a national reputation as “the Legal Systems Expert.” His secret to success is simple. Richard has devised a seven step system for designing and implementing automated marketing systems that grow your business FAST. If you’re looking to develop a practice that supports your lifestyle rather than completely undermining it, call Richard James today.

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