Most law firms provide services with the expectation of being paid once those services are completed. This compensation model is common, but it can lead to issues with unpaid invoices and other related legal debt collection issues.

Accounts receivable represents outstanding revenue for legal services that have been invoiced but not yet paid. Law firms often carry high accounts receivable because their collection processes don’t yield results.

The average law firm only collects about 85% of its invoiced amounts. Over time, that can add up to tens of thousands in lost revenue, poor cash flow, and financial difficulties.

Many law firms struggle to get clients to pay. Collecting a legal debt can be awkward, but it’s the reality of running a law firm and getting the compensation you’re entitled to.

Instead of losing valuable time and revenue, set up a process and procedure for collecting legal debt instead.

What Is Legal Debt Collection?

To take legal action to collect a debt, the creditor (or party owed money) files a lawsuit against the debtor (or party who owes the money). Once a debt collection lawsuit is filed with the court, the creditor gives the debtor notice of the lawsuit.

The Legal Debt Collection Process

For the formal legal debt collection process, a debt collection letter is given to the client. This is a formal notice that informs the client that they have an outstanding debt with a request that it be paid by a certain date. The letter also includes the consequences of non-payment.

Debt collection letters may be used to:

• Inform a client that the bill is overdue.

• Start the process of a repayment arrangement if a client can’t pay in full.

• Initiate legal proceedings if a client refuses to pay.

How to Write a Legal Debt Collection Letter

While the details of the debt collection letter may vary depending on the situation with the client, it generally includes:

• Details like your full name, law firm name, mailing address, and client’s full name.

• A statement of the problem and proof of the debt, including an original contract or agreement with a list of services owed.

• The dollar amount of the debt owed, the original due date, and any fees or interest accrued.

• The action required, such as the minimum payment due or the full payment and its due date. This section may include the payment terms from the original contract or agreement.

• The deadline for a response or payment.

• The context for the services, debt, and contract.

• Possible consequences for non-payment by the deadline. For example, you may state that you’ll take legal action if you don’t receive payment or a response by the deadline.

No matter the specifics, it’s important to stay polite and professional – avoid aggressive language or threats! You should also include plenty of details and use clear and direct language instead of euphemisms.

Be sure to keep copies of the letter and any responses for your own records.

Sample Debt Collection Letter

[Lawyer name]

[Law firm name]

[Law firm address]

[Client name]

[Client address]

[Date of letter]

Dear [Client name],

I’m writing to inform you of your balance of [$ amount overdue] for invoice [number] for legal services on your [case] claim against [defendant]. Your services were completed on [date and invoice number] and payment was due on [payment due date].

Your payment is now [number of days] overdue. As per our agreement, an interest charge of [percentage] per month will be charged on balances that aren’t paid within [number of days] of the invoice due date. [Include supporting details from the contract as needed].

The current balance due is now [original debt plus interest].

Please respond to this letter and submit your payment by [deadline]. If you’re unable to pay this debt in full at this time, please contact me to discuss a payment arrangement.

If I don’t receive a response or payment by [deadline], I may choose to take further action to pursue this overdue payment.

Thank you,

[Lawyer name]

Enclosed: Copy of invoice [number] and a copy of your signed contract.

Best Practices for Legal Debt Collection

No one wants to chase down clients for payment. Having a strong collections process in place with law practice management software makes the process less painful, but the best way to avoid having to pursue legal debt collections is by having a standard process in place for client intake, online payments, and payment plans.

Start the Legal Billing Process Conversation Early

Your client intake process offers an opportunity to discuss payment terms with your clients and set up your expectations. Use this time to discuss how the client is billed, when the invoices are sent, and how payments will be collected.

Offer Online Payments

Online payment options are common in just about every industry, but they have yet to fully catch on in the legal industry. E-payments are convenient and modern options for clients and law firms alike, increasing the likelihood of getting invoices paid on time.

Embrace Alternative Fee Arrangements

Most law firms adhere to hourly, contingency, or retainer fees for billing arrangements. While that may be the most common, alternative arrangements are becoming more common for law firms to help clients pay for legal services.

Some examples include:

• Fixed or flat fees in advance

• Capped fees for hourly billing

• Blended fees to manage billing expectations

• Unbundled legal services

• Payment plans to make large bills more manageable

• Sliding scale fees