When law firms use payment plans, clients can pay for legal services in instalments instead of upfront. According to the 2020 Legal Trends Report, consumers ranked whether a law firm offered payment plans as one of the most important factors for hiring a law firm. This shows that implementing payment plans at your law firm can go a long way towards helping you attract more potential clients and also get paid.
However, you need to set up payment plans in a way that works for both you and your clients. You also need to use the right tools to reduce the overhead you usually spend on collections.
Read on for everything you need to know about using payment plans at your law firm.
How to set up payment plans for your law firm
By investing a bit of extra time up front, you’ll make it easy for yourself and staff to set up payment plans.
1. Create an internal protocol for when to offer payment plans
Payment plans can help you get paid, but there will be times when offering them may not make sense. Before you start presenting payment plans as an option for your clients, make sure that lawyers and staff are clear on when to offer them—and when not to.
Here are a few factors to consider:
- Can your client afford to pay in reasonable instalments? If a client can only afford to pay £100 per month, letting them agree to pay in instalments of £250 per month for a £5,000 bill won’t do either of you any favours. Again, have an honest conversation about your client’s financial situation before agreeing to anything.
- Will this payment plan work for your firm? Before you agree to have your client pay in lower, longer-term instalments, take a frank look at whether this arrangement will work for your firm’s cash flow. If you’re out of business, you won’t be able to help other clients. So, you need to be objective about what sort of payment plans your firm can and cannot take on.
It can be helpful to create a checklist to guide staff and lawyers on whether to offer payment plans, including the considerations above, plus anything else that might be important to your firm. For example, you may want to add a certain percentage to bills handled via payment plan. This additional percentage is for the convenience of clients paying instalments rather than up front.
Another note: You may also find payment plans useful for replenishing funds held in client accounts. A tool like Clio Payments helps law firms stay compliant with client accounting and Solicitors Regulation Authority (SRA) guidance for keeping operating and client funds separate.
2. Draft an agreement template
Every client needs to sign an agreement before you confirm you’ll bill them using a payment plan. You can specify the terms of each payment plan as part of your engagement letter or as a separate agreement.
Either way, it’s a good idea to draft a templated agreement to help streamline the process of setting up clients on payment plans. This template should include:
- When you’ll collect payments. Bi-weekly, monthly, or quarterly?
- What payment methods you’ll accept. Will you take cheque, debit or credit card? Note: Law firms that accept payment via debit and credit cards get paid 39% faster, and clients increasingly value the option to pay via debit or credit card.
- What happens when a client is late on a payment? Will you allow a grace period for late payments? Will you charge a penalty in the form of interest for late payments? And if so, how much? While you should check the rules for your jurisdiction (and you must be sure to outline interest terms in your agreement with clients), you do have a right to charge interest on late payments. Specifically, UK law firms have a statutory right to claim interest on late payments at 8% over the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998.
Include anything else you need to help clarify the terms of your payment plans for clients. Clear communication is critical for setting expectations and ensuring you get paid promptly.
3. Set up a system for billing clients and collecting funds
Will you send paper bills, or will you email your clients? Will you accept debit or credit card payments? How will you keep track of multiple payment plans, making sure that all client balances are correct and up-to-date?
You can have a staff member at your law firm set up a system of personal calendar reminders to send out invoices manually, process payments, send invoice reminders, and double-check balances at regular intervals. Or you can use a tool to set up and execute payment plans automatically.
For example, with payment plans in Clio, you can easily automate online billing and online card payments. Once you set up a payment plan, you can automatically charge your client the recurring payment amount on each scheduled payment date (or the remaining balance on the account, if that’s lower). Both you and your client will get a notification each time a card is charged, so that you’re both clear on what’s been paid. It’s that easy.
Using payment plans in Clio to automate much of the process significantly lowers the risk of error that comes with managing payment plans manually. Setting up payment plans in Clio also reduces your time spent on invoicing and collections.
Learn more about payment plans in Clio or schedule a demo to see how they work.
We published this blog post in October 2023. Last updated: .
Categorized in: Business, Legal Accounting
