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Professional Liability Update

The information below is a continuation of our Professional Liability Update newsletter, Managing Fee Suits to Minimize Professional Liability Risk .

Client Intake Procedures: A Checklist to Avoid Litigation
When firms look for long-term solutions to improving cash flow and minimizing loss potential, they should start by focusing on client intake: 

• Evaluate new clients and check their credit. Do you tend to shy away from discussing money matters with clients, perhaps feeling it is "unprofessional" to request financial or credit information from prospective clients?
  
  You would never suggest that one of your clients extend credit to someone without first getting a clear understanding of the person's ability and intention to pay. Unless you are paid a replenished retainer, you are in effect making an unsecured loan to any client for whom you perform work and bill later.
  
  Do check on any potential client's credit history. If they are switching firms, ask about their previous attorneys and why they are moving their legal business to you - you may be the next firm they plan not to pay.
  
  Don't assume that the client will be offended by such inquiries. Businesses and individuals are asked for this information on a regular basis. If someone balks in the face of your questions, that may be a good indication that you ought not to do business with them.
  
  
• Discuss fees and payment expectations at the outset of representation. Professionals can make a profound impact on cash flow by being more up front with new clients regarding the firm's expectations about fees and payments.
  
  Helping the client to understand what is expected and what may happen if problems arise may in turn help you avoid litigation over unpaid fees later on. The more you can guide their expectations, the less likely it is that they will be surprised by the size of a bill or your insistence on payment at appropriate times.
  
  This is especially true for clients with little or no experience with legal representation.
  
  
• Utilize an Engagement Letter or Fee Contract that defines the costs and scope of the firm's services. It should lay out the billing and payment practices and procedures and make clear that you expect to be paid on a timely basis.
  
  It should also explain what you may do should the client fail to comply with those procedures.
  
  Have the client acknowledge that the payment terms are reasonable and evidence their understanding with a signature.
  

Want to further reduce your professional liability risk? Check out our tips on improving the effectiveness of your billing practices and collection efforts, as well as performing a cost / benefit analysis before filing a fee suit.