Offering Lawyer Payment Plans: The Ultimate Guide
When legal fees are a leading barrier to clients seeking an attorney, is your law firm taking the appropriate steps to make your services accessible? Lawyer payment plans are an efficient and reliable method of growing your client base while creating a steady cash flow for your firm. They're also in demand, with half the US population using payment plans, such as Buy Now, Pay Later services, in 2022.
In this guide, we'll discuss why clients prefer lawyers with payment plans, how this financial arrangement benefits both parties, and what steps are needed to implement them at your firm.
What is a Lawyer Payment Plan?
Lawyer payment plans are financial agreements based on an outstanding balance that clients pay over an extended period. These legally binding documents outline how much will be paid, when installments are due, and what happens when a payment is missed.
Law firms can choose to offer either a specific payment plan (for example, half now, half later) or tailor the plan to meet their client’s individual needs. The most effective agreements bring unique benefits to both the client and firm.
Payment Plans vs. Legal Fee Financing
When implementing a payment plan, the client pays it in smaller, more manageable amounts. Legal payment plans usually do not involve any outside financing, and the client is responsible for paying the entire amount, sometimes with interest.
Legal fee financing, on the other hand, involves borrowing money from a third-party lender to pay for legal fees. In this arrangement, the client receives a loan to cover the legal costs. As a result, the client has the ability to pay a service provider (in this case the law firm) 100 percent of the amount owed upfront. The client then repays the loan in smaller increments, overtime to the third-party lender.
Overall, legal payment plans and legal fee financing both have their advantages and disadvantages. It’s important to understand the differences between them before choosing one.
Legal payment plans can be a win-win for lawyers and clients. A few key benefits your firm can expect to see when using traditional payment plans include:
- Attracting more clients: By offering payment plans, lawyers can make their services more accessible to clients who may not be able to afford to pay the full fee upfront. This can help them attract more clients and grow their business.
- Improving cash flow: Legal payment plans can help improve a law firm's cash flow by providing a steady stream of income over time. This can help the firm better manage its finances and plan for future expenses.
- Building client loyalty: By offering payment plans, lawyers can build trust and loyalty with their clients. Clients who receive flexible payment options are often more satisfied with the services they receive and more likely to refer friends and family to the lawyer.
- Avoiding collections: Legal payment plans can help lawyers avoid the need for collections, as clients are making regular payments over time. This can help the lawyer save time and money on collections efforts.
While legal payment plans can offer benefits for lawyers, there are also some potential drawbacks to consider, including:
- Risk of non-payment: There is always a risk that clients who sign up for a payment plan may not make their payments as agreed, which can leave the lawyer with unpaid fees. This can be especially problematic if the lawyer has already provided the services and is now left with unpaid bills.
- Administrative burden: Managing payment plans may require extra administrative work, such as sending multiple invoices, tracking payments, and following up with clients who miss payments. This can add to the lawyer's workload and may require additional staff.
- Increased financial risk: Legal payment plans can increase a law firm's financial risk, as the lawyer is relying on funds that haven’t been paid yet. If too many clients default on their payments, the firm may experience financial difficulties.
- Potential ethical concerns: Lawyers must ensure that their payment plans comply with all ethical rules and regulations, such as those related to fee splitting, confidentiality, and conflicts of interest. Failure to do so can result in disciplinary action or malpractice claims.
Legal Fee Financing
In comparison, legal fee financing can be a good option for lawyers who want to reduce financial risk, attract more clients, and streamline administrative tasks. A few key benefits of legal fee financing include:
- Guaranteed payment: With legal fee financing, the lawyer receives the full fee upfront from the financing company, with no risk of recourse for a non-payment by the client. This can help the lawyer manage cash flow and avoid financial risk.
- Provide more payment options for clients: Through legal fee financing, clients who cannot typically afford to pay the full fee upfront can have more access to legal services
- Reduced administrative burden: Legal fee financing companies typically handle the administrative tasks associated with collecting payments, which can free up time to focus on other tasks.
- Marketing benefits: Some legal fee financing companies offer marketing and promotional support to the lawyers they work with, which can help the lawyer attract more clients and grow their business.
Just as with offering payment plans, it is important to weigh the pros with the potential cons of offering legal fee funding. These might include:
- Higher costs: Legal fee financing typically involves interest rates and fees that can make it more expensive than other payment options. Lawyers must consider the cost of financing when deciding whether to offer it as an option to their clients.
- Limited options: Not all clients will qualify for legal fee financing, as financing companies typically have strict eligibility requirements. This ultimately protects the clients from overextending themselves financially; however, it can limit the lawyer's ability to offer financing as a payment option.
- Compliance risks: Lawyers must ensure that the financing company they work with complies with all ethical and legal rules and regulations.
Which Type of Payment Plan is Best for My Clients?
When deciding between legal fee funding or traditional legal payment plans, it's important to consider the unique needs and preferences of each client.
Ultimately, the true client-centric solution is to offer both options, so that clients can choose the payment method that works best for their individual circumstances. By offering legal fee financing and legal payment plans, you can provide your clients with maximum flexibility and make your services more accessible to a wider range of clients.
At LawPay, we offer both legal fee financing and features to help you manage your legal payment plans efficiently, such as LawPay’s Scheduled Payments feature, so that you can provide your clients with payment options that work best for them.
Our flexible payment options are designed to be transparent, flexible, and affordable.We also work closely with our customers to ensure that they comply with all ethical and legal rules and regulations.
Why Should Lawyers Offer Payment Plans?
Law firms that offer payment plans are in high demand as clients continue to expect flexible payment options. Here are some of the top reasons to adopt payment plans at your firm:
Spend Less Time Chasing Payments
When time is money, chasing overdue payments can quickly become a costly expense that detracts from working on a case or expanding your services. Payment plans allow you to schedule recurring payments at steady intervals. Revenue rolls in automatically, so you can focus your attention on areas with greater impact.
Increase Collection Rate
According to the 2022 Report on the State of the Legal Market from Thomson Reuters, lawyers finished last year with a 90.6% average collection rate. This translates to 9.4% of missing revenue.
To capitalize on this opportunity, law firms that offer installment plans make it easier for clients to cover their legal expenses over time, effectively increasing the firm’s ability to get paid.
Make Your Services More Accessible
45% of payment plan users choose this financing option to purchase products and services that are otherwise out of their budget.
By offering a payment plan option at your firm, you'll open your legal services to a wider client base while relieving the financial burden of a total upfront payment.
Payment plans can have a strong positive impact on the attorney-client relationship. They provide flexibility to clients and their financial situations while nurturing a service-first focus that is prime for referrals.
How to Offer Lawyer Payment Plans at Your Firm
Before offering payment plans at your law firm, take an objective view on how this arrangement affects your cash flow. Are traditional payment plans a sustainable model given the current financial health of your firm? Or do you prefer to utilize a financing option where you’re paid the entire amount upfront? Whatever option(s) you decide to offer, keep in mind you’ll need to be fully prepared to discuss them before you are ready to present them to clients.
Develop a Payment Plan Model
With a wide variety of payment methods and billing models, determine how your firm will handle installment plans. Strategic preparation will help your firm assess what to offer and effectively communicate with clients.
Initial questions might include:
- Do you plan on sending invoices electronically or by mail?
- Will you charge a retainer fee?
- Who keeps track of payments and client balances?
Finding these answers will help you build a template that outlines the payment plan model and conditions that best serve your business.
Offer a Variety of Payment Types
Today's modern clients require more options than ever to finance their legal needs. Whether its traditional credit or debit cards, ACH transfers (eChecks), or financing, offering a variety of payment methods increases accessibility to your services and grows revenue.
Use a Legal Payment Software
Attorney payment plans are easy to execute with the right legal billing software. The best legal payment software systems perform the heavy lifting, so you can get back to your practice. Features should include invoicing, payment tracking, and reports that help check balances and provide financial planning insight.
With LawPay, firms can easily set up recurring payments over a period of time, such as monthly or quarterly, to help clients manage the cost of legal services. Payments can also be customized to fit the client's budget and payment schedule. From there, law firm’s can track payment activity and send payment reminders as needed. Firms can also securely store credit card information within our Card Vault, further streamlining the entire payment process.
With LawPay's legal fee financing solution, powered by Affirm, your clients can pay for legal services in installments while your firm receives 100 percent of the invoiced amount upfront. And, if a client misses a payment, your firm is never responsible for collecting or paying back the funds to the third-party lender.
Plus, you can access custom reports that make reconciliation a breeze. Whether you need a quick snapshot of year-to-date (YTD) transactions or detailed reports of outstanding balances, LawPay reporting allows you to curate data that can help determine if your current strategy is profitable.
Build a System for Missed Payments
Late payments are a reality that many law firms face, so knowing how to handle them before implementing a payment plan is essential.
- Will you offer a grace period?
- If so, for how many days?
- Will you charge a penalty for missed payments? How much?
Communicating these answers to clients will set clear expectations that increase the likelihood of getting paid on time.
Create an Agreement
During the initial consultation with your client, transparency is key. It's important to understand their financial situation to determine the most appropriate payment plan. If they can only afford $200 monthly installments, anything more can lead to frustration and be a recipe for failure. Take the time to assess what amount is realistic for your client before signing an agreement.
In addition to the amount, you’ll also want to discuss the following:
- Payment due dates (bi-weekly, monthly, or quarterly)
- Accepted methods of payment (debit or credit card, checks, and/or ACH transfers)
- Late payment fees (interest, penalties, and grace period)
- How invoices will be sent (by mail or electronically)
If there are any additional points that can clarify the conditions of the payment plan, include them in your written agreement. Then, once you and the client have agreed upon all terms, you can request their signature on the attorney payment plan agreement.
If you decide to use legal fee financing through a third party, such as Affirm via LawPay, the agreement is handled by the financing company and you won't need to worry about this step.
Manage Your Law Firm's Payment Plans
Accurate and up-to-date account management is crucial to ensure that payment plans run smoothly. Instead of relying on manual bookkeeping, which can be time-consuming and prone to human error, legal billing software can streamline the process with live data and minimal effort.
At LawPay, you can accept online payments, monitor outstanding balances, and build custom reports to determine your cash flow from installment plans. With an instant overview of earned vs unearned fees, LawPay's reporting makes it easy to understand where your firm stands at a glance. You'll also get valuable insight into key performance indicators (KPIs), like collection rate, to better understand the current and projected success of your firm.
Or, if you decide that legal fee financing is a better option for your firm, you can easily offer it through LawPay, powered by Affirm.
Start earning more with payment plans and save time on account management. Schedule a demo today. We'll help you set up automatic installment payments in seconds, so you can get back to working billable hours and growing your business.