Most lawyers enter the profession with the belief that most of their day will be consumed in the practice of law. However, they soon discover that a significant portion of their time is occupied by drafting costs agreements, invoices and book keeping and chasing up clients for overdue bills.

Due to the nature of legal work and the regulatory framework regarding costs disclosures, trust accounting and itemised invoicing, its often the case that the final bill won’t be issued until well after the matter is concluded.

Whilst there are many areas of law where you can bill in stages or accept funds into your trust account, the more common areas such as conveyancing, family law and probate often involve people who don’t have the means to pay until the matter is concluded.

Nothing is more infuriating and frustrating than dealing with a client who is unable or unwilling to pay your bill, especially since your client is enjoying the benefits of your hard work.

It is often said that the anxiety around getting paid is the prime reason why many lawyers lose their enthusiasm for the practice of the law and is also a major cause of client complaint and dissatisfaction with the legal profession.

Bill shock is a common occurrence and your clients will experience it, even if you have provided all the relevant cost disclosures.

Simply put, your clients will usually perceive the services provided as being worth less than what’s displayed on your bill, especially if the outcome they sought hasn’t been achieved.

These issues however can be resolved with a few simple procedures together with the adoption of modern accounting programs and online billing services.

By adopting some simple low-cost solutions, not only will you increase the frequency of payments but will significantly improve your firms cash flow.

What is cash flow management? How do I ensure I have enough cash to pay the bills each month?

Simply put, cash flow management is the practice of ensuring you earn more than what it costs to run your business.

Good cash flow management doesn’t just focus on bringing in extra dollars into your business, it also looks at ways to reduce your overheads and improve your firm’s productivity.

The challenge with lawyers and law firms in general is that most lawyers are too busy working for their clients and struggle to meet even their monthly accounting and regulatory responsibilities, let alone work on improving cashflow.

In practice, a law firms cash flow can be quite tricky to manage. Certain area of law might require significant time and effort which justifies a larger bill, however due to your clients circumstances it might take some time for the bill to be paid.

Often firms focus on matters that are less complicated and high in volume. For example, conveyancing and wills can be completed relatively quickly and will generate cash to help pay the bills.

The problem with this approach is if there is a downturn in the volume of work, there isn’t any alternative sources coming in to replace this income.

If no more conveyancing matters come in due to changing economic conditions, a once reliable source of income could vanish overnight.

The simplest way to solve this issue is to have a system in place which can do the following:

  • Generate and send clear and precise cost agreements.

  • Record billable activity when the work is being done. Don’t waste time at the end of the month updating timesheets or drafting invoices.

  • Accurately report work in progress (WIP) and outstanding invoices for all clients. These reports should be able to be emailed to you daily.

  • Provide a list of matters that have funds in trust and outstanding invoices.

  • Include multiple payment options such as BPay, EFT, Credit Card as well as debtor financing and direct debit agreements. Limiting payments to just cheque, cash and EFT significantly limits your ability to get paid.

  • Invoices should include a link to a payments portal on your website. Clients should be able to pay you online as soon as they receive the bill, just like they do with their gas and electricity bills.

  • Payment receipts should be generated in your accounting system automatically and sent to your client via email without any staff involvement.

By implementing a system which can do all the above, you firm should be able to weather any cashflow issues with ease.

How do I get clients with 60 to 90-day overdue invoices to pay?

Large numbers of overdue invoices can cripple a legal practice, especially if there are many 60 to 90-day overdue bills.

This can be particularly frustrating when you are struggling to cover your own liabilities and can see the money is available to pay them, except it isn’t in your bank account.

Law firms who have proper systems in place should be able to identify all invoices which fall into this category and know the reasons why clients can’t or are not willing to pay.

For certain matters there might be legal reasons why payments can’t be processed (i.e. company liquidation, client assets are frozen) however these circumstances should be rare and if precautions are taken they can be avoided.

By taking the following steps you should significantly reduce the number of late or overdue invoices.

  • Regularly review your 30 to 90-day WIP and outstanding invoices report. Don’t let outstanding invoices get out of hand until its to late to recover.

  • If a client regularly has trouble paying your invoices, or if an area of law has many debtors, mitigate your risks by insisting the clients pay funds into trust prior to commencing any work.

  • Regularly review your trust to office management report. If applicable, transfer any available funds from trust to office. Your practice management system should be able to distinguish funds held for a specific purpose (i.e. proceeds from a real estate sale to be used to purchase a new property) from your trust to office management report.

  • Offer alternative payment plans. If you can’t get paid the full amount up front, get the client to agree to pay a specific amount each week or month.

  • Enforce payment terms – if you tell clients in your cost agreement that you will add penalty interest on your invoice if it isn’t paid on time, remind them when the invoice falls due.

  • Stop work immediately if invoices are overdue.

  • Don’t be afraid to use debt collectors or litigation if your client is unable or unwilling to pay your invoice.

When and how should you get paid?

In a perfect world, you should get paid upfront every time you take instructions.

However, this simply isn’t possible for all matter types, especially if your firm doesn’t have a trust account.

The idea situation is to request the following payment terms in order of preference.

  1. Immediate upfront payment into trust for the full amount due (or likely to be due). Your practice management solution should have the ability to sent trust payment request via email which can then be immediately paid online.

  2. Immediate upfront payment into trust for a partial amount, with the remainder to be paid upon completion.

  3. If possible, direct any funds owed to your client into your trust account. Get instructions to deduct your legal fees from these funds.

  4. Get your client to commit to making small payments each week / fortnight / month. Debtor finance or direct debit agreements can help secure payment.

  5. Offer the maximum number of payment types available. Most firms lose payment opportunities by only accepting cash, cheque and EFT. You could be missing out on opportunity to get paid today simply because your client prefers to pay bills via BPay or Credit Card.

  6. Ensure you offer your clients a wide range of ways to pay by credit card, including online, in person or over the phone.

How often should you bill clients and chase up overdue payments?

One of the biggest impacts on law firm cash flow is the belief that billing is locked into monthly cycles.

You should bill your clients as soon as you are entitled to and ensure that any funds held in trust is transferred to your office account as soon as possible.

One of the limitations in doing this on a regular basis is the fact that most invoicing and trust to office payment cycles are done at the same time as completing your end of month trust account requirements.

In the past, managing a trust account was a long and tedious process requiring law firms to check each individual bank transaction matches their trust account record.

Several trust account programs now can download and automatically match your bank transactions against your trust records. This will significantly decrease the amount of time it takes to manage your trust account, time you and your staff can use to invoice and chase up outstanding debtors.

With outstanding debtors, you should contact your client just before your invoice falls due. If your client is unable or unwilling to pay you should then discuss alternative payment arrangements such as part payments or direct debit options.

What is credit management and cash flow smoothing?

When a law firm doesn’t enforce payment of outstanding invoices, they are effectively providing a line of credit with a limited set of recovery options should your clients be unable or unwilling to pay.

From your client’s point of view, the primary cause of their frustration is bill shock. In most cases the amount listed on your invoice exceeds the amount they perceive your services are worth.

This is especially the case for most individuals who rarely have need of a solicitor’s services and are often under great stress due to their circumstances.

Businesses on the other hand don’t value legal services unless they can see some sort of commercial advantage resulting in increased revenue or reduced costs. All other legal work is perceived as a cost which needs to be minimised.

Most law firms don’t like the idea wasting their time litigating bad debts and often choose to let invoices go unpaid instead of enforcing their payment terms.

This can be problematic if the debt comes from one of your larger clients. It could be as simple as offering alternative payment option. This could encourage payment instead of facing a drawn out legal battle.

Some possible solutions include:

  • Offering favourable discounts to clients who provide repeat business or commit to regular payments.

  • Offer discounts to clients who commit to paying fund into trust or regularly pays your invoice before it falls due.

  • Debtor financing or direct debit agreements are becoming more popular. These agreements can allow clients to borrow the full amount invoiced which is then paid to the law firm. They then agree to pay back the loaned amount over 12 equal payments at a slightly higher rate.

Cash flow smoothing is the process of preparing for times in the year when payments slow down. Legal practice tends to experience a flood of payments over the end of financial year period whilst the Christmas and New Year is typically slow.

By offering some of the above solutions, you can spread your income over the leaner months. The important thing is to discuss your client’s situation and to find solutions with work for yourself and your client.

Is your payment data secure?

Law firm who accept payments via credit card need to be mindful of their obligations under the Payment Card Industry Data Security Standards (PCIDSS).

PCIDSS is a set of security standards designed to minimise the risk of mistaken or fraudulent transactions.

They include requirements such as:

  • Protecting cardholders data (i.e. credit card numbers, expiry dates etc).

  • Maintaining up to date IT systems (Anti-Virus, internet firewalls etc).

  • Implementing strong access controls (card holder information should be restricted).

Because of these obligations, law firms who retain their clients credit card details on file risk being in breach of their PCIDSS obligation.

If a law firm used their EFTPOS machine to pay an outstanding bill by using card details obtained from a previous payment, they would be in breach of the PCIDSS standard.

The consequence of this breach is the risk of this transaction being subject to a bank ‘chargeback’ whereby the payment can be reversed to your client’s favour if they challenge the transaction with their banking institution. Banks can also levy significant fines should they discover a PCI DSS standards breach.

These standards still apply even if you have obtained written permission to charge your clients credit card. This is because it’s the banks who determine whether a chargeback is successful.

This can become a major problem for law firms who accept credit card payments into trust as most EFTPOS solutions are designed to deduct funds from the account it was paid into.

If this happens, you would have most likely breached your trust account obligations and will have to take immediate steps to top up your trust account and inform your trust account audit and governing law society about the breach.

The best solution to above situation is to do the following:

  • Never retain your clients credit card details on your file. Only ask for this information if accepting a payment in person or over the phone and never write it down.

  • Use an online payment system for credit card payments. Clients can pay you 24/7 and you effectively outsource the PCIDSS compliance risk to the payment provider.

  • When processing credit card payments into trust, ensure that any chargebacks can only be deducted from your office account.


By implementing some of the above ideas not only will you reduce the stress of having cash flow pressures on your business but will allow you to enjoy practicing law and earning the income you have worked so hard for.

Jarrod McAvoy is a qualified solicitor with over 10 years’ experience working in the legal profession as a practitioner and legal technology expert.

He is passionate about helping law firms understand the benefits of technology and how it can improve your business bottom line.