Key Takeaways
- Set expectations early: Include your collections policy in your engagement letter and discuss payment terms during intake—firms that do this report significantly fewer billing disputes and faster payments.
- Be consistent but empathetic: Apply your policy uniformly across all clients while offering flexible payment options for those experiencing genuine hardship—this protects relationships while maintaining firm boundaries.
- Leverage technology: Firms using automated payment reminders and online payment options collect 15-20% more monthly revenue and get paid more than twice as fast as those relying on manual processes.
The Collections Tightrope: Why Your Firm Needs a Policy
Here’s a reality that keeps many law firm partners up at night: according to the Clio Legal Trends Report, the average collection rate for law firms is just 91%, meaning 9% of invoiced work goes unpaid. For a mid-sized firm billing $3 million annually, that’s $270,000 left on the table—money you’ve already earned but may never collect.
But here’s what makes collections especially tricky for law firms: you’re not selling widgets. You’re building relationships based on trust. Push too hard on collections, and you risk damaging that relationship. Too soft, and your cash flow suffers—along with your ability to serve all your clients effectively.
The solution isn’t choosing between getting paid and keeping clients happy. It’s having a well-crafted collections policy that accomplishes both. A policy that’s clear, consistent, and communicated from day one—one that clients actually respect because it demonstrates professionalism rather than desperation.
This guide will walk you through creating exactly that kind of policy. We’ll cover what to include, how to communicate it, when to escalate, and most importantly, how to maintain the client relationships that are the lifeblood of your practice.
What Makes a Collections Policy Effective?
Before diving into the specifics, let’s establish what separates a policy that works from one that just gathers dust in your procedures manual.
An effective collections policy is:
- Clear and specific: Vague terms like “payment expected promptly” mean different things to different people. Your policy should spell out exact timeframes and consequences.
- Communicated upfront: The worst time to discuss payment expectations is when an invoice is already overdue. Your policy should be part of your engagement letter and intake conversation.
- Applied consistently: Nothing breeds resentment faster than clients learning others get special treatment. Your policy should apply uniformly—though with built-in flexibility for genuine hardship situations.
- Reasonable and professional: Your policy reflects your firm’s character. Aggressive or punitive language damages relationships before you’ve even started.
- Enforceable: A policy with consequences you’re unwilling to follow through on is worse than no policy at all. Only include provisions you’ll actually implement.
The 7 Essential Elements of a Law Firm Collections Policy
Now let’s break down the specific components your policy needs. Each element serves a purpose in the delicate balance between firmness and relationship preservation.
1. Clear Payment Terms
Your billing guidelines should leave no room for ambiguity. Clients need to know exactly when payment is due and in what form.
What to include:
- Standard payment window: Most firms use Net 30, though Net 15 is increasingly common. Whatever you choose, state it explicitly: “Payment is due within 30 days of invoice date.”
- Retainer expectations: If you work on retainer, specify the replenishment threshold and timeframe. For example: “Client agrees to maintain a minimum trust balance of $5,000. When the balance falls below this amount, Client will replenish within 10 business days of notification.”
- Hourly rate and billing increment: Document your rates and minimum billing increments (typically 6 or 10 minutes).
The Clio Legal Trends Report reveals that mid-sized firms experience a median collection lockup of 52 days—meaning it takes nearly two months from invoice to payment. Clear payment terms, consistently enforced, can cut this significantly.
2. Invoice Timing and Format
Jay Foonberg, author of the classic “How to Start and Build a Law Practice,” articulated what’s now known as the “Foonberg gratitude curve.” The concept is simple but powerful: a client’s appreciation for your work—and their willingness to pay—diminishes the further they get from the moment you solved their problem.
This means invoice timing matters enormously. Your policy should specify:
- Billing frequency: Monthly billing is standard, but some matters warrant more frequent invoicing. Clients who receive invoices within days of work completion are more likely to pay promptly.
- Invoice delivery method: Email with electronic payment links has become the standard. Your legal invoice template should be professional, detailed, and include easy payment options.
- Detail level: Specify that invoices will include itemized descriptions of work performed. Vague entries like “legal research” invite questions and delays.
3. Accepted Payment Methods
Here’s a statistic that should get your attention: firms using online payments get paid more than twice as fast as those relying on traditional methods. Every barrier you remove from the payment process accelerates collections.
Your policy should list all accepted payment methods:
- Credit and debit cards (with any processing fee disclosure)
- ACH/eCheck transfers
- Checks (if still accepted)
- Online payment portal access
Modern legal billing software should integrate payment processing directly into your invoices, allowing clients to click and pay instantly. This isn’t just convenient—it’s a collections strategy.
4. Collection Escalation Timeline
This is where many firms struggle. They either avoid collection conversations entirely or come on too strong. Your policy should outline a graduated approach that increases urgency without damaging relationships.
A sample escalation timeline:
- Day of invoice: Send invoice with payment link and clear due date.
- 7 days before due date: Friendly payment reminder.
- Due date: Same-day reminder if not paid.
- 7 days past due: Phone call from billing staff to confirm receipt and discuss any concerns.
- 15 days past due: Second notice with account summary and payment plan offer.
- 30 days past due: Partner call to discuss situation and arrange resolution.
- 60 days past due: Formal demand letter with notice of potential work suspension.
- 90+ days past due: Work suspension, potential withdrawal, or referral to collections.
Research shows that firms using automated bill reminders collected 15-20% more monthly revenue than those not using them. The key is consistency—every client receives the same treatment at the same intervals.
5. Late Fees and Interest Charges
Whether to charge late fees is a business decision with ethical implications. Some firms find they create more problems than they solve—especially when clients pay the principal but dispute the fees. Others find them an effective deterrent.
If you include late fees, your policy should specify:
- When fees apply: “A late fee of 1.5% per month (18% annually) will be applied to balances remaining unpaid 30 days after invoice date.”
- State law compliance: Usury laws vary by jurisdiction. Ensure your rates are permissible in your state.
- Waiver discretion: Many firms reserve the right to waive late fees for clients who communicate proactively about payment difficulties. This preserves the relationship while maintaining the policy’s deterrent effect for those who simply ignore invoices.
6. Work Suspension and Withdrawal Provisions
This is perhaps the most sensitive element—and the most important to get right. ABA Model Rules of Professional Conduct require that lawyers give clients reasonable notice before withdrawing from representation and take steps to protect the client’s interests.
Your policy should address:
- Suspension triggers: “Work on active matters may be suspended if payment is not received within 60 days of invoice date, or if trust retainer falls below the required minimum for more than 30 days.”
- Notice requirements: Specify that clients will receive written notice before any work suspension, with a final opportunity to cure the default.
- Court proceeding exceptions: Make clear that withdrawal from litigation requires court approval and that you will meet all ethical obligations regardless of payment status.
- File return: Note that client files will be returned upon payment of outstanding fees, consistent with your jurisdiction’s rules.
7. Billing Dispute Resolution Process
The top complaints against lawyers, according to the ABA, include neglect and lack of communication—often stemming from fee disputes. A clear process for resolving billing questions prevents small issues from becoming relationship-ending problems.
Your policy should include:
How to raise concerns: “Clients with questions about any invoice should contact [billing coordinator/responsible attorney] within 15 days of receipt. All inquiries will receive a response within 3 business days.”
Payment during disputes: Specify whether disputed portions should be paid or held pending resolution. Some firms require payment of undisputed amounts while the dispute is investigated.
Arbitration options: Many state bars offer fee arbitration programs. Mentioning this option demonstrates good faith and may actually reduce disputes—clients trust firms that offer fair resolution mechanisms.
Preserving Relationships While Enforcing Your Policy
Having a policy is one thing. Enforcing it without alienating clients is another. Here’s how to maintain relationships while protecting your firm’s financial health.
1. Separate the Messenger from the Message
The attorney managing the legal work shouldn’t be the primary collections contact. Having a billing coordinator or administrator handle payment follow-ups keeps the attorney-client relationship focused on legal matters.
As one collections professional puts it: “When I contact a client for payment, I speak to them the way I would want someone to speak to me. I always listen to the client. It’s important to be respectful and responsive regarding issues with invoices.”
2. Offer Payment Plans Proactively
Clients who can’t pay often won’t call—they’ll just avoid you. By building payment plan options into your collections process, you give struggling clients a path forward.
Consider language like: “We understand that legal matters can create unexpected financial pressure. If you need to arrange a payment plan, please contact our billing department before your payment due date. We’re committed to working with clients who communicate proactively.”
According to industry research, 56% of firms now offer payment plans, with 48% of those firms reporting they’ve collected more money as a result.
3. Communicate Value, Not Just Amounts
Every collections communication is an opportunity to remind clients of the value you’ve provided. Instead of “You owe $5,000,” try “Your invoice for the successful resolution of [matter description] is now due.”
Your invoice itself should tell a story—detailed descriptions of work performed help clients understand exactly what they’re paying for. This transparency reduces disputes and accelerates payment.
4. Use Technology to Reduce Friction
Many late payments aren’t about unwillingness to pay—they’re about inconvenience. A client who has to write a check, find an envelope, and mail it is less likely to pay promptly than one who can click a link in their email.
Modern legal billing software integrates payment processing directly into invoices and automated reminders. This isn’t just about technology for its own sake—it’s about removing barriers between your client’s intention to pay and the payment itself.
Implementing Your Collections Policy
Having a written policy is essential, but implementation determines its effectiveness. Here’s how to roll out your collections policy successfully.
- Document it thoroughly: Write your policy as a formal document that can be referenced by staff and shared with clients. Include it as part of your engagement letter and client intake materials.
- Train your team: Everyone who touches billing or client communication should understand the policy. This includes attorneys, paralegals, and administrative staff. Consistent messaging reinforces the policy’s legitimacy.
- Set up systems: Configure your billing software to support your escalation timeline. Automated reminders ensure consistency and reduce the burden on staff.
- Communicate to existing clients: If you’re implementing a new or updated policy, notify existing clients. A simple letter explaining the changes—framed as improving service—prevents surprises.
- Monitor and adjust: Track your collection metrics before and after implementation. If certain provisions cause consistent friction, be willing to adjust. The goal is effectiveness, not rigidity.
How Legal Billing Software Supports Your Collections Policy
The right technology transforms your collections policy from a document into an active system. Here’s what to look for in legal billing software that supports collections:
- Automated reminders: Set up emails that go out automatically at each stage of your escalation timeline. This ensures consistency while freeing staff from manual follow-up.
- Integrated payment processing: Every invoice should include a “Pay Now” button that accepts credit cards, ACH, and other electronic payments.
- Aging reports: At-a-glance visibility into which invoices are current, approaching due, and past due helps you stay ahead of collection issues.
- Trust account integration: Proper trust accounting software makes it easy to show clients their retainer balance on each invoice and apply trust funds to fees when appropriate.
- Client portal access: Allow clients to view their account history, download invoices, and make payments at their convenience—24/7 access means fewer “I didn’t receive the invoice” excuses.
The Bigger Picture: Collections as Client Service
Here’s a perspective shift that may change how you think about collections: a well-run collections process is actually good client service.
Think about it. Clear expectations reduce anxiety. Consistent processes demonstrate professionalism. Payment flexibility shows you care about clients as people, not just revenue sources. And prompt collection of fees allows you to maintain the financial stability needed to serve all your clients effectively.
Law firms don’t lose clients by asking them to pay their bills. They lose clients by doing poor work or failing to deliver client service. A professional, respectful collections process reinforces your value proposition—it doesn’t undermine it.
In fact, attorneys often find that contacting clients early about payment actually strengthens relationships. It shows you’re paying attention, that you value the relationship, and that you run a professional operation.
Putting It All Together
Creating a collections policy isn’t about becoming the bad guy. It’s about establishing clear, fair expectations that protect both your firm and your clients.
Start with the fundamentals: clear payment terms, consistent invoice timing, multiple payment options, and a graduated escalation process. Build in flexibility for genuine hardship while maintaining standards that apply to everyone. Use technology to automate the routine and free your team to handle the exceptions that require human judgment.
Most importantly, communicate your policy early and often. The best collections conversation is the one that never needs to happen because expectations were clear from day one.
Your firm deserves to be paid for the work you do. Your clients deserve clear expectations about what payment looks like. A thoughtful collections policy delivers both—while preserving the relationships that make your practice thrive.
Frequently Asked Questions
How do I discuss payment terms with new clients without making things awkward?
Frame payment discussions as part of your professional process, not as skepticism about the client. Use language like: “Let me walk you through how we handle billing so there are no surprises. We bill monthly, payment is due within 30 days, and we accept [payment methods].” When presented matter-of-factly as standard procedure, clients rarely find this awkward—in fact, they often appreciate the transparency. Include the details in your written engagement letter so you’re not relying solely on verbal conversation.
Should I require retainers from all clients?
Retainers dramatically improve collections—when fees are already in trust, you collect 100% of earned fees 100% of the time. However, requiring retainers isn’t feasible for all practice areas or client types. Consider your risk profile: new clients, large matters, and litigation work often warrant retainers, while established relationships and routine matters may not. Your policy can allow for different approaches based on circumstances while maintaining consistent expectations about replenishment and payment.
What if a longtime client suddenly stops paying?
This situation requires particular sensitivity. Start with a personal call—not an email—from someone who has a relationship with the client. The goal is to understand what’s happening, not to demand payment immediately. Circumstances change: clients face unexpected financial difficulties, business downturns, or personal crises. A client who’s been reliable for years may need a payment plan or temporary accommodation. That said, your policy should still apply—just with more personal attention to finding a workable solution. Document any special arrangements in writing.
When should I actually write off an unpaid invoice rather than continuing collection efforts?
Consider writing off bad debt when: the client has declared bankruptcy or become insolvent; the cost of continued collection exceeds the amount owed; the client is unresponsive after months of attempts; or pursuing collection would create malpractice or grievance risk. Most firms consider write-offs after 120-180 days of non-payment and documented collection efforts. The key is maintaining thorough documentation of your efforts for tax purposes and firm records.
Can I use a collection agency for law firm debts?
You can, but proceed carefully. Attorney-client confidentiality limits what information you can share with a collection agency. Some ethics opinions allow disclosure of the minimum information necessary for collection, but you should check your state bar’s guidance. Consider using collection agencies that specialize in professional services debts and understand these constraints. Third-party collectors typically charge 25-30% of collected amounts. Some firms prefer “first-party” collectors who represent themselves as working on behalf of the firm rather than as outside agencies.
How do I handle clients who dispute their bills as a delay tactic?
Your policy should address this directly. Require disputes to be raised within a specific timeframe (15-30 days of invoice receipt is common) and in writing. Specify that undisputed portions of an invoice remain due on schedule. Take legitimate disputes seriously—investigate and respond promptly—but be aware of patterns. Clients who suddenly discover billing concerns only after receiving collection reminders may be using disputes strategically. Document all communications and, if disputes persist without resolution, consider whether referral to fee arbitration might resolve the situation.
Sources
Clio 2024 Legal Trends Report – Industry benchmarks for collection rates, lockup, and billing practices
ABA Law Technology Today: Seven Best Practices for Accounts Receivable Collections – ABA guidance on collection strategies
New York State Bar Association: 7 Ways Lawyers Can Improve Accounts Receivable Collections – Bar association best practices
Clio Law Firm KPIs and Benchmarks – Collection rate benchmarks by firm size
ABA Five Great Collection Letter Templates – Template guidance for collection communications
LawPay: Alternative Fee Arrangements for Law Firms – Payment plan statistics and implementation guidance
