Client-centric payment options boost firm’s bottom line

By Nicole Black

ROCHESTER, N.Y. — Most legal clients rarely plan to hire a lawyer. While we’d like to think that the need to retain an attorney is driven by a careful and premeditated decision-making process, the truth is that people don’t often seek legal counsel unless an unforeseen event forces their hand.

This reality, where legal support is more a necessity than a choice, presents a unique opportunity for law firms. By implementing flexible payment options, your firm can help bridge the access-to-justice gap by easing the financial strain for potential clients. This strategy attracts more clients by making your firm’s services more accessible and directly increases your firm’s revenue.

There are many ways to increase profitability and the likelihood that prospective clients will be able to retain your firm in the coming year. Understanding how other firms have successfully achieved this goal is one approach. For this type of insight, look no further than a recent report that provides data points that offer financial insights gleaned from law firms across the country. The anonymized data analyzed in the report was obtained from the MyCase practice management and LawPay payment processing platforms and includes collection rates, payment time frames, and the impact of offering legal clients payment flexibility. Using this benchmark information, you can deploy actionable strategies that will ensure a profitable year of growth for your firm.

Let’s start by considering the average invoice collection realization rate. This metric, which provides insight into the effectiveness of a law firm’s billing processes, is calculated by dividing the amount of revenue collected during a specific time frame by the amount billed to clients and then multiplying that number by 100. The higher the invoice collection rate, the more efficient your firm’s invoice collection process.

One benchmark provided in the report was the invoice collection rate for solo practitioners. The data showed that over a year, solo practitioners billed 685,044 hours of work and invoiced $343,894,240 to clients. The total amount collected for all invoices was $158,348,081, resulting in an invoice collection realization rate of 46%. This collection rate is a useful point of comparison since it offers a benchmark that you can use when determining your firm’s invoice collection goals for the coming year.

Next, let’s consider how law firms are providing payment flexibility and increasing profitability and access to their services. According to the report, law firms that accepted online payments had a significantly higher and faster collection rate. The recovery rate for invoices paid through online payments was 50% compared to 17% for those paid via checks or cash. Notably, firms that accepted online payments (compared to cash and checks) collected an additional 33% and received payments at least twice as fast.

Another way lawyers are making it easier for clients to retain their firm is by offering payment plans. If you are holding off on utilizing payment plans because you aren’t sure how effective they are, the report provides insight. The data showed that the average payment plan length was 258 days, the average number of payment plan invoices and reminders sent to customers was 37, and the average collection rate was 61% of the full amount owed. You should consider this collection rate, along with the administrative lift required, when setting up a payment plan at the start of a case. Doing so will ensure that your firm is sufficiently compensated for its work throughout the life of the matter.

Finally, another flexible payment option analyzed in the report is a legal fee loan. This payment option allows legal clients to defer paying the full amount of the legal fee upfront by working with a third-party lender. Once the loan is approved, the lawyer is paid the full fee upfront by the lender, and the client then makes regular payments to the lender. According to the report, the average loan length was 16 months, and the average loan amount was $2,592. Lastly, the data showed that lawyers received their full legal fee within three days of the loan approval.

No matter how you view the data in this report, one thing is evident: The integration of flexible payment options isn’t just a client-friendly approach; it’s a strategic business decision that can significantly boost your firm’s bottom line. Because legal needs often arise unexpectedly, providing clients with adaptable payment methods can be a decisive factor in their choice of legal representation. By prioritizing client convenience, your firm not only stands out in a competitive market but ensures strong, long-term client relationships and sustained financial growth in 2024.

Nicole Black is a lawyer, author and journalist in Rochester, New York, and the head of subject matter expertise and external education at MyCase and LawPay.