Client Fee Agreements: Best Practices

Client fee agreements, sometimes referred to as “Retainer Agreements” or “Engagement Agreements,” are legal documents that outline the work that will be required to represent your client in their legal matter as well as your firm’s fee structures, payment terms, and conditions, and other important billing details.  

While they can be a great way to manage your client’s expectations, they are an important resource to have should the relationship turn sour. In the end, your fee agreement is the guidepost for determining if a client has been billed properly and whether your services meet the standards promised. While this may seem unlikely (especially if you’ve only had pleasant client experiences in the past), many studies have found that the number of firms suing clients for non-payments has risen considerably in recent years. 

As such, this is one business and legal fundamental that firm owners must perfect if they are to avoid complications into the future. 

What Should be Included in Your Client Fee Agreements? 

Client Identity

The first step toward drafting an effective fee agreement is accurately identifying the client’s needs. Depending upon your service offerings and legal practice areas, the client could be an individual, a small business, a non-profit, or a large corporation. 

It’s important to specify these details and the nature of your working relationship as, without doing so, creates ambiguity on the roles and responsibilities of you as the attorney and the client or clients. This could leave you and your firm vulnerable to bill collections issues, negative business reviews, state bar complaints, or legal malpractice claims. 

Scope of Work

Once you’ve clearly (and accurately) identified your client’s needs, you must also clearly outline the scope of your legal work. This is essential in managing the expectations of both parties and can help ease healthy cash flow by ensuring there are no disputes when distributing invoices.

For example, if the scope of your work is not clearly outlined within your agreement, clients may believe that they can bring forward new legal work without incurring additional costs. Then, when they’re faced with a much higher than anticipated bill, they may believe that they have justification for refusing payment – even though this fee may accurately reflect the work you’ve performed on their behalf.

Fees

As the name applies, your fee agreement must also outline the fees or costs of your services. To make this information as digestible as possible, you should itemize the fee structure as feasibly as possible, such as retainer fees, administrative or clerical fees, hourly rates for all paralegals, associates, and partners that will be working on the case, as well as any late penalty fees. The more specific or transparent you can be, the better. 

If you’ve worked with this client previously but have recently increased your fees, this should also be included in your agreement. 

Payment Plans

Within your firm’s fee agreements, if you offer payment plans, you should include these terms and conditions.  For example, you should provide the client with details on the various ways in which they can pay, such as online payment portals, physical checks, or bank wires, as well as setting a due date by which all payments must be received. You should also include information regarding late fees that will be applied for delayed payments or no payments.  It is now becoming a more common business practice in the industry to charge a penalty in the form of interest, where firms charge clients anywhere between 2% and 10% for the unpaid balance on their account.

Final thoughts

Failing to produce detailed and accurate fee agreements puts your firm at risk and could cause business slowdown in the billings collections process, adding to overhead costs, and unnecessary, added stress. At a time when many law firms are struggling financially, prompt payment and efficient bill collections systems are vital. 

If you’re looking for other ways to better manage your money, FinOp Group is here to help. We can assist with various financial tasks, such as bookkeeping and tax planning – helping your firm grow from strength to strength.

Get in touch to find out more.