Tag Archive: Cash Flow – Finances

More on Float – Red Alert!

Under the rubric of Homeland Security, banks now have the authority, as of October 28, 2004, to send you a “substitute check,” which is a printed copy of your check after it has been imaged. Thus, clearing of checks (and withdrawal of funds from your account) no long depends on transporting a physical piece of paper from one location to another. The theory is that commerce can continue irrespective of attacks on our country.

From a management perspective, this is a “red flag” alert. While your revenue will come in later than the date billed, your expenses will go out almost immediately upon mailing/delivering your check.

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Legal fees – Alternatives to hourly billing

More than 25 years ago, legal fees were based not only on the time spent, but also the nature of the service, the result achieved and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment.

That changed in the mid-1960s when clients began demanding detailed billing statements and lawyers used time records as a management tool to seek greater efficiencies. Today, most lawyers are paid by the hour – almost as an hourly laborer. When lawyers are paid by the number of hours worked, self-interest can and often does affect a lawyer’s judgment as to how much work to do for the client.

And, when investment in technology is required to maintain competency, the cost of operation increases. Yet, the increased technology creates greater efficiency, meaning that the time required (hours worked) to produce the same work product is reduced. This means that the revenue for the lawyer is reduced, unless he/she can get new and additional work assignments, or charge a higher fee per hour.

The ultimate result is that lawyers cannot take advantage of the efficiencies they achieve with a greater cost investment – UNLESS they go to an alternative method of billing.

Recently I had the pleasure of interviewing several General Counsel and Outside Counsel involved in promoting greater use of alternative fees. There are many different forms this movement is taking, but one common element amongst all those talking about and using the new (or not so new) modality of billing is the essential element of frequent and open communication between the lawyer and the client. But then, good communication is required no matter what billing process is used … Perhaps the lawyer just must put more effort into the process.

For more on this subject, hear the comments of General Counsel and Outside Counsel on Law Practice Management Review: The Audio Magazine for Busy Attorneys.

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Fee Sharing

Clarify your fee sharing agreement, preferably in writing.

In California, the State Supreme Court decided a case on whether a referral fee could be collected where the client did not know or agree to a fee split.

In this case, counsel for the plaintiff-attorney (seeking enforcement of an oral agreement for referral fee) argued that quantum meruit should be the minimum award even if the referral fee could not be enforced under the Rules of Professional Conduct. Otherwise, the reneging defendant-attorney is unjustly enriched. (Of course, the attorney also argued that the client was aware of the arrangement but just didn’t sign an agreement approving the arrangement.)

The California Supreme Court said there would be an unjust enrichment in either situation, but used the quantum meruit theory to award the referring attorney at least a minimum fee. Thus, both attorneys were punished to a degree, or, said in another way, there was no unjust enrichment on just one side of the issue.

In Michigan, an inactive attorney cannot enforce a referral agreement relating to a personal injury contingent fee matter.

Moral: Be crystal clear on what you’re doing with colleagues. Lawyers are no better than others — when there’s money involved, even lawyers can have selective memories!

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The Tax Man Cometh

It’s that time of year again. And, again, I say don’t wait for April 2005 to make your tax plans. Now is the time to visit your accountant and tax preparer. Here is one strategy you may want to use to keep your tax bite in 2005 to a minimum: Accelerate or defer income… (more…)

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Using Credit Cards to Pay Legal Fees

Accepting credit cards for payment is, I believe, important. We need to make it easy for clients to pay for legal services … and not change the lawyers’ profession, i.e., to that of banker.

However, be careful. Be sure you understand the rules of the credit card companies.

Remember, that one of the benefits of paying with credit cards is that there is roughly a six month window in which to raise a dispute and request the credit card company reverse the charge … at worst, the customer/client has the amount placed in a suspended account … at best, the credit card company reverses the charge, credits the customer and debits the law firm.

However, you can prevent this from happening when you get the client to agree that no dispute with the law firm will be raised with or adjudicated by the credit card company. In other words, the client agrees that the charge is non-refundable! The credit card company, when shown the client’s agreement, will not credit the client nor debit the law firm.

Any dispute between the client and the law firm, then, will be adjudicated in the right forum: the State Bar disciplinary system or the court for a malpractice/negligence action.

Check with your credit card company to be clear as to their policies relating to disputes with your clients/their customers.

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Diversify client base for financial security

If you don’t want to get “burned” and lose much time and money, you may want to consider one of the most important axioms of business: Keep all of your clients at less than 10% of your total revenue. Thus, if any one client “forgets” to pay you, the “sting” won’t be so hard to handle. I have seen too many folks focus on a very few, larger clients and be severly damaged when the fees from that client fail to continue … irrespective of the cause, whether not liking the last bill(s), changing attorneys or their own economic hardships. (more…)

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Getting credit score before applying for loan

Interested in getting a loan?Did you know that you can learn your FICO score before you apply for a bank loan?

FICO is the number bankers use to determine whether they want to lend you money … like the SAT scores that help determine your eligibility to get into law school. (The FICO score card was created by a credit analysis firm, Fair, Isacc & Co., hence the name.) (more…)

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Tax considerations before year’s end

It’s tax time! Well, not really. But, it is time to start planning for end-of-the-year moves that will impact how much you pay in taxes at the beginning of 2004. Consider some the discussed here before the end of the year is on top of you. (more…)

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Tax advantages for buying tech equipment this year

With less than 3 months remaining in 2004, there are tax benefits that may impact your buying decisions.

Law firms can deduct the purchase price of technology equipment acquired for use in 2004.
Amended IRC Section 179 provides for a new limitation of $100,000 instead of the old limitation of $25,000. This provision also applies to off-the-shelf software. The opportunity is limited to 2004, while reverting back to the old limits after this year.

Check with your tax adviser or the Internal Revenue Service for more details.

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