Three mistakes Lawyers Make When Deferring Fees
Are you a family lawyer who still accepts payments in installments or after the matter is resolved? (Also known as “carrying clients”, “pay-at-end” or “deferred fee” arrangements). Whilst this can be attractive for clients and increase lead conversion, they can be an administrative burden and present you with complex financial and ethical dilemmas.
In this context, it’s crucial that family lawyers understand more about alternative payment options such as family law funding to save time, reduce risk and improve cash flow. In this article we outline the three key mistakes that family lawyers and firms make when it comes to deferring fees and what you can do about it.
Why Cash Flow Matters
Simon McCrum is a former Managing Partner and current law firm consultant in the UK. He is also the author of The Perfect Legal Business which is a must read for anyone currently running a law firm or anyone who has aspirations for running a law firm.
As Simon puts it: “The Perfect Legal Business puts cash “front of house”, and it sets out at the start of every financial year to achieve increased product and cash reserves by the end of the year…The Perfect Legal Business is a high-profit margin, cash business, not a turnover-based credit business.”
For family lawyers, building “The Perfect Legal Business” is easier said than done.
The “Missing Middle” in Family Law
When it comes to access to justice in Australia, the growing missing middle presents unique challenges for family lawyers.
Most people going through a separation do not qualify for Legal Aid due to the assets they have accumulated over the course of their relationship. At the same time, non-primary income earners and/or the primary carers of children lack the financial resources to afford private legal fees for all or part of their legal matter.
As a result, thousands of Australians don’t leave abusive relationships or, if they do, they are forced to self represent or settle early for an amount far less than they deserve because they can’t afford to pay for a lawyer. These challenges disproportionately impact women.
These issues were highlighted by Chief Justice Alstergren AO recently:
“Many people, particularly those who have been victims of family violence, are also very reluctant to engage in court action due to the cost and the ongoing conflict with the perpetrator. Research also shows that many women are reluctant to leave an abusive relationship because they have no money, nowhere to live, and no access to resources.”
For family lawyers who most commonly work in specialist family law firms, helping the missing middle is made more difficult because they do not have the support of other practice areas. Paying clients are essential for sustaining the firm, covering operational costs, paying staff, and ensuring the firm’s growth, so catering to the missing middle proves to be a complex task.
Three mistakes law firms make when deferring fees
We recently discussed the risks posed by deferred fee arrangements and the common mistakes law firms make on a webinar with Caralee Fontenele, the founder of Scalable Family Law and Collective Family Law Group. You can access the webinar here.
In Caralee’s and our experience, there are three common mistakes family lawyers make:
- Not clearly defining the terms and expectations of the arrangement – Firms rarely define these arrangements clearly or in detail, such as whether there are limits (both in terms of the amount and length of time) the firm is able to defer, and what happens if a client changes lawyers. This more often than not leads to misunderstandings and tension later on, especially if the matter drags on and/or becomes more complex than initially thought.
- Taking on too many deferred fee matters and not continuously monitoring the client’s ability to repay – With family lawyers busier than ever before and with the law firm’s resources stretched so far already, it’s easy to overextend the number of deferred fee arrangements offered to clients and not keep track of a client’s ability to repay. Every family lawyer has experiences of being burned by clients who were offered defer fee arrangements.
- Not considering the implications regarding conflicts of interest – Being owed outstanding fees can place family lawyers in a position of conflict when settlement offers are made. The settlement offer may be more than enough to cover the outstanding balance but is inadequate in the eyes of the client.
Carrying clients ultimately leads to write-downs and write-offs when client relationships are strained, or when otherwise satisfied clients seek a discount when faced with a large bill at the end of the matter. They also distract lawyers from focusing on doing their best legal work.
How family law funding can help
Family law funding is a flexible line of credit designed to help individuals pay for legal expenses and disbursements during their separation, at no additional cost to law firms. Family law funding providers avoid the common mistakes law firms experience because they are experts in providing this type of funding, have clearly defined terms with clients, have clear eligibility criteria and robust processes to monitor cases once funded. They also ensure that family lawyers aren’t placed in a conflict due to outstanding invoices.
JustFund: Not Your Typical Funding Solution
JustFund allows family lawyers to focus on doing legal work, get paid faster and convert more clients without having to compromise on cash flow. Trusted by over 200 Australian law firms, we provide your clients with the resources they need and give you the peace of mind to do your best work.
At JustFund, we’re not your typical family law funder:
- We’re founded and operated by lawyers.
- Family law is our sole focus.
- Family law firms do not guarantee or underwrite the funding.
- Family lawyers do not need to complete lengthy case summaries or provide advice in support of their client’s application. Our online application process is simple, we are responsive and we make fast funding decisions.
- We take a more flexible, family law approach to funding. This means:
- We can assist clients who are not on the property title;
- We can assist where the parties are unable to further encumber property;
- We can assist where property has been sold and the sale proceeds are held in a trust account; and
- Taking security such as caveats is not a strict requirement.
- Clients can apply for as little as $5,000.
- Most importantly, we appreciate the stress and uncertainty that clients are experiencing, and we always seek to deal with them in an empathetic, respectful and positive manner.
At JustFund, the challenges posed by the missing middle are something we know all too well. 75% of the clients we support are women and 80% are the primary carers of children. They typically do not have the same financial resources as their former partner. Unlike a traditional personal loan, we don’t focus on someone’s income, employment history or credit score. Instead, we take into account their unique circumstances, legal entitlement and expected property settlement to provide a service that is flexible and accessible.
To learn more about JustFund and how to become an accredited law firm, email partners@justfund, call 1300 644 980 or visit www.justfund.com.au/for-lawyers.
