Letting good clients subsidize deadbeat clients

Posted Tuesday, June 8th, 2010 by Gregory Forman
Filed under Attorney-Client Relations, Attorney's Fees, Not South Carolina Specific, Of Interest to Family Law Attorneys, Rules of Professional (Lawyer) Conduct

I am amazed at how many family law attorneys accept a collections rate of 75%, or less, on their billing.  Basically they are letting their good clients subsidize their deadbeat clients.

Take two attorneys who both want to  collect $1,200.00 a day while billing for 8 hours of work a day.  Attorney A expects to collect 100% of what she bills (I realize that this is unrealistic but I am using this example to create a hypothetical math problem).  Attorney B expects to collect 75% of what he bills.  To simplify, Attorney B expects to collect 50% of what he bills for half the work he does and 100% of what he bills for the other half of the work.

On a particular day, both attorneys bill for four hours of work for two different clients: Client C and Client D.  What hourly rate does each attorney have to bill at to reach their financial goal?

Attorney A can bill at $150.00 per hour.  She bills Client C $600.00 for four hours of work and bills Client D $600.00 for four hours of work.  However, to earn $1,200.00 a day, Attorney B must bill at $200.00 per hour.  He bills Client C $800.00 for four hours of work, but only collects half, or $400.00, and bills Client D $800.00 for four hours of work, for which he collects the full amount billed.  The actual result is that Attorney B is working for Client C at an effective rate of $100.00 per hour and working for Client D at an effective rate of $200.00 per hour.

I perceive this as insane.  What other line of business allows one’s good customers to subsidize one’s deadbeat customers?  If Attorney B designed his practice with the expectation of receiving the full amount billed from all his clients, he could reduce his hourly rate and still make the same amount of money.  Instead he is basically overcharging the client who pays his or her whole bill in order to subsidize the client who refuses to pay the full amount billed.  The legal ethics of such a business model is questionable. See Rule 1.5, South Carolina Rules of Professional Conduct (“A lawyer shall not make an agreement for, charge, or collect an unreasonable fee…”).  How is it reasonable to allow some clients, especially the clients who are honoring their fee agreement, to subsidize other clients, especially those clients who fail to honor their fee agreement?

No attorney is ever going to collect 100% of what he or she bills.  However attorneys whose business model involves an expectation of only collecting 75% (or less) of what they bill are allowing their good clients to subsidize their deadbeat clients. I think my hourly rate is lower than many attorneys with my level of experience and reputation but I also realize that I am less willing to allow clients to get substantially behind on my bill than many of my peer are.  This stems from a conscious decision to not have the clients who meet their financial obligations to me subsidize the clients who don’t.

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