Andrew Abramowitz, PLLC

attorney at law

 LinkedIn RSS E-mail
  • Home
  • Practice
  • Our Team
  • Fees
  • Blog
  • Contact

Early Payment Discounts for Law Firms

March 21, 2019 By Andrew Abramowitz Leave a Comment

So, the good news for the law firm of Andrew Abramowitz, PLLC is that business has increased steadily over the past few years. The bad news is that there has been somewhat of a greater tendency among clients to be slow in paying invoices. There is a hassle factor associated with this, as it requires frequent follow-up, but the real issue, as anyone who runs a small business will know, is that lumpy income creates financial challenges. My firm has regular expenses that can’t be contingent on the timing of my clients’ payments, and the owner of the firm (yours truly) has personal expenses that are equally not capable of being deferred while I wait for payment. (All of this sounds very self-pitying, but I’ll get to the point soon. I’ve been very fortunate in life and cannot complain.)

There are financial solutions to lumpy income for small businesses, including maintaining significant cash reserves on hand or accessing business lines of credit, invoice factoring arrangements, etc. But these are expensive measures. Another approach is to create economic incentives for clients to pay quickly, which would mitigate the problem. An example of a negative incentive would be for a firm to impose relatively high interest charges on unpaid, late balances. I’ve seen law firm engagement letters that at least permit such charges, though I don’t know how often they are actually imposed. My sense is that, even if they are effective, the approach would sour the attorney-client relationship.

The flip side of that method would be to offer discounts to clients who pay quickly. I’ve done exactly that, with a new policy that I introduced for my clients that pay hourly rates, where any invoice that is paid within 15 days of being rendered is discounted by 5%. I did this in conjunction with an across-the-board increase of 10% of the hourly rates, so the discount has the effect of partially offsetting the increase for quick-paying clients. The discount is available only if the client has paid all previous invoices. From a purely financial, time-value-of-money perspective, the discount is too generous. If you issue an invoice for $1,000 on March 1, it’s better to get $1,000 on March 30 than it is to get $950 on March 15. But the rationale for doing it is not to get clients to pay in 15 days instead of 30. It’s to get paid in 15 days instead of 60, 90 or more.

We will see how it works out, but I’m hopeful that the carrot instead of stick approach is an effective one.

Facebooktwitterredditlinkedinmail

Related posts:

  1. What Can Law Firms Do About the Trump Approach to Paying Legal Bills?
  2. Use of Debt Financing by Law Firms
  3. Non-Attorney Ownership of Law Firms

Filed Under: Legal Practice Advice

Leave a Reply Cancel reply

You must be logged in to post a comment.

Search the Blog

Blog Topics:

  • Crowdfunding
  • Financing Transactions/Securities Offerings
  • General Corporate/M&A Matters
  • General/Miscellaneous
  • Interesting Reads Archive
  • Legal Practice Advice
  • SEC Disclosure Matters
  • Startup Matters

Press Coverage

"Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said every investor should approach a private placement skeptically." -- Paul Sullivan (New York Times)

» Read more

"If the goal [...] is to protect people from losing all of their money in an illiquid investment, the current standard fails on that count, too. Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said a better standard might be to limit how much of their net worth people can invest." -- Paul Sullivan (New York Times)

» Read more

Sign up for Andrew Abramowitz, PLLC's Quarterly Newsletter

Your contact information is never shared or sold to any third-party.
* = required field

Browse the Blog

  • Crowdfunding
  • Financing Transactions/Securities Offerings
  • General Corporate/M&A Matters
  • General/Miscellaneous
  • Interesting Reads Archive
  • Legal Practice Advice
  • SEC Disclosure Matters
  • Startup Matters

Rankings & Awards

Ranked #7 nationally issuer legal counsel for total dollars advised in a PIPE transaction. (PrivateRaise.com January 2016)

Find & Follow

Follow Andrew Abramowitz, PLLC on LinkedIn.

Contact Info & Directions

©2019 Andrew Abramowitz, PLLC. All rights reserved. | 565 Fifth Avenue, 9th Floor, New York, New York 10017 | Legal Disclaimer