Among the copious amounts of news that Donald Trump has generated in the past year are a series of accounts about his pattern of not paying his vendors for services rendered. (I steer clear of hot button topics like politics in my blog posts, but this post isn’t really about politics.) The pattern seems to be that his organization will make initial payments but then withhold the last one, claiming some perceived mistake by the vendor as the rationale. Many of the stiffed Trump vendors are the law firms that he engages.
For people who don’t often hire attorneys (and for people who do but pay their bills), it might be a surprise to learn that it’s common for clients not to pay their firms, and attorneys are reluctant to go after them aggressively to collect. You’d think that lawyers of all people understand the system and legal recourse, but the risk that they run by bringing suit against their clients is that the clients can respond by counterclaiming that the law firm committed malpractice in its representation, whether or not there’s much validity to that claim. Accordingly, law firms’ liability insurers discourage firms from bringing suits for fees.
This doesn’t mean that law firms are powerless to deal with deadbeat clients. Some measures to counteract this include:
- Requiring advance payment for services rendered. In some situations, however, there is a chicken and egg problem if the law firm is representing the client in connection with a financing transaction that, if completed, will generate the funds that can pay for things like lawyers. Even in this situation, the attorney should ensure that a significant amount is paid in advance as a show of seriousness by the client, and the attorney can assume the risk of non-payment on just a portion of the full fee.
- Be willing to allow clients to pay in small installments over time. Most firms I’m aware of do not charge interest, but in this low-interest rate environment, they’re not giving up much by allowing for gradual payment. Although most corporate law invoices are not paid by credit card in my experience, it may be worthwhile to have these installments paid by automatic charges to the credit card, if the client is willing, so you are less reliant on the client remembering to pay.
- Coming up with other creative arrangements that defer or reduce the cash owed by the client, like accepting partial payment in the client’s equity. Of course, this depends on the attorney’s view of the client’s prospects.