You likely didn’t learn anything about billing statements in law school, but you can’t run a law practice without getting paid. Here are some basic considerations for your billing statements and sample language to put in your fee agreement so that your client knows what to expect.
- All statements must clearly state the basis for charges. Statements for attorney fees must include the amount, rate, basis for calculation, or other method of determination. Statements for costs must clearly identify the costs and amounts. Bus & P C §6148(b).
- You don’t have to send them every month. In most fee agreements, attorneys state that they will send monthly statements. But this may not be a good idea for you. You can manage client expectations and avoid disputes simply because you forgot to send a bill every month by changing the language from “monthly” to “periodically”; this gives you flexibility in sending invoices to your clients.
- You can charge interest on late payments. An attorney may charge interest on past-due receivables. See California State Bar Formal Opinion No. 1980-53. Under Cal Const art XV, §1, 10 percent simple interest per year is the maximum that can be charged for “any loan or forbearance of any money.” An interest charge for the late payment of an amount due from a client for the attorney’s services is neither a loan nor a forbearance of money and, thus, might be exempt from the usury law. But it would still be subject to the prohibition on unconscionable fees in Cal Rules of Prof Cond 4-200 and whether an interest charge of more than 10 percent would be considered unconscionable hasn’t been decided. It does appear that an interest charge complying with the 10 percent simple interest provision would be permissible. And interest and principal can be compounded annually without running afoul of Cal Const art XV, §1. Heald v Friis-Hansen (1959) 52 C2d 834, 839.
- Interest charges could make you subject to the consumer protection statutes. Before you include interest payments in your fee agreement, consider the possibility that this will make the agreement subject to consumer protection laws. See Jensen, Fee Agreements: The Untold Story, 8 Cal Law 71 (June 1988). The State Bar Committee on Mandatory Fee Arbitration, in its Sample Written Fee Agreement Forms, notes that if interest is charged, it must be reasonable and it must be simple interest. Instructions and Comments, V Additional Provisions (3) (amended effective Nov. 20, 2010). The committee adds: “If the Agreement uses the terms ‘finance charges,’ ‘late fees,’ ‘penalty payment,’ or anything other than simple interest, this may create problems with the Federal Truth In Lending Law and the California Unruh Act.”
Thinking about your billing statement begins when you prepare your fee agreement. Consider this sample language to use in your fee agreement:
Attorney will send Client periodic statements indicating _ _[attorney fees and costs/costs]_ _ incurred and their basis _ _[, any amounts applied from the deposit(s),]_ _ and any current balance owed. _ _[If no _ _[attorney fees or costs/costs]_ _ are incurred for a particular month, or if they are minimal, the statement may be held and combined with that for the following month unless a statement is requested by Client.]_ _ Any balance will be paid in full within _ _[number, e.g., 30]_ _ days after the statement is mailed.
[If applicable, add]
Thereafter, interest will be payable on the unpaid principal balance, i.e., fees and costs. Interest will be calculated by multiplying the unpaid principal balance by the periodic rate of _ _[specify fraction, e.g., 0.83]_ _ percent per month (_ _[number, e.g., 10]_ _ percent per annum) until the principal balance is paid.
Get sample provisions and guidance for creating fee agreements in CEB’s Fee Agreement Forms Manual. And check out CEB’s On Demand program Attorney Fee Agreements, with effective techniques for avoiding fee disputes through careful drafting of fee agreements.
Other CEBblog™ posts you may find useful:
- Suing Your Client to Get Paid
- Liening on Your Client to Get Paid
- Fee Agreements: Say What You Won’t Be Doing
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