Are Client Expenses Killing Your Profits?

Are Client Expenses Killing Your Profits?

Fax machine

I’m not big on nickel and diming clients. We stopped charging for photocopies, postage, legal research services, and faxes (remember fax?) many years ago.

These charges, while small, seemed to drive clients nuts. When they were upset about a fee, it was often about the items they perceived as “extras.”

We increased our rates slightly to account for the cost of these expenses and simply stopped tacking them on to the bills.

However, we still bill for substantial expenses. For instance, we pass along the cost of court reporters, mediators, private investigators, real estate appraisers, and substantial court filing fees.

We’re pretty careful about staying on top of those charges, but it’s easy for something to fall through the cracks.

Here’s the scenario that makes me crazy:

We’re going hot and heavy in a litigated matter. Depositions are going fast and furious. We’re deposing their witnesses, and they’re deposing ours. Court reporters are celebrating as they watch the bills mount.

Then suddenly, out of the blue, during a break in the deposition, the case settles.

How it happens is anybody’s guess: I think it’s usually the result of the parties running out of enthusiasm for the litigation. They get tired.

Of course, settlement is usually a good thing, so we’re pleased with the outcome. If the client is happy, then we’re happy. It’s all good.

Well, it’s all good except for what happens in about three weeks. That’s when we get the court reporter bill. Some of the depositions had been transcribed, and we’re looking at a bill for about $2,000.

The happy client has, of course, put the thought of the ugly litigation behind. She has moved on.

The last thing she wants now is a bill for $2,000. This has the potential to get unpleasant.

We send the bill. She ignores it.

We send it again. She ignores it again.

We call. She finally answers and explains that she doesn’t really want to pay the bill. We remind her of how happy she was with the outcome and how the depositions ultimately led to the settlement. She agrees but really doesn’t want to pay the bill.

We’re facing a $2,000 loss. That’s not good. In fact, $2,000 represents a good portion of what we earned in the case after factoring in our overhead and payroll related to the case.

How can we avoid this scenario? We know clients aren’t likely to pay once the balance is outstanding.

What we’re doing—and I commend this policy to you—is collecting a deposit in advance for the court reporter (or other fees). We’re placing the funds in trust and paying the bill when it arrives.

How do we determine the deposit amount?

It varies depending on the service involved. We have pretty specific numbers for real estate appraisals and filing fees: they don’t tend to vary. For court reporters, we’ve come up with an estimate for half-day and full-day depositions, and we estimate how long we think the deposition will take. We estimate on the high side since we can always refund the excess. For private investigators and personal property appraisals, it gets especially difficult, and we’re doing our best to estimate well and avoid getting stuck. It’s challenging.

You’ve got to take affirmative action on these fees. They seem trivial when compared to the total fee in a case. Unfortunately, profit margins are often thin, so even the trivial, if it goes unreimbursed, can wipe out the economic reason for taking on a case.

Be proactive about these fees. Don’t let what has happened to us happen to you.

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