Note: This article was originally printed in the November/December 2020 issue of the ABA GP Solo Magazine.
Back in mid-March, as the world was rapidly collapsing, we at Confido Legal (an electronic payments and money management firm for which I serve as head of marketing and partnerships) got a frantic call from an attorney in California. “I need money,” he told us. We inquired further, and he went on, “The clients are paying just fine, and my practice and business haven’t been affected by the lockdown.” We were confused and asked, “What’s the problem?” “The problem,” he said, “is that I’ve only ever been paid by check and all of my checks are in a PO box that, now, I can’t get access to.”
Cash crunch, indeed.
There’s little need to look much further than this story to firmly illustrate why all firms needs to be prepared to accept electronic payments even if it’s not the main way they get paid. But like every good and rational idea, there’s plenty more evidence than just this singular example to demonstrate the value of accepting electronic payments.
In this article I’ll take a page from Simon Sinek’s 2009 book (well, technically, I’ll steal the title) and Start With Why: Why should you accept electronic payments? After that, I’ll move pretty quickly to the nuts and bolts of “how” to get paid electronically and then discuss who offers these services. I’ll wrap up with some higher-level ideas because getting paid is about more than just money.
Luckily the good folks at Clio have done a ton of research on the value of offering electronic payments to your clients.
Beyond preparing for the disruptions that COVID-19 has proven are often just around the corner, these statistics show that most law firms can’t run from the growing tide of consumer demand for electronic payments.
After starting with “why,” the next question is “how.” If you, like our frantic friend from California, are ready to embrace the 21st century and set up your firm to accept electronic payments, what you need is more information about these options and how they work. In this section I’ll provide an overview of payment processing and a number of the companies providing electronic payment services for small businesses and lawyers and law firms.
But a few quick introductory points: First is a quick discussion of how electronic payment companies get paid. Most of them make money on the volume of payments that you send through them. The number is usually around 3 percent for credit and debit cards and a lower amount or percentage for electronic checks or eChecks (also known as ACH or EFT). Some of these companies also charge a per-transaction fee, and some charge a monthly access fee as well. There can also be fees for other things that happen as a part of your use of the services: chargebacks (when a cardholder disputes a fee), transfers, dues, assessments, etc. The payments industry has a bad reputation for hidden fees. A good tip is to ask lots of questions about hidden fees or other types of charges you might incur when choosing a provider. Additionally, ask prospective vendors to share a sample of their monthly statements with you and ask them to walk you through the various fees they assess. This will give you a good sense of what they’ll charge you for.
Another introductory point is that payments is a very crowded field. There are definitely hundreds, probably thousands, of companies offering electronic payment services to small businesses in general. There is a smaller number, but still probably dozens, that are focused on working with the idiosyncrasies of the legal market.
Finally, about those idiosyncrasies. There’s one main problem that accepting electronic payments raises for lawyers and law firms: trust account management. If a lawyer decides to accept electronic payments into her trust account, any fees for transferring those fees into the trust account need to be paid out of the lawyer’s operating account. Similarly, should any unexpected fees be due against the trust account—say, if a customer issues a chargeback on a trust account payment—those chargeback fees must also be taken out of the operating account and not the trust account. This is because unearned client trust account fees are the property of the client and cannot be used for law firm expenses until those fees have been earned.
In many jurisdictions, these trust accounts are monitored closely. In some, a negative balance is an automatic grievance with an investigation to follow from the local lawyer regulator. Getting this stuff right matters.
PayPal. One of the oldest and best-known electronic payment services, PayPal is probably best known as the way you paid your college roommate for rent or “went in” on a gift for your kid’s soccer coach. But businesses can use PayPal to accept payments as well. PayPay is a bit more expensive than some of the others, and it doesn’t give you a discount for higher volume as some of the smaller companies might, but it’ll work, consumers know it, and it’ll be fairly easy to get going. PayPay also has some nice business-friendly features such as invoicing and the like. Note that PayPal is not set up for lawyers, so accepting trust account payments via PayPal does not comply with the rules of professional conduct.
Square. Square is another fairly well known electronic payment system. Built mainly to support retail payments, Square’s popular, clean interface and ubiquitous card readers made the company one of the first of a new generation of modern integrated payment systems. That said, Square views itself as a bit of an island—it’s not built to integrate, and it’s aimed at a fairly narrow, though large in number, set of businesses. If you’re not taking a lot of cards at the office, as would a retail establishment, Square is likely not a great fit for your firm. Besides, Square, like PayPal, doesn’t play nice with the ethics rules.
Venmo. The classic Venmo use case is easily, quickly, and cheaply splitting a bill for an Uber, dinner, or bar tab after a night out with friends. Instead of heading to the cash machine or writing a physical check (heaven forbid!), Venmo allows you to move relatively small amounts of money from person to person without a fee. The challenge is that Venmo doesn’t do much else easily. Want point-of-sale software like Square? Can’t get that from Venmo. Want business-friendly invoicing features? Nope. Venmo also limits the amount of money you can get paid per week to $5,000 and the amount of money you can move out of Venmo (it doesn’t automatically transfer to your bank account) to $20,000 per week at $3,000 increments. Finally, while lots of your clients may use Venmo, Venmo doesn’t care that you’re a lawyer.
Laway. There’s no denying that LawPay is the king of the legal payments castle. LawPay is to legal payments what Kleenex is to facial tissue. LawPay integrates with a wide variety of legal software partners (in some cases to the exclusion of other payment providers), partners with a number of bar associations, and does a great job of reassuring lawyers that it gets legal.
Confido Legal. If LawPay is the behemoth of legal payments, the Microsoft of the 1980s or 1990s, there are a few upstart challengers, a few Apples striving to provide a product differentiated by design, customer service, and/or cult-like customer evangelists. One of these is newcomer Confido Legal. Its parent company, Confido Payments, has been in business for 20 years and, among its thousands of customers, has helped hundreds of lawyers with ethics-compliant electronic payments. Confido Legal is focused exclusively on the legal market and has a small but growing list of legal-specific integrations, a novel take on managing trust account payments, and some interesting features related to surcharging (shifting the costs of processing to clients) and legal services subscriptions.
Headnote. Headnote is another upstart in the legal payments space with clean design and clear sense of focus. Although Headnote does have some integrations, it is breaking away from the pack with a suite of tools to help lawyers manage the always-pernicious “accounts receivable problem” and to measure and improve firms’ Net Promoter Score—a measurement of customer satisfaction that many in business believe is central to understanding a business’s overall health and reputation.
There’s no doubt that electronic payments can expedite getting paid, thereby increasing collections and improving cash flow. But a modest effort to improve your strategy around payments and, ultimately, how you deliver legal services can have just as large if not a larger impact. It’s possible that implementing one or more of these payment strategies or business models might increase the likelihood of a client paying your bill, regardless of the payment method.
Installment payments. Installment payments aren’t new, but not many lawyers have thought as strategically about installment payments as one litigation firm with whom I recently connected. They’ve started handling litigation by installment. Instead of asking for a large up-front retainer payment, this firm gets the client on a monthly installment plan with a commitment that the payments will generally last for a certain amount of time and that the firm can withdraw if the customer ever lapses on its payment obligations. The firm has found that it’s making more per case—although it takes longer to make the money. Accounts receivable have been reduced because the firm is not asking the client for a giant chunk of money as a retainer, then chasing the client down for more money once that money is gone. And the firm has actually increased the number of clients it can serve because, although not everyone can afford a large up-front retainer, more people can afford a series of smaller monthly payments.
Flat fees. There’s a relative dearth of information on how, exactly, to set your flat fees, but if installment payments aren’t new, flat fees are even older. If you’re moving from an hourly to flat fee model, it’s easy to measure how long it takes you to do some relatively regular task in your practice and multiply the time it takes by your hourly rate to come up with a general approximation of a flat fee. Refining that flat fee and building a firm of systems and processes around that fee is how flat fees really get interesting but getting started isn’t rocket science. The benefits of cost predictability to the client are obvious—and they’re the same reasons that a firm using a flat fee is more likely to actually get paid.
Subscription. Subscriptions are more complicated than installments or flat fees, but for the right practice they can be revolutionary. I’ve talked to a number of firms using subscriptions with their clients who have enjoyed relatively stable and even growing revenues through the COVID-19 lockdown. For more on subscriptions, check out two recent episodes of the Confido Legal Financially Legal podcast with subscription legal services experts Jonathan Tobin and Kim Bennett. You can also check out our recently launched 40+ page white paper on subscription legal services.
The case for electronic payments has never been stronger than it is right now. Beyond the uncertainties of the current moment that make paper payment challenging, the consumer demand for electronic payments and the benefits it brings a firm constitute a strong case. The options for electronic payment are many. And when combined with a well-thought-out practice strategy including client-friendly fee structures such as flat fees or even subscriptions, they’ll put a law firm on a strong financial footing. We can’t be sure that we won’t see the next pandemic or natural disaster coming. But when it comes, the need to get to the PO box to keep the firm running will be one less thing to worry about.
©2020. Published in GPSolo, Vol. 37, No. 6, Nov/Dec 2020, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American BarAssociation or the copyright holder.