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Best Practices in Billing By Daniel M. Mills1
© District of Columbia Bar 2012
A gunfighter does not charge by the bullet.
- Sign in the office of a criminal defense lawyer
_____________________________________________________________
Statement for Services Rendered
Activity Time Amount
Thought I saw you across the street. I crossed to say hello. It wasn’t you: .3 $150.00
- Invoice of a modern lawyer
Introduction
The best way to assure that we are paid for the professional problem solving that we do is to only take on clients who pay us and preferably up front. I’m an advocate of the Zips Dry Cleaners model for the law firm: no inventory, nothing perishable, and payment up front.2
When a prospective client asked me why I had to be paid up front, I would say it is so I only have one thing to worry about and that is solving your problem. Otherwise I have two things to worry about. I never had to explain the second worry.
There are two essentials for the process of being paid for professional problem solving. The first is that we create incentive for our client to pay us either now, before we do the work, or as we do the work. The second is that we have a highly functioning system for informing and educating the client about the problem solving we are performing and that asks for payment. This is also known as the billing
1 Daniel M. Mills is the assistant director/Practice Management Advisory Service at the D.C. Bar. He was a solo/small firm lawyer for 28 years before he retired in 2007. He began his billing career using a manual process that incorporated paper and pencils. He became automated with the first DOS version of TimeSlips in 1985. With the Windows version of TimeSlips, billing went from a three‐day ordeal to a three‐hour process. 2 The Washington Post, May 31, 2009, G1‐3; www.321zips.com
process. The process should avoid angering or annoying the client. It should also make it easy for the client to pay.
There are two truths about being paid for problem solving that are important to acknowledge now. The first is that there is a moment in time when the client really needs us. At this moment, the need is at its highest level. Over time the need usually wanes and with some it vanishes all together. The second truth is that clients read what we send them about what we do and what they owe us. They may not read much else but they read the bills. If you can time the request for money to the height of the need for your services, you are likely to get paid. If the need vanishes all together or worse yet, if it is replaced by indifference, resentment, confusion or anger, you are not likely to get paid.
Value & Need
When value and need come together, it is a wonderful time to talk about money. This is why the criminal defense lawyer is paid up front at the first meeting or two and before things really get going in the case. As gunfighters of the West were not hired and paid by the bullet, criminal defense lawyers are not hired for a little defense. When need and value match, the criminal defense lawyer is all in and the flat fee paid upfront covers a trial, plea or any other resolution which the lawyer is instrumental in bringing about.
Matching value and need for an estate planning lawyer with a 30-something single client is a whole other dynamic. The client thinks she is immortal and does not really have a problem in need of a professional solution. Matching value with need is much more a process of educating about need. Some prospective clients simply don’t know they have a problem in the making.
Matching value and need is a factor of being very intimate with our ideal client’s problem recognition process. If you are not well versed in the process of your client in recognizing the problem that he will ultimately bring to you for solution, then start asking and listening. Understanding your ideal client’s problem recognition process is key to matching value and need.
We must do all we can to manifest value to our client. They usually presume our competence but they are often unsure that we represent value. Said another way: clients often don’t know that we know how to solve their problem in a manner they can afford. And when we solve their problem and when we make sure they understand how well we solved their problem, they understand our value.
How good a job do you do manifesting value to your client both at the peak of their need for a solution and through-out the problem solving process? If you do a really
good job of manifesting value, their your marketing machine will be funneling to you the clients you want and your problem solving process will be turning out happy clients who sing your praises. Your problems will change from collecting accounts receivable to keeping up with demand for your services.
So try as we might to collect all fees upfront when need is typically greatest for our solution, there are practical reasons why this is not always possible. We may not be that good at talking about money with our clients. But we can get better at that. It’s really not that difficult. Sometimes it’s just our belief and approach that has to change. One of my favorite partners had his secretary say to each prospective client when she would schedule an initial consultation: Tom said to tell you to bring your checkbook. Clients hired Tom because he was an attack dog lawyer. He knew their need was highest at that first meeting. That’s why he would say, if he wanted the case, Get out your checkbook when it was time to close and get a signed fee agreement and upfront fee. This approach won’t work for everyone, but it’s a place to start. A variation can be found for every practice area and every prospective client.
Another practical reason we take on clients without full payment upfront is that not all clients can afford that method. Some may be unwilling. And at times we don’t know how much money the problem solving will require. We need a system.
What are the elements of this highly functioning system for informing and educating the client about the problem solving we are performing that gets us paid?
How to Setup and Run a Billing Process
The billing process is a communication system. It has many aspects. It begins with making sure you are compliant with all aspects of the Rules of Professional Conduct for any jurisdiction in which you are barred, and in particular the rules on fees, fee agreements, communication, marketing, confidentiality and handling money.
All communication you do with the public and prospective clients is a part of this system and should be primarily focused on marketing to or communicating about the problem you solve rather than talking about yourself. You make yourself much more relevant to a prospective client meandering through her problem recognition process when your marketing is all about the problem. You are matching your value with her need. Marketing about the problem you solve is a credibility builder that works much better than talking about yourself.
So assuming you have attracted the prospective client you want who can and will pay for your problem solving ability, the next essential element of the billing process is the fee agreement. At its essence, the fee agreement clearly defines the problem you
are going to solve (scope provision), it sets out the fee and basis for payment, and it covers how expenses will be handled.3
Never miss an opportunity to explain how the fee agreement works and how services will be provided, money will be handled, explanations will be given, questions will be answered, invoices will be issued and what, precisely, is expected of the client. Talk it out in detail. The client needs to know how you work, how you charge, how invoicing occurs, and how they pay.
It is, of course, absolutely essential that you precisely follow the oral and written description of how your billing system operates.
Make the Entry Now, Not Later
If you charge on the basis of recorded time, whether you do it by writing down what you do, entering it by keyboard or touch screen into a data base, or dictating it for transcription, make the entry immediately after you complete the work and not later that day, during the week or at the end of the month. The entry must be made while the effort is fresh in your mind. Make the entry as though your client was sitting across the desk from you and you were explaining what you did, why you did it and how it helped the client. 4
If you are not in the habit of making time entries immediately after performing work, this may be a difficult transition for you, but it is a necessary one for several reasons. The conventional wisdom is that you will record more accurately all your time if it is entered immediately after the work is performed. If you wait until the end of the day, week or month, memory will not be as good and work will be missed.
While capturing all work is important, a more important reason for contemporaneous entries is that the content will be better and the time entry accurate and fair. The content will be better because the work is fresh. The opportunity to talk to your client in the entry will more likely lead to a better explanation of the work. If something took you longer than it should have because you were distracted during the work, your entry is more likely to be fair and accurate if made immediately after the work is performed. So as you are entering time and activity, visualize your client and explain what you did, why it was necessary and how it helped when appropriate.
3 Scope, fee and expenses are the mandatory elements of the Maryland and D.C. Rule 1.5 of the Rules of Professional Conduct for each jurisdiction. 4 Evaluating the many and varied software applications that make time and billing more manageable is beyond the scope of this article. Which application is best is a fact sensitive inquiry. A list of some of the many options is at the end of this article in the Appendix. Thanks to Nerino J. Petro, Jr. of the State Bar of Wisconsin for compiling this list.
Review the invoices before they are sent to the client and conduct the review from the mindset of your client. If you see entries that would puzzle, annoy or offend you as the client, make the necessary changes. Have trusted non-lawyers working in your firm review the invoices with you.
Invoice Appearance is Important
The invoice form itself should be professional in appearance and easy to navigate. It should be called an Invoice for Services Rendered or Statement for Services. It must be clear that it is a bill with an amount to be paid. The firm’s Employer Identification Number should be stated on the Invoice. Your client’s name and address and well as yours should be displayed. The Invoice should contain the date it is sent to the client. Time worked expenses incurred and subtotal amounts should be set out clearly with the total amount owed at the bottom and setout clearly so that the client knows how much to pay.
Terms should be reflected on the invoice in that the client should know when payment is due, how to make payment and whether there is a discount for early payment or penalty for late payment. If you can receive payment electronically, describe how that feature works and how the client may make use of it.
Traditionally the bottom or end of your invoice should be a clear statement of how much is to be paid and any applicable terms5:
Payment Time: 15 days 30 days 60 day 75 days Adjustment: -5% 0 +5% +10% Adjusted Amount Due
$950.00 $1,000.00 $1,050.00 $1,100.00
Send the invoice by email or snail mail based upon your office’s best practice and your client’s need. Hard copy, snail mailed invoices are often perceived as more professional. Emailed invoices, making use of PDF format, work best for clients setup to receive the invoice in this manner.
A personal note from you with the invoice can often help the communication process. It can be a Thank you or I’ve enjoyed helping you or I would appreciate prompt payment should that be appropriate. It lets the client know you have had direct input into the invoice. If you need to call about a past due sum, the note might say I’ll be calling you soon to discuss this.
To regulate cash flow, time entry must occur as near as possible to the action performed and billing must occur on a regular schedule. When billing at the end of a
5 Interest rates may be regulated by your jurisdiction’s applicable law.
flat fee event that is completed, if you have not already been paid, the invoice should issue immediately upon completion of the project. When accounting for time on a regular, monthly basis, invoices must go out as close to the same time every month as possible. For clients who are billed quarterly or on another time basis, the invoice must go out immediately at the end of the cycle. The cycle must be consistent with the fee agreement and your oral discussion with the client of the billing process.
If you bill at the same time you deliver work product, send these items separately. The invoice gets its own envelope or email.
Some Guidelines
Here are some suggestions and guidelines that may work for you:
Personalize the invoice – use actual names when referring to your client and others. Never call your client the client in the invoice;
Resist billing for more than two hours for anything done in your office. Break the work into multiple events for entry;
Total up small entries and don’t nickel & dime your client in the bill; When the invoice is larger than normal, consider giving some explanation in
addition to the invoice itself. For example, explain in a letter or personal note what occurred and include it with the bill.
Review prior invoices to make sure it does not appear to your client that you are charging for work already performed. For example, when we bill for research, if we don’t explain in detail what we researched and why, it can appear that we might be repeating something already performed and perhaps paid for by the client.
Make sure the client knows she/he can talk to you about the bill. Any time an issue arises on your end regarding the billing process, address it now. Avoiding the issue never adds to the solution. You are far more likely to collect a past due amount if you call the day after payment is due as opposed to sending a nice letter sixty days later.
Electronic Payment Processes
And for those of you who take payments electronically or are thinking about it, this can add an element of convenience for you and the client, however there are matters of concern.
A client sits across the desk from you, having just told you an epic tale of woe and wrong-doing. You sympathize and know you can help her, but it’s sure to be a long and stressful case, and you don’t want to spend your time chasing down payments. You steel yourself and quote her an advance fee of $15000. “I don’t have that much,”
she says in dismay. “But I have this card…” Do you send her packing? Do you refer her down the street to a cheaper attorney who offers payment plans? Or do you pull out your smartphone and confidently swipe the deposit into your trust account? Accepting electronic payments can make it easier and more likely to get paid, but savvy attorneys must choose from the growing number of digital options with their eyes wide open.
The key to making digital payment worthwhile to an attorney is its effect on the client. Instead of mailing a check, going to the bank, or even hitting up friends and family for a loan, clients can pay your legal fees quickly and easily in a matter of seconds. Electronic payment can mean clicking on a lawyer’s digital invoice. Or giving credit card information over the telephone. Or even swiping a card in the attorney’s smart phone. As of summer, 2012, it can mean simply stating your name - if your appropriately “apped” cell phone is within a few yards of the attorney’s payment machine. All of this convenience means a higher likelihood that the client will make the payment; and the use of credit means it’s more likely they are able to make the payment.6
The Pros & Cons
The resulting benefits to the vendor (you) seem to weigh heavily towards accepting electronic payments. First off, you don’t get “the check is in the mail” excuse. As noted above, the client may be able to “afford” more than otherwise, since in most cases electronic payment means paying with credit. Since clients can pay more up front or can even give you permission to charge their card periodically, you don’t have to waste time and anxiety acting as your own collection agency. Instead of having to wait or call the bank to verify that a check is good, with credit cards you should know right away whether funds are available.
On the other hand, the race is neck and neck between checks and credit cards in terms of how long it takes to actually get the funds in your account: while it used to be that checks took longer to clear, in our increasingly high-tech financial system you can either slide the check through a digital processor hooked up to your computer or simply take a picture of a client’s check, send it to your bank through an app, and have it clear in 24 hours.7 Still, longer holds may be placed on larger amount checks and, in an economy increasingly devoted to credit and convenience, any attorney who wants to increase their cash-flow should at least consider offering the option of electronic payment.
6 See DC Legal Ethics Opinion 348, which discusses the acceptance of credit cards. 7 Many banks now provide this service, including several large ones, including USAA, Citibank, Chase, and Bank of America. See, for example, Chase’s Mobile Check Deposit App: https://www.chase.com/online/services/check‐deposit.htm
Before you click “Order Now!” on the first ad for a credit card processing machine, you should be aware of several issues triggered by the use of credit cards, both through traditional card processors and through the various alternative payment companies like PayPal, Square, and Level Up:
As an attorney, your first issue should be where the money goes: is your credit card processor linked to your operating account or your trust account? If the fee is already earned, then of course a deposit into your operating account is just fine. If your client is paying an “advance fee” (not earned yet) and the link is to your operating account, even quickly transferring the money to a trust account won’t save you from a disciplinary charge of commingling.8
How much do you typically charge and how will that work with any per-day payment limit set by the credit card or processing company?
There are security concerns, including how and where you store the clients’ credit
card information or whether your email,9 computer, or online payment system can be hacked.
Fees, fees, fees: wire transfer fees, monthly credit card processing fees, discount
fees, transaction fees, authorization fees, batch fees, chargeback fees, equipment costs, and termination fees.10
And where do these fees come from? If they are to come from the client, that fact
must be conveyed up front.11 Which account are they charged to? If the client isn’t going to be paying those charges, then they must be debited from the lawyer’s operating account. Unfortunately, most credit card processing services link all transactions (including fees) to just one account, with the exception of several that cater specifically to attorneys, as discussed in more detail below.
The Charge Back Risk
An issue that deserves special mention is the possibility for “charge-backs.” Most credit card companies now make it easier than ever for customers to request a chargeback, with no required preliminary notice to the vendor and the money being automatically withdrawn from the vendor’s account and put on hold until the dispute is resolved. Then the burden is on the vendor (the attorney) to prove that the transaction was valid and, meanwhile, the money is at least temporarily gone.
8 DC Rule of Professional Conduct 1.15 9 Even if payment information is not sent by email, an unsecured email system could allow hackers access to financial information transmitted through your computer (either directly by accessing your files or indirectly through “ghosting” or “key‐logging”). 10 Not all companies charge all of these fees, separate them out, disclose them or even call them the same thing. Be a savvy shopper! 11 See DC Legal Ethics Opinion (LEO) 348 for the view that such an arrangement is permissible and for more information on what notice the attorney must give to the client.
That’s bad enough of course, but the real problem comes when the charge-back is made after the money is “earned” and transferred to the lawyer’s operating account – and even spent. Thus, other clients’ money may be withdrawn by the credit card company, leaving you at risk for a disciplinary complaint12 or even civil suits from the other clients.13 There are a variety of companies that are attempting to address the problem of chargebacks, with several of those being the same companies focusing specifically on attorneys.
The Process
Attorneys can accept electronic payments the same way as any other vendor – that is to say, a surprising and rapidly expanding variety of ways. You can use equipment provided by a credit card processor to either manually enter the card information or slide the card through a reader attached to a stand-alone machine or hooked up to your computer. Usually this is accompanied by a signature from the client on a credit or debit slip,14 which the attorney should keep in case a dispute arises as well as for tax purposes.15 You can even take the card information over the phone or in person and then “call it in” to the processor without the need for signatures or even paper.16 Some companies now provide attachments to your smart phone so you can simply slide the card, wherever you may be, for uploading of the transaction.17 As with most everything else nowadays, the client can also pay online through an attorney’s website using credit cards or payment intermediaries such as PayPal or one of its dozens of competitors18. With the advent of “Near-Field Communications” (N.F.C.) it is now possible for a client to simply tap or waive their smartphone and your processing machine will pick up their information.19 If that wasn’t enough, you can generate a temporary QR code (see image below-left) which the vendor’s scanning equipment can read and process, but which does not contain any specific account information that can be compromised.20 And of course, while not commonly thought of as an “electronic payment,” the digital uploading of check
12 Again, see DC Rule 1.15, Safekeeping Property. 13 While the quickly changing landscape of digital financing is not at all settled in our DC ethics rules, LEO 348 takes the view that any agreement with a credit card company that allows for such charge‐backs to the IOLTA account is a per‐se violation of Rule 1.15. 14 Or even a “finger‐signature” on an iPhone or iPad, which can be saved digitally for your records. 15 It used to be that a vendor had to make a carbon copy of the credit card and send in the signed slips to the processor in order to get paid, but in the digital age that is no longer required. 16 Note that this practice has its own obvious problem if a dispute arises as to how much or whether a charge was authorized. 17 Current examples of companies that provide this service include Square Up, Intuit, and Pathway Payments, though the field of competitors is likely to grow more crowded in coming months. PayPal just recently added this service, with a free reader provided to new vendors. 18 For a sample list of companies that provide this type of service (as of August, 2012), see http://venturebeatprofiles.com/company/profile/paypal/competitors 19 E.g., Google Wallet and Square. 20 Level Up is probably the best known example of this so far.
images for quick verification and payment, as mentioned above, carries with it some of the benefits of credit card speed without the risk of charge backs.21 If you want to know how a credit transaction works behind the
scenes, the basic explanation is that the customer submits their information (whether directly to the vendor, through a reader or online), the credit card processing company submits the information to the global credit card network, which makes the appropriate requests for validation from the customer’s bank, the notice goes back up the line that the funds are available, the customer signs for the specified amount (or not, depending on the system used), and the processor then signals the network to tell the banks to transfer the money to the vendor’s account and post the payment to the customer’s bill (for later direct payment by the customer). If the payment is online or by reader, a payment gateway is added to the equation right before the payment processor, but otherwise the relationships are the same. All of this takes a matter of seconds, except of course the ultimate availability of funds in the vendor’s account, which usually takes around two to three days.22 The flowchart that follows may make the relationships easier to understand:
21 You will still have to deal with the issue of “availability” of funds versus validity of the payment itself. As noted elsewhere, you can only be sure that the check is ultimately valid after your bank has submitted it for collection to the issuing bank and received verification. 22 Note that PayPal and the like use a different system with more actors involved, which usually increases the time lag.
What Are Your Options? The world of digital finance is currently growing and changing at a mind-boggling pace. There have been some amazing new technologies and financial relationships developed over recent years and months that could fundamentally change the way people do business…or turn out to be passing fads. Knowing which is which may not be as important as staying flexible and keeping an eye on the bottom line. Processes that require a big investment, long-term contract or comparatively larger transaction fee should be avoided no matter the collateral promises, especially at this early stage in the game where the cost-benefit analysis has just begun. When comparing all your options for electronic payment, in addition to the ethical issues, you need to consider some practical factors that can affect your efficiency as well as your bottom line.
Equipment: Do you need to be able to accept payments outside the office? Do you need a check scanner? Do you want an N.F.C. reader? Some equipment can be costly and ongoing, while some things like cell-phone scanners are provided
free of charge by some companies and other systems rely solely on your (assumedly preexisting) smartphone.
Speed: What is the lag time for getting payments to your bank account? Does it take hours, days or weeks? Can the company put a hold on your funds?
Fees: What are the discount and transaction fees23? Are they different for more
volume or higher amounts? Is there a monthly fee, a set-up fee, a gateway fee, or a cancellation fee? Does the company charge more for “card-not-available” payments where you manually key in the information? Do certain “non-qualified” cards cost more, like corporate or reward-based cards?
Service: How does the company handle disputes? How easy is it to get ahold of
them? How do they handle charge-backs or refunds24? Are they sensitive or responsive to attorney-related issues?25
You can go to several online sites to compare pricing and some of these other factors, though getting all the (sometimes hidden) details may require some heavy homework finding consumer reviews and reading terms of service agreements. You should also be wary of comparison sites that make money on a pay-per-click basis as processor affiliates. Their review may or may not be tainted by the amount of payment they get from each company. The following three sites are good places to start – just be sure to follow up with some research of your own:
http://www.merchantmaverick.com/merchant-account-comparison-chart/ http://www.cardpaymentoptions.com/ http://www.feefighters.com
Another option for comparing electronic payment companies is to register with a “reverse auction” program, where processors compete for your business, are screened for hidden fees, give you “interchange-plus” pricing comparison, and are usually subject to a continuing monitoring of fees by the program. As of this month, the two primary reverse auction programs are:
http://www.cardfellow.com http://www.feefighters.com
23 The discount fee (a percentage) plus transaction fee (a fixed amount, like $0.18) combined is usually called an “interchange fee,” which is collected from the vendor. The validity of current interchange fees charged by credit card companies is beyond the scope of this article, but is hotly contested by various merchant and consumer advocacy groups. 24 Some companies require that refunds be made to the processing company, not to the client, which could run afoul of DC Rule 1.15(c). 25 For purposes of the evaluations contained in this article, quality of service will not be mentioned (except for a company’s treatment of attorney‐specific issues) since that information comes only from third‐hand anecdotal evidence ‐ you may research that for yourself on the internet.
Specific Companies26 (1) PayPal and similar systems27 PROS:
PayPal, owned by E-Bay, is currently one of the more widely-used systems of on-line payments in the world. The system functions linking your bank account and/or credit cards to a third-party processor and a PayPal trust account which, upon request, can transfer funds to a vendor.28 PayPal then charges the vendor an aggregate of the bank and credit card companies’ fees (plus a fee for PayPal’s profit). Thus, besides the convenience of having multiple sources of payment, PayPal’s primary benefit for the consumer has always been security – in that the client/purchaser does not have to disclose their credit card information to the vendor: the consumer’s information stays with PayPal in the “Cloud” and can’t be hacked, skimmed or misused at the point of sale. For the vendor, its benefit has simply been PayPal’s popularity with consumers and the fact that it’s not a check - the money allegedly reaches the vendor’s bank account nearly instantaneously29 compared to waiting days for a check to clear (or even arrive, if sent by mail). In addition, if you are a “verified” vendor30 there is no limit to the amount of funds you can transact through PayPal - dependent on the customer’s funds of course. As of 2012 you can now use PayPal for point-of-sale (POS) purchases31, wire transfers, and even “bump” two smartphones together to transfer money.
CONS:
The primary downside to PayPal and similar systems is that (a) the company can decide that the transfer meets certain, undisclosed, criteria for high risk or (b) the client can dispute the charge – and either issue can mean that the money is put on hold for months while you go through PayPal’s mandatory arbitration procedure. Your PayPal account itself can be “frozen” if PayPal deems it to be suspicious in some way. Also, because PayPal holds the money in its own intermediary trust account before the transfer is complete, there may be an issue as to whether this system satisfies the requirements of DC Rule 1.15.32 PayPal charges the vendor 2.9% + $0.30 per transaction (more for phone transactions, less for large volumes, and
26 There are, of course, hundreds of electronic payment processors and I cannot even cursorily review them all. The listed companies are just some of the (currently) better‐known or more unique service providers. 27 Companies that use systems similar to PayPal’s are ProPay.com, BidPay.com, FirePay.com, and many others. 28 Customers may also directly transfer money to their PayPal account for later use in what amounts to a “pre‐paid” credit transaction. 29 PayPal claims that vendors will have their PayPal account credited within minutes of completing an order. See also: https://www.paypal.com/ca/cgi‐bin/webscr?cmd=xpt/Marketing/merchant/wpstandard/WPStandardFAQs‐outside#Question12 30 Verification requires the linking of a credit card or bank account plus more personal information than for a standard account holder. 31 POS purchases which require the client to input their telephone number and a 4‐digit PIN code are subject to the criticism that the process is actually much less secure than simply using your credit card, which undermines one of PayPal’s primary selling points. 32 There has been no dispositive case or Legal Ethics Opinion on this issue yet in DC.
comparable to Square - around 2.7% - for scanning credit cards using its new smartphone reader attachment) plus up to $30 in monthly fees, an arguably higher rate than the average credit card processor. Finally, PayPal’s claim of nearly instantaneous payment is misleading – the money may appear in the vendor’s PayPal account, but from there it can take between 2 and 5 business days to actually reach your bank once you affirmatively request it, a distinction that PayPal doesn’t advertise widely.
(2) Google Wallet PROS:
Similar to PayPal, Google Wallet protects your information by linking your credit card or bank information to a third-party – in this case a “virtual” MasterCard – so that your private information is not passed at the point of sale. The Wallet is accessible via the customer’s smartphone through an application (“app”) which uses Near- Field Communication (N.F.C.) to make the transaction with the vendor’s machine. The customer simply clicks on the app, inputs a PIN code, chooses the credit card, and waives the phone next to the vendor’s reader. Google states that it helps negotiate charge-backs. Distinct from PayPal, Google Wallet is not a “fee aggregator” – it does not pay the credit cards or banks, or charge a separate fee to the vendor. The vendor only has to pay the base fee charged by its own credit card processor. Google makes its money on charging a percentage on discount offer programs subscribed to by vendors. If the vendor does not have its own credit card processor, Google can provide that service for 2.2% +$0.30 and up to 2.9% +$0.30 per transaction depending on volume, with no monthly or setup fees (equipment is separate).
CONS:
Google Wallet is currently only available on Android with Sprint service and is not as widely used as PayPal. Merchants must use Pay Pass (through MasterCard), but Visa and Discover are also accepted. There is a $1000 transaction limit per day. Many customers are concerned with the potential loss or theft of their phone, which with a 4-digit PIN code makes their account subject to relatively easy hacking - as well as the fact that they would also have no access to their money, at least temporarily.33 In addition, user’s information is placed on a chip inside the phone, not “safely” in the Cloud like with PayPal, making it slightly less secure if hackers obtain the phone and can decipher the users’ PIN codes.34 Finally, while Google claims that they will help negotiate charge-backs, clients still have charge-back rights through the underlying credit card company.
(3) Authorize.net
33 It’s up in the air as to the likelihood of losing one’s wallet versus losing one’s smartphone, but with the increasing amount of information we store on the latter, it may be argued that a phone’s loss may soon prove to be more devastating than a wallet. 34 Google states that you can now disable your account remotely, in answer to this concern.
PROS:
It’s important to note that for online payments, both a payment “gateway” as well as a payment “processor” is necessary. The gateway confirms the payment with the processor who signals the bank to do the necessary verification with the credit card network and transfer the funds; then the gateway notifies the vendor and customer that the funds are available and that the transaction is complete.35 A gateway allows a customer to avoid giving out their credit card information directly to the vendor and can usually provide additional fraud protection. Some companies, like PayPal and Google Wallet, combine the gateway and processor functions, while others work hand-in hand with gateway providers and aggregate that fee in their total charge to you. Authorize.net is a gateway provider. It is one of the most widely used gateway providers in the world and can make your client’s website purchasing experience much smoother than manually accepting credit card information.
CONS: Gateway-only companies charge you an additional amount over and above the credit processor fees. Authorize.net will help set you up with a processor (called a “reseller” in this situation), which charges you separately (monthly, per transaction, and/or equipment fees). Authorize.net itself charges a $20 monthly fee, a $0.10 transaction fee, a $0.25 batch fee, as well as a $100 setup fee. You should also know that, unless you choose a “reseller (credit card) processor that is specifically oriented towards attorneys, you cannot decide on a transaction-by-transaction basis which bank account will be credited. In addition, any fees or chargebacks will come from the linked account (which is problematic if that is your trust account).
(3) Level Up (aka SCVNGR)
PROS:
Originally started as a mobile-phone game which involved completing various challenges at certain geographical locations, SCVNGR has branched out into the financial world through its new product, Level Up, a discount reward-based payment system. Consumers use their smartphones or a physical card with a unique QR code which the vendor’s machine reads to complete the transaction. Like PayPal, the consumer’s information is stored in the Cloud, not on the phone or even in the QR code, thus protecting their financial information at the point of sale. While Level Up is also a fee aggregator like PayPal – that is, it’s linked to customer’s credit cards or bank accounts and pays those fees, unlike PayPal it does not pass any of those fees onto the vendor and instead eats them as a cost of doing business. There are thus no discount or transaction fees for the vendor.
CONS:
35 This usually takes a few seconds. Glo Digital has a good chart explaining the process: http://www.glodigital.com.au/blog/whats‐a‐payment‐gateway‐and‐why‐do‐i‐need‐it
The catch to this no-interchange-fee-system is that Level Up makes its money through discount programs for new and repeat consumers. Vendors must subscribe to a rewards program from which Level Up takes $0.40 of any dollar discounted for new customers or customers who spend a certain amount. For attorneys, that could hypothetically mean the following: you offer a $100 discount for a client who uses Level Up, so you “lose” $100 to the client and pay $40 to Level Up; for a client who spends, say $10,000, you could give a $200 discount and pay $80 to Level Up.36 This program, being so new, has not been vetted for its ethical implications by any jurisdiction that I know of, but seems like it may implicate rules regarding the referral of clients by non-attorneys. It also currently suffers from a lack of wide-spread use, though that may of course change in coming months.
(4) Square Up (aka Square) PROS:
Square was one of the very first companies to offer an attachment credit card reader for your smartphone. Vendors can thus potentially swipe credit cards anywhere there is internet service. The company is a fee aggregator like PayPal and charges the vendor 2.75% per swiped transaction, although it has recently offered a new, flat fee of $275 per month. The only catch to the latter is that there is a maximum charge of $400 per transaction or $250,000 per year, and doesn’t apply to “card-not-present” (non-swiped) transactions. Square also uses N.F.C. to such an extent that with the “Pay With Square” app the consumer need only say his name at checkout and the vendor can simply click on the reader-detected information and input the amount of the transaction. Unlike Intuit, Square does not require a separate merchant account.
CONS:
Square’s service agreement37 subjects it to the same potential criticism as PayPal: it can freeze your Square account for any reason; it can put your funds on hold if there is a dispute; it can automatically go into your bank account to collect charge-backs; and it holds your money in a Square-controlled account until disbursement.38 If you manually enter the card information (called “keyed in” transactions), the transaction charge is 3.50% plus $0.15. Finally, if you charge more than $2002 dollars in “card-not-present” transactions within any seven-day period, Square will hold those funds for 30 days.39
36 An attorney would, of course, have to be careful what discounts to offer so as to make the system more profitable than using a typical credit card processing company. 37 https://squareup.com/legal/ua 38 Although, distinct from PayPal where you must request the disbursement, Square states that this disbursement happens automatically at the end of every day, registering in your bank account within 1‐2 days, which seems to be much faster than the average reported PayPal transaction. 39 Square’s Terms of Service state that this limit may be negotiated upon request by the vendor.
(5) Go Payment (aka Intuit) PROS:
Intuit is widely used, processes all major credit cards (though not PIN debit cards), and can be accessed through your iPad and most mobile phones – with or without their free scanner. It also syncs with QuickBooks to update your ledgers automatically. They give you the option of paying a monthly fee of $12.95 in order to bring the discount d fees down to 1.70% for scanned cards and 2.70% for keyed transactions, pay no monthly fee but pay transaction costs of 2.70% scanned rate and 3.70% keyed rate. There are no setup fees, annual fees, or cancellation fees. Go Payment does not keep the customer’s credit card information on the phone. Unlike Square, Go Payment has no “card-not-present” transaction limit, nor any other payment limit. Unlike PayPal and Square, Go Payment does not hold your money in a separate account and treats each payment like a bank transfer.
CONS: While the interaction with QuickBooks can be a big plus, the QuickBooks merchant account (Intuit) is a requirement and costs an addition $7.95 a month. Go Payment charges 3.7% for what it calls “Non-Qualified” credit cards, which it doesn’t list but defines as “corporate cards, foreign cards, and transactions that do not meet Visa/MC/Discover Network requirements for the best interchange program,” which also include cards that offer rewards.
(7) Lawyer-Oriented Services (a) Law Charge
PROS: As you might guess from its name, Law Charge is specifically oriented towards the issues that lawyer’s face. Payments can be directed to either the attorney’s trust or operating account and any fees are debited from the operating account only, thus avoiding the commingling risks that other credit card processors may engender. While Law Charge states that chargebacks are extremely rare (“only 3 maybe 4 chargebacks in the past 12 years”), they only take chargebacks from the operating account and will work with you to recoup the funds. Law Charge allows payment online (where a client may securely input credit card information that the vendor never sees), by office-based card scanner, and by phone (with or without an attached scanner, though the former costs $15 a month extra to be able to deposit to either the trust or operating account – something Square does not offer). Transaction fees for qualified cards are 1.55% if scanned and 2.55% if keyed, 2.5% charged when used in conjunction with Clio40. Transaction fees run between $0.19 and $0.75 depending on how you
40 Like Law Pay, clients can pay Clio’s online invoices through Law Charge.
take payments. Fees for “non-qualified” cards are capped at 3.25% for rewards-based cards and 3.5% for commercial cards.
CONS: Law Charge charges between $100 and $200 in set-up fees depending on the program you choose, between $0 and $20 monthly fee (there is no charge for months without activity, which is actually a “PRO”).
(b) iStream (DC member benefit)
PROS: iStream allows lawyers to direct payments to either their operating or trust accounts, and also takes any fees or chargebacks only from the operating account. While iStream is similar to Authorize.net in other ways (such as being a gateway-only company), this ability differentiates significantly.
CONS: Like Authorize.net, iStream is a gateway-only company for purposes of credit cards. That is, a merchant/attorney must still have a separate credit-card processing service, and charges by iStream are added on top of those other fees. iStream currently charges a $10 monthly fee, a $0.10 per-transaction authorization fee, and a $0.10 batch fee.
(c) Pay Pros Legal
PROS: Like Law Charge, Pay Pros takes its fees and any chargebacks from your operating account instead of your trust account. There are no set-up or monthly fees, and no contracts. Discount fees (per transaction) are 1.69% (swiped), 2.25% (keyed) and 2.99% (corporate, international and rewards cards). Pay Pros is partnered with a number of legal-service companies like Abacus Law, LexisNexis and My Case to integrate its payment system. Pay Pros allows e-billing, online payments and mobile phone payments with or without card swiping through an attached scanner.
CONS: There seems to be a dearth of feedback either way on Pay Pros Legal as of yet, although the mother company, Pay Pros, has been around since 1995. For swiping, a MagTek reader must be purchased separately, the cost of which is not available on the Pay Pros site, but is assumed to be around the $150 that Law Pay charges for the same reader.
(d) Virtual Payment Systems
PROS:
Advertised as being built for law firms, VPS allows payment to trust accounts while debiting its monthly fee of $15 and its annual fee of $175 from your operating account. Chargebacks are also debited from your operating account. Apparently unique to this company is that it charges all transaction fees (3.5% + $2.00) to your client (of which you should notify them, of course). There is no equipment required as all payments are made online.
CONS: Currently payments must be keyed in online, with no scanner available yet, thus justifying the relatively high discount and transaction fees (“card unavailable” transactions are usually costlier because of the added risk). Since the attorney/vendor doesn’t pay those fees, it may not be a concern to you, but it may potentially act as a disincentive to clients.41 There is also a $100 set-up fee.
(e) Law Pay (aka AffiniPay)
PROS: Like the other attorney-oriented processing companies, Law Pay separates payments between your operating and trust account as requested. In addition, all fees and chargebacks are taken from the operating account and Law Pay states that it works with clients and attorneys to resolve any chargeback requests. In addition, Law Pay is partnered with over 70 state and local bar associations as well as Clio42 and other law practice programs. Payments can be made using a web-based virtual terminal, a traditional terminal, your smartphone or a link on your website. There are no start-up fees or contracts. Payment is made directly to your bank account within 1 to 2 days. Law Pay fees are comparable to Pay Pros, at 1.79% + $0.20 per transaction for swiped cards, with a $5 monthly fee and $300 equipment charge for their card terminal; 2.19% + $0.25 for using their virtual terminal, with a $30 monthly fee and $150 initial set-up fee; 1.79% + $0.20 for using the virtual terminal with their “MagTek Reader,” plus $30 monthly fee and $300 for the virtual terminal set-up plus the reader.
CONS:
Using a corporate, international or rewards-based credit card will up the discount fee by 0.86%. Keying in the card instead of swiping it (for the machine or MagTek Reader options) will increase your fee by that much as well. Still, overall they seem to be one of the lower-priced options.
41 Note that most credit card companies forbid vendors from passing along fees to the customer unless they do it a certain way – by offering a “discount” for using cash. This issue may also implicate Regulation Z of the Truth in Lending Act, 12 CFR pt 226. An analysis of VPS’ practice and its relationship to either credit card company policies or federal law is beyond the scope of this article. 42 Like Law Charge, Law Pay allows Clio users to get paid by electronic invoices.
See Summary Comparison Chart Next:
43 PayPal Virtual Terminal, available with PayPal Pro, costs 3.1% + $0.30 for $0 to $3000/month in transactions, 2.7% + $0./30 for $3k to $10k per month in transactions, and 2.4% + $0.30 for $10k + per month in transactions.
Note: All prices subject to change; verified as of August 22, 2012
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Differentiates Between Trust/ Operating Accounts
Yes Yes Yes Yes Yes No No No No No No
Discount Fee Swiped
1.55%
1.79%
N/A 1.69
%
[3.5% to client]
2.75%
0
ONLINE 2.9% $0-3k;
2.5% $3k-10k; 2.2% $10k +43
ONLINE 2.9% $0-3k;
2.5% $3k-10k; 2.2% $10k
+
N/A
1.70%-
2.70%
Discount Fee Keyed 2.55
% 2.19
% N/A 2.25
%
[3.5% to client]
3.50%
0
3.5% Keye
d and
Swiped
Same as
above
N/A
2.70%-
3.70%
Nonqualified Card Discount Fee
3.25%-
3.5%
+0.86%
N/A 2.99%
[3.5% to client]
2.75%
0 N/A N/A N/A
3.70%
Transaction Fees
$0.19-
$0.75
$0.20-
$0.25
$0.10 +
$0.10
batch fee
0
[$2.00 to
client]
0-$0.15
$0.40
per dollar of dis-count
$0.30
online
$0.15 keye
d and
$0.30
$0.10+ $0.25 batch fee
0
A note about wire transfers and banks’ merchant services:
While most electronic-payment processing companies offer the freedom from having to go to your bank or ATM to get cash or from the hassle of using bank-issued checks, banks remain necessary partners in almost all transactions and they can also provide electronic payment options directly to merchants. Wire transfers from bank to bank have been around since the days of the telegraph (hence the name) and are still a relatively quick and secure way to get a client’s payment for a set (flat) fee44. These can be done in person or, for some banks, on-line. Banks can also provide credit card processing as part of their merchant services, which can be done by phone, online or
44 Note that intermediary banks which facilitate the transfer can and do sometimes siphon off small fees without notice and the amount you collect may not be the same that was sent. Aside from that risk, wire transfer fees run from $10 to $30 to receive and $25 to $50 to send, depending on the bank and whether it’s a foreign or domestic transfer.
scanned
Monthly Fees $15
w/ scanner
$30 $10 0 $15 0 0 $30 0 $20
$0-$19.95; $30 for pro
Startup Fee $100
-$200
$150-
$300 Equi
p
N/A $150 Equi
p
$100
0 0 0 0 $100
N/A
Annual Fee
0 0 0 0 $175 0 0 0 0 0 0
Equipment
Online,
Smart-
phone,
reader
Virtual,
Magtek
Reader,
Clio etc.,
Smart-
phone
Virtual
Terminal or
Check
Scanner
Online,
MagTek
Reader,
Smart-
phone
Online
Smart-phonefree reader
Smart-
phone, QR
reader
app (free
)
On-line
Smart
phone
On-line
On-line, free reader,
smart-
phone
Can put hold on your account
No No No No No Yes Yes Yes Yes No No
include equipment such as a card reader. Bank merchant service fees vary, of course, but they tend to be higher than third-party processors. 2% would be a good deal for bank services, but be aware that “unqualified” transactions, such as phone-only or other “card-not-available” transactions, will cost more like 5%-8%.
Appendix / Time & Billing Software Services
This list is current as of October 4, 2012 but is somewhat small firm focused and only includes services that put pricing on their website. Thanks to Nerino J. Petro, Jr. of the State Bar of Wisconsin for compiling this list.
Cloud based
ActionStep http://www.actionstep.com/ (practice management includes time and billing)
BigTime http://www.bigtime.net (desktop widget available)
Bill4Time http://www.bill4time.com
CaseFox http://www.casefox.com/web/subscriptionplans.html
Clio http://www.goclio.com/
eBillity http://www.ebillity.com/time-billing-software/features/legal-billing-software
EnterYourHours http://www.enteryourhours.com/
Freshbooks http://www.freshbooks.com
GoMatters http://www.gomatters.com/
Harvest http://www.getharvest.com
LAWS Pro http://www.lawspro.com/
MyCase http://www.mycaseinc.com/
Overseer http://www.overseerlawofficesoftware.com
RocketMatter http://www.rocketmatter.com/
Time59 http://www.time59.com/
Times Manager http://www.timesmanager.com/legal-billing-software.html
WinYou Law http://www.winyou-law.com/
Zoho Inovice http://bit.ly/SzPQmA (mobile apps available)
Desktop based
AbacusLaw http://www.abacuslaw.com
Amicus http://www.amicusattorney.com
BambooInvoice (??) http://bambooinvoice.org/ FOSS Product
Billings (Mac only) http://www.marketcircle.com/billings/
BillingTracker http://www.billingtracker.com/
Chaos Software Legal Billing http://www.chaossoftware.com/legal-billing.aspx
Credenza Pro http://credenzasoft.com/pro.html
ESILaw http://www.esilaw.com
Easy TimeBill http://bit.ly/SzRrc4
fanurio (Mac & Windows) http://www.fanuriotimetracking.com
iBiz 4 (Mac Only) http://www.iggsoftware.com/ibiz/index.php
HourGuard Timesheet Software http://bit.ly/SzWsS4 (NCH Software)
ImageineTime http://www.imaginetime.com (also has Doc mgmt, calendaring and other products)
OfficeTime (Mac & PC) http://www.officetime.net/
PCLaw http://bit.ly/SzZ3ew
ProfitTrain (Mac only) http://clickablebliss.com/profittrain/
RTGBills http://www.rtgsoftware.com
Tabs3 http://tabs3.com/
TaskTime4 (Mac only) http://www.ttpsoftware.com/Products/tasktime4.html
TimeNet Law (Mac Only) http://www.applesource.biz/software/timenet-law/
Timeslips http://na.sage.com/Sage-Timeslips/
Tussman http://www.tussman.com/
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