Layaway Plan for Legal Services
Everyone is familiar with layaway plans. Most common in the context of retail (think Toys R Us or Walmart, to name just a few), layaway plans give customers the option of depositing a fraction of the cost of the item they want to buy, and paying the balance over time. Meanwhile, the seller sets the item aside and releases it to the customer when payment is made in full. Layaway plans have pros and cons. On the plus side, they help consumers who don’t have the cash to pay for an item outright but lack access to credit. Moreover, layaway plans are interest free and therefore may be preferable to using a credit card. On the downside, if customers miss payments and default, they will often pay a cancellation fee and of course, will forfeit the item.
Yet while layaway is a common practice in retail, I’d never heard of it applied as a way to pay a lawyer – until now.
Recently, via the Lawyer Forward website, I learned about an operation called Unbundled Attorney which generates leads for lawyers who provide unbundled services. From time to time, Unbundled hosts a podcast with an attorney successfully using its service, and intrigued by an episode about a recent law grad who received 65 new paying clients in three months, I decided to have a listen. In the podcast, Cincinnati, Ohio family law attorney Andrew Burgess talks about his system for dealing with clients who wanted (and needed) to hire him, but lacked the cash to pay the fee in advance. In these situations, Burgess asks clients to pay a portion of the expected cost, which he deposits into his trust account. Thereafter, clients continue to make weekly or monthly payments until the full fee is paid – at which point, Burgess will start work on the matter. What distinguishes Burgess’ system from a tradition payment plan is that instead of doing the work up front, and hoping to recover payments after the fact, Burgess does not begin work until his fee is paid.
Although many of Burgess’ cases start off as unbundled matters where he performs a discrete task for a flat fee, he uses this system in full service cases as well. At the outset of the case, he’ll provide clients with a road map of what tasks need to be done, and by what date. For example, if a family law case involves a complaint, depositions and a hearing, Burgess will let the client know what each phase costs and the date by which they need to pay. Thus, clients know how much they’ll have to pay at a given time but they can make the payments incrementally, to relieve strain on their budget.
Essentially, Burgess is operating a layaway plan for clients. And while initially, I was skeptical that this system could comply with ethics rules, after further consideration, I don’t see any issues from an ethics perspective, so long as the process is fully disclosed and agreed to by the client. Burgess appears to be doing just that. He deposits the payments into a trust account, which in most jurisdictions is a non-negotiable requirement for advance payments (note: some jurisdictions deem flat fees earned as earned on receipt so they can go directly into an operating account). Second, Burgess explains his layaway system to clients (and I presume, also memorializes it in the representation agreement so that they don’t expect him to start work immediately, but instead, after the payments are complete. Third, I assume that Burgess sets the deadline by which a client must pay in full so as to give himself adequate time to complete the task. Fourth, Burgess should have a mechanism in place to fully refund payments to clients if they are unable to pay the full amount, or if they choose to hire another attorney who is willing to start the matter right away. Retaining any of these advance payments without providing services would result in an unreasonable fee (i.e., money for nothing) in violation of most jurisdictions’ ethics rules.
With these precautions, Burgess’ layaway plan adequately protects clients, while expanding their options for representation. At the same time, a layaway plan is not without risk for lawyers. For example, in some jurisdictions, once attorneys enter an appearance, they may have a tough time withdrawing. This is so even if a client fails to pay – since some judges blame the lawyer for failing to collect an adequate retainer up front. In his interview, Burgess explains that in his jurisdiction, judges are generally accommodating and will allow lawyers to make a one-time appearance without being forever locked into the case. In addition, as I alluded to earlier, if a matter is time sensitive, and a lawyer doesn’t leave enough time between the client’s deadline for full payment, and a filing deadline, the lawyer risks malpractice if he misses the deadline or submits a shoddy work product due to time pressure. Finally, there must be an administrative hassle in keeping track of tiny, ongoing deposits from multiple clients. Certainly, there are ways to automate recurring payment plans (most recently, Rocket Matter launched a system for doing so) that would send an alert when payment is made in full so that the lawyer can get started on the matter. But many clients who can’t pay $500 or $1500 in full most likely, don’t have the ability to make electronic payments and juggling, tracking and depositing all of those checks could be nightmarish – though if that’s the price of affording access to justice, I suppose it’s worth the effort.
So what do you think of layaway plans for legal services? Have you, or any of your colleagues ever offered clients a layaway plan? Would you? Comments are open.
This is the kind of creative entrepreneurial style the profession needs. Now, more than any other time, lawyers must create meaningful customer experiences if they want to attract and retain clients. That means creating systems that support the client like a layaway plan or using online signature sites. I especially like how he invites trust by ‘opening the briefcase’ and being transparent about the steps and costs of the matter, which is so valuable who fear the unknown and their lawyer.
I see small business owners, who often believe working with a lawyer is out of reach financially, really embracing this model. Thanks Carolyn, your blog is always a place to find innovations.
Sounds good to me. I like the idea of having the potential client deposit money until the entire fee is on hand, and then starting the work. Keeping track in my trust account isn’t that much of a hassle, and the genius of the system is this – because they client is contributing money, they are invested in moving forward. This is much more effective than just saying, “my fee is $3000, so contact me when you have that money saved up.”
Who would’ve though a creative idea could come from a fellow Cincinnati lawyer?
About six months ago I started charging the legal fee up front and the (substantial) filing fee immediately before filing, instead of charging everything at once. That translates to about 50% up front and 50% later. It’s been a good move. I’ll have to consider the layaway option too.
I recently used a layaway model for my flat fee with a client who needed a motion but couldn’t come up with the fee in one lump sum. I set up an invoice online for the flat fee and she paid on it every week or two until it was all paid. Our agreement was that once the fee was paid, I’d prepare the paperwork and we’d go from there. It worked well for her budget, it ensured the money would be there when the work was done, and it showed that she was serious about working with me. As I recall, she’s the one who suggested a plan like this. It didn’t occur to me that it was like a retain layaway until I read your post.
I’m now thinking this is a good option for others who come to me with legal issues but need time to gather the funds for a flat fee or retainer. I don’t think it would work well for things with a deadline for filing or responding, but it seems like a nice idea for issues without timelines. I think it could also help avoid situations where saving for the fee on their own results in the money being diverted to something else that comes up.