The following is an excerpt from the upcoming book by Mark Powers & Shawn McNalis on cash flow and finances for law firms.
The American Bar Association has permitted law firms to accept credit card payments since 1974, but a surprising number of firms have been slow to make the switch. While there are ethical considerations to ponder before adopting this option, it’s well-worth the time and energy to find the proper fit. According to the 2017 Legal Trends Report by Clio, law firms that accept credit cards are paid almost 40 percent more quickly. Given everything we know about collections, this should be a no-brainer for most firms.
In today’s world, consumers have become addicted to the convenience of making payments with credit cards. Not only do they value the convenience, they also want the possibility of accumulating points for larger matters. It turns out that accepting credit card payments not only increases client satisfaction, it also improves law firm collection rates. A win-win all around.
If you’ve decided to take the plunge and investigate taking payment by credit card, or if you’re interested in upgrading your current card company, look for the following features and benefits:
Next Day Funding
Ideally, your credit card company should provide rapid funding within 12 hours. This is what’s commonly referred to as “next day” funding.
In order to comply with IOLTA, make sure that your credit card company ensures that no processing fees will be withdrawn from your trust account. Since not all companies are the same, and the rules vary from state to state, you must take care to check on this. There are several ways to resolve this issue that offer different levels of compliance, so work with the card company so you don’t run afoul of the rules. Also, many credit cards restrict payment for “refundable” items. If you take a credit card payment for your retainer, but your retainer is refundable for various reasons, this could be a problem. Some attorneys list their retainers as “Earned upon receipt” to avoid this issue. Keep in mind that the rules and requirements for trust accounts vary by state, so check with your local bar if you have any questions about how your merchant account is to be handled.
Ask if the payment processing company can integrate with your time and billing software for seamless processing. This reduces the time invested in the billing process for you and your team.
Monthly or Quarterly Payment Plans
In practice areas where the fees are significant, see if the card company can provide a payment plan with an “auto-billing” feature to bill your clients for a specific amount of money every month.
If you’re interested in a credit card that will help you finance firm expenses, look for one that offers an interest-free financing period. Offers change frequently, but as of this writing, some credit card companies offer a 0% APR introductory financing on new purchases for up to 12 months.
Not all payments by credit card are classified the same way. Currently, Visa and Mastercard classify payments made in person, over the phone and online, differently. Be sure you understand these differences to gain the most flexibility.
Know Your Real Rate
Apparently, there are at least 600 fee categories and knowing which ones apply to you is a closely guarded secret. In the past 10 years, hidden credit card fees have escalated and because of this, a low initial base rate of 2 percent can easily become an effective rate of 3 percent or more.
Credit card companies have found a way to monetize nearly every activity associated with them. Typical credit card fees include, but are not limited to: An additional card fee, an annual fee, a balance transfer fee, a cash advance fee, a credit limit increase fee, an expedited payment fee, a credit limit increase fee, an express card delivery fee, a foreign transaction fee, a late fee, an over-limit fee, a paper statement or copying fee, a returned payment fee, a reward recovery or reinstatement fee, a reward redemption fee, set up and maintenance fees.
Ask questions and read the small print to ensure your rates remain as advertised. Despite the hidden fees, accepting payment by credit cards is still a wise choice. To compensate, some attorneys have raised their rates 5 or 10% across the board to accommodate the fees charged by the card companies because the convenience and speed make it worthwhile.