Poor Client Selection Leads to High Receivables and Extra Stress
Unfortunately, the traits that make a good attorney don’t always make a good businessperson. If you are an attorney who is not buoyed by a natural sense of optimism you may live in constant fear that your practice won’t survive. Driven by this sense of impending doom, and underscored by the lack of true business training most of you receive, you tend to make poor business decisions. Among the worst is the failure to effectively screen new clients. Unfortunately, practicing “threshold law” (working with anyone who crosses your threshold) may feel like the right thing to do but invariably leads to further distress because of the many problematic (non-paying and uncooperative) clients who get in the door.
In fact, if you were to apply Pareto’s Principle, also known as the 80/20 Rule, to your client base, you would probably discover that 80 % of your income comes from 20% of your clients. Hidden in your client list, this 20% are the smallest but most significant segment of your client base because they generate the largest share of your revenues — but take up only 20% to 40% of your time. This is worth repeating: your best clients, the top 20% whom we’ll call your A and B level clients, take up only 20% to 40% of your time yet are responsible for 80% of your revenues.
The remaining 80% of your clients take up a great deal of time and generate only 20% of your income. Why? These are the problematic clients who will agree to pay you — but after taking up a great deal of your time, often neglect to do so. Their poor payment habits are significant because not being paid not only adds to the stress you feel, it further reinforces your pessimism and subsequent disillusionment with the practice of law.
Take a look at the following checklist of symptoms signaling an overload of problematic clients. If you check off even one of these symptoms, it’s time to re-engineer your new client screening process because the effects of practicing threshold law have already set in and will only get worse.
Symptoms of a Practice with Many C and D Level Clients:
- High outstanding receivables with a Realization Rate below 90% (this means that 10% of your clients fail to pay).
- Partners who are very busy, but worry about making payroll, let alone a profit.
- Clients who leave prematurely or often threaten to seek the services of another attorney.
- Clients who often fail to show for scheduled appointments.
- Clients who often fail to bring requested documents or to follow directions.
- Staff who feel abused by clients who misdirect their anger and scream at them or act unreasonably.
- Experiencing a constant sense of crisis and tension that is attributable to specific clients and/or specific opposing counsel.
- Staff and attorneys who dread going to work and dealing with certain clients.
- Staff and attorneys who often feel they can’t meet the high expectations of some clients.
- Staff and attorneys who never hear “thank you” or any acknowledgement for their efforts – even when major victories occur for certain clients.
If you check off more than one of these symptoms, it’s time to take control of the situation you may have unwittingly created by not screening for clients who will pay you, cooperate with you and appreciate your efforts. Experience in working with hundreds of attorneys over the years has shown me that you owe it to yourself, your team and your firm’s bottom line to raise your standards. Start now by being more selective in choosing with whom you’ll work. In Part Two, I will discuss the steps you can take to systematically clean up your caseload and strengthen your bottom line.
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