Historically, law firms have billed clients exclusively by mailing paper invoices, a slow and relatively time-consuming system. With the increase in technology and credit card billing for almost everything we purchase, billing online is now more professional and more efficient. Furthermore, by accepting credit card systems, your law firm saves money and will likely be paid much more quickly. Despite this knowledge, many lawyers are still hesitant to change their billing system.
In this episode of The Un-Billable Hour, Christopher Anderson interviews Amy Porter, CEO of AffiniPay, about how law firms can use online billing to get paid on time, ways to comply with ethical obligations and requirements regarding trust accounts and retainers, and the hesitation many lawyers have concerning processing fees.
- The changing stigma of accepting credit card payments for legal services
- How billing online saves hours a month
- Pre-authorization forms and creating a positive and convenient client experience
- Reducing past-due invoices, discounts, and write-offs
- Separating earned and unearned fees
- Properly handling a chargeback
- Law firm payment statistics
Amy Porter is the CEO and founder of AffiniPay the company that brings lawyers LawPay. LawPay provides legal credit card processing for attorneys. Amy has been in the bank card industry since 1997.
Advertiser: Managing your law practice can be challenging. Marketing, time management, attracting clients and all the things besides the cases that you need to do that aren’t billable. Welcome to this edition of the Un-Billable Hour, the law practice advisory podcast. This is where you’ll get the information you’ll need from expert guests, and host Christopher Anderson. Here, on Legal Talk Network.
Christopher Anderson: Welcome to the Un-Billable Hour, the law practice advisory podcast, helping attorneys achieve more success. We’re glad you can listen today on the Legal Talk Network. I’m your host, Christopher Anderson and I am an attorney with a singular passion for helping other lawyers be more successful with their law firm businesses. I work directly with lawyers across the country to help them achieve success as they define it. In the Un-Billable Hour, each month we explore an area important to growing revenues, giving you back more of your time and or improving your professional satisfaction in one of the key areas of your business. I am an attorney who has built and managed law firms in Georgia and New York City, created innovative software for lawyers at LexisNexis, and I work now with hundreds of lawyers to help them grow professionally and personally. Your law firm business should exist to provide for the financial, personal, and professional needs of you, its owner. In this program, I have a chance to speak to you as I do in presentations across the country about what it takes to build and operate your law firm like the business that it is. I have the chance to introduce you to a new guest each month to talk about how to make that business work for you instead of the other way around. Today’s episode of the Un-Billable Hour is getting paid. One of the topics we cover is regarding the finances and other metrics regarding a law firm’s business. Key to the functioning of a well run law firm is getting paid. What used to be a single method was then two but has now become far more complicated. My guest today is Amy Porter. She is the CEO of AffiniPay the company that brings lawyers LawPay, and we’re going to discuss this very important aspect of managing your law firm business. Amy is the CEO and founder of AffiniPay, the company that brings LawPay, and she has been in the bank card industry since 1997. Amy, welcome to the program and tell us a little bit more about yourself.
Amy Porter: Hi, Chris, thank you. I’m happy to be here with you guys. As you mentioned, I’m the CEO of LawPay which is based out of Austin, Texas. I lived here since college, so I came to school in Austin and never left, so I’m an avid Longhorn and luckily I get to hire a bunch of Longhorns to come work at LawPay with us as well, which is fun.
Christopher Anderson: We’ll try not to hold that against you.
Amy Porter: But no, I’ve been in the payments business right out of college, so back in 1995 actually and that’s been my career working with Visa, mastercard and everything payment. It’s been interesting to see payment evolve over the last 15-20 years and in the way technology’s become and really altered the way everything happens in commerce. We originally started out on the AffiniPay side working with associations and a lot of Bar associations, moving them to online payments for the first time with member dues, conference registrations, things like that. And as we started working with those Bar associations, we would start talking about things like, gosh, our members, our attorneys really need something like this. How can we make this work? And as we started digging into that and working with the various practice management groups, their ethics committees, they had the trust account knowledge, they had the law firm practice management knowledge, and I had the payment knowledge and payment processing and how that works. So it was really this collaborative effort between AffiniPay and the Bar associations that created LawPay and what it is today and the program really is very much a part of many of the state Bar associations. We’re recommended by 42 of the 50 states as really the best way to handle credit card payments and getting paid within a law firm. So we’re really excited to be here to share some of that knowledge and share that with your listeners.
Christopher Anderson: Yeah, absolutely. That’s one of the reasons I wanted to bring you onto the show because you’ve been at the forefront and at the beginning of law firms accepting payment through credit cards. I remember when I started practicing in the mid to late 90’s when accepting credit cards in law firms was still not overwhelmingly an accepted form of doing business. Law firms didn’t believe in some cases that it was ethical, some didn’t believe that it complied with their requirements to keep some money in trusts. And you were there working with the Bar associations figuring that stuff out.
Amy Porter: Right, absolutely. When we launched LawPay, it was right in the thick of 2008 or 2009 and for the first time, lawyers really had to take a look at their cashflow. “I’m not able to pay my bills, I’m not able to make payroll.” Larger law firms, we saw layoffs in the industry. People were hanging their shingles for the first time. New attorneys were coming out of law school and had nowhere to go, kind of the popup of the coffee shop lawyer and all of these dynamics came into play. So interestingly, when we launched LawPay, it was really as a tool to help lawyers get paid and really help keep them in business. And for many lawyers, depending on their area of practice, it was an intrical part of what got them through 2008 and 2009 because their clients needed another way to pay them and it was really a response to the economy at that time. So it wa an interesting dynamic and time period and lawyers, just like you said, law firms that previously thought, “Oh, gosh, we’re not going to accept credit cards. We are a professional service, we’re not a 7/11, we’re not a gas station, this just isn’t how we operate.” They were really starting to rethink, “Maybe we should start taking a look at this.”
Christopher Anderson: So they started to rethink whether there was a stigma behind it, whether it was wrong. And that thinking has evolved, as you said in the 2007, 2008 to, “Wow, this can really be a tool.” So do you believe that the stigma is gone now from accepting credit cards as a method of payment and moved our thinking along?
Amy Porter: Yes. It’s interesting, over the last ten years we have really seen that stigma change to where it’s not unprofessional to accept credit card payments. But I think the change has been more in how do we do it in a professional manner. How do we accept credit cards in a way that’s ethical and in a professional manner so that we’re not having clients come in and we have a cash register sitting on our lawyer’s desk, that’s just not going to happen. And I think that’s what LawPay has been able to bring to the table as a way to accept payments; the one that tends to be the way that a law firm runs their business and to a way that they handle billing and collections within their firm. We certainly acknowledge that and that’s what we go for the practice management groups to do.
Christopher Anderson: And what would you say now are the different ways that law firms can use credit card payments, online payments, electronic payments; what are the new, effective ways that law firms can use these kinds of payments to streamline their ability to get paid, to get paid on time and to reduce accounts receivable?
Amy Porter: It’s been interesting, it’s really the perfect storm. So not only has the stigma of accepting credit cards changed, but technology has changed with that. And now all of a sudden, it’s completely okay and professional to accept payments online to do your invoicing and do your billing through whether a practice management system or a Cloud based system. Lawyers are realizing and this light bulb’s going off, “Gosh, I don’t have to spend 8 to 10 hours a month typing up and printing invoices and putting them in the mail and sitting back and waiting for my client to write me a check. There is a more efficient and easier way to do this. And what’s interesting now where previously it was driven by the law firm and its need to get paid and to work on their cash flow, now it’s really being driven on the client’s side. Clients are demanding, “Hey, you’ve got to give me an easier way to pay you or you’re going to go on the bottom of my priority list. I don’t have a stamp, I don’t have a checkbook.” Get with the program, guys!
Christopher Anderson: Yeah, clients these days, that’s not how they interact with the world. When they want to buy a new hard drive, they go on Amazon and pay for it with a credit card. When they want a new whatever, they go to some website or they get a bill afterwards and they pay for it electronically. That’s how they experience the world. Are you saying that’s what they’re demanding of their law firms?
Amy Porter: They are, they are. With LawPay, it’s interesting. We’re really on the front lines of this change where the law firms that we used to talk to, it was really more about them and about them getting paid. Now the conversations that they’re having when they call in is their clients are demanding that I provide an easier way to pay. And they want to respond to this, they want to create a convenience for their clients. They’re wanting to have a client friendly law firm. They want to feel like they’re part of this new economy and embracing this new technology. Frankly, now it looks more professional to accept credit cards through an electronic invoice rather than put them in the mail. So it’s really shifted.
Christopher Anderson: So things have been turned upside down where it was once considered maybe as not professional to take credit cards, now it’s more professional to take them than if you don’t take them. Maybe that’s not as professional.
Amy Porter: Yep, that’s right; you’re exactly right. That’s the shift, and so now when we talk to law firms who have never taken credit cards for the first time, we’d say they’re in a panic, but they’re really looking. “Help me. How do I do this? How do we incorporate this into our law firm because we’ve done it the hold way for so long. Help us make the change and help us make the transition.”
Christopher Anderson: Yeah, and then the other thing I’d like for you to speak to a little bit is one of the things I run into in speaking to law firms and law firm leaders is they all still struggle with a large amount of accounts receivable. Because they send bills out – like you said, paper invoices – they sometimes don’t get them out in a timely way and then low and behold, the clients don’t pay them in a timely way and then they don’t have any recourse. That’s when they’re waiting for that check to come in the mail, quite honestly. And some of them I’ve worked with and some of them that I know have worked with you and other payment services have started to use credit cards as a way to reduce accounts receivable. Have you encountered that in your business?
Amy Porter: Absolutely. The studies we’ve done shown that arany point of time a law firm will have anywhere from 39, sometimes up to 79% of their clients with a past due payment at any given time. Those are huge numbers. They know that if they can provide an easier way for clients to pay, then they’re going to dip in those numbers. And what’s interesting in what they’re finding is really these hidden benefits as well. So by offering a way for clients to pay online in a convenient way to pay them, one they’re getting paid faster; that’s the easy part. But then what they’re finding are these hidden benefits they didn’t anticipate such as they write off less of their billings. They don’t have to discount as much. They actually get paid up front for the full amount faster than they ever have. So all of a sudden, their cash flow looks completely different.
Christopher Anderson: Yeah, and I’ve run into a couple of firms also that are using a concept called Evergreen Retainers, where they’re taking – let’s say a divorce case, they’re taking a $5,000 retainer, if you will. And if in the first month, they bill $1,500, then the balance is $3,500, everything is cool. But as soon as that balance goes under $2,500, they want the client to re up it to $5,000. And they’re able to use payment systems to make those recurring payments. How is that possible without them having the card again?
Amy Porter: So what we recommend from a client standpoint is to create what’s called a preauthorization form. And we’re coaching and teaching law firms to include that as part of their engagement agreement in their retainer agreement to go ahead and bill that right in. And that’s just part of the process, that’s part of the communication they have with their clients right out of the gate. So the expectation that’s set initially, that good communication on the front end puts that system in place so that things are smooth going forward in that sometimes awkward or negative conversation with a client down the road. You can avoid that because it’s already been established.
Christopher Anderson: Yeah, that’s fantastic and that way the incoming bills can be paid as they’re incurred. And what I’m hearing is that it’s not only convenient for the law firms, but the clients are liking this better. They like to be made aware, they like to get the bills, but then they like to not have to deal with physically going through the process of making a payment if the law firm has the permission and authority to do so.
Amy Porter: Absolutely, and ironically it creates really a positive payment experience. People don’t like to pay a bill, of course, but if they can do it in a positive way, if it’s convenient, if it’s not taking their time and taking effort away from what they’re doing on a daily basis, they’re okay with it.
Christopher Anderson: Amy, when I talked to lawyers about taking credit cards, there was some concern around some of my payments are for services rendered, some of my payments are for amounts that I’m taking into trusts and retainers and money I haven’t yet learned which I’m obligated to keep separate. How does a company like yours help a law firm to comply with their ethical obligations and requirements?
Amy Porter: Great question, and that’s probably the number one concern that law firms have with accepting credit cards is historically, with credit card processing, whatever checking account you sign for deposits to go into, inadvertently you’re allowing the bank or Visa Mastercard to also withdraw from that same account in the event of your credit card processing fee, a client dispute, a chargeback, fraud. Any of those scary words that are associated with credit card processing. So there’s always been this fear of law firms accepting credit cards that they may inadvertently jeopardize their trust account, which as all know is a big deal. So one of the things that we’ve work closely with the Bars and their different ethics committees is the ability to correctly accept credit card by one, separating earned and unearned fees. So, for example, if a client comes in your office and you agree to work together and you want to take a $5,000 retainer, that retainer, since it’s not earned, is going to go straight into the firm’s trust or IOLTA account. If it’s for past due balance, work that’s already been performed, anything that you’ve earned, you’re going to want to separate that and put that into the firm’s traditional operating account. And the second thing is now that you’ve separated your different transactions, you’re going to want to protect that trust account. So maybe fees associated with either deposit should only come from the firm’s operating account. You’ve got to protect the trust account in the event that there’s a chargeback or a client dispute. You always want the operating account to handle those types of transactions and they don’t happen often; especially with law firms. It’s very rare that you have a client dispute or a chargeback, but at the same time you can’t jeopardize or risk your trust account because it could happen. So you’ve got to make sure those accounts are set up correctly so that you avoid any risk of an inadvertent withdrawal from your IOLTA or your trust account. You also want to make sure fees don’t come out of that trust account so that you don’t run the risk of co mingling client funds. And you don’t want to pay your credit card fees with your client’s money, obviously. You want that to come out of your operating account, and that’s an expense from the law firm, not your client.
Christopher Anderson: Right, and you were talking about the fees associated and some of that stuff that could hit and you make sure that those do come out of the operating account and never the trust account because they’re paid with law firm money and not client money. But you mentioned in your discussion the word, “chargebacks,” but let’s just touch up a little bit on what that means and how that could impact the law firm if their accounts aren’t handled properly.
Amy Porter: Sure, and what’s important to know about chargebacks – and that’s probably one of the biggest questions we’ll get from a law firm that’s never taken credit cards before is, “Oh my gosh, what do I do about this chargeback?” And it sounds like this big scary word. But what a chargeback in our world means is it’s an unresolvable dispute between the law firm and their client. And generally, we’ll see those if a law firm or a client doesn’t believe that the attorney or law firm did the work that they were supposed to. Perhaps they didn’t get a refund on an exits retainer that they felt were due. So on the law firm side, these are easy to avoid. One is you’ve got to have documentation. You’ve got to document that you had permission to charge the card, and two, you had authorization from the client. And so in doing work on the front end such as including credit card language in your engagement letters and your retainers can help avoid this down the road. For example, if you go back and you charge a client going forward on a recurring basis, even, having that documentation and having your client agree to that will again avoid any potential disputes down the road. And the nice thing is lawyers historically are great at doing this. They document everything and they never have trouble or they rarely have trouble showing I actually did the work because they document it, so it’s awesome.
Christopher Anderson: So when the chargeback does come, I just really want to reduce this to nuts and bolts, I’m operating a law firm, I take some money in trusts for a retainer, I do the work, I take the money into operating, the client disputes it, and then I get a chargeback. Where does that money get pulled out of? Since the money originally went into trust, does it get pulled back out of trust or how do you handle that?
Amy Porter: One thing that LawPay does is we 100% protect that IOLTA account and the trust account. So in the unlikely event that a law firm does lose a chargeback and weren’t able to prove that they did the work or weren’t able to show they had permission to charge the card, that chargeback would only come out of the operating account. So we 100% protect that IOLTA account from – which you guys referred to as – invasion. So we’ll never invade that trust account.
Christopher Anderson: Fantastic. And I think you touched on this but I just want to expand a little bit more. What’s the role of LawPay or a company like LawPay in helping a law firm to defend against the chargeback?
Amy Porter: That’s probably one of our most important duties is to educate and help the law firms with that process. So we handle it twofold. One is in education on the front end. So we provide helping you with this language, helping the lawyer with the right documentation in on the front end and helping them communicate with clients. And then two, communication when they’re in a dispute. So we are on your side. We are on the law firm’s side. We’re on the same page, so essentially we are helping them document, create that communication back to defend themselves. So being able to show that the work was done and that they had permission from the law firm.
Christopher Anderson: That’s great. So what it sounds to me that what you’re saying is the first thing and probably the most important thing is that you give the lawyers who may not be entirely used to the world of merchant services the tools they need to take the charges correctly. You give them forms that the clients sign that have been proven over time to be very good at defending chargebacks. And then you teach them about how to use those and when to use which forms for recurring payments versus the one time payments, et cetera. And then what it sounds like you’re saying is on the back end, if a client attempts a chargeback, you’re then there for the law firm to help them put all that documentation together and build the case to defeat the chargeback. Is that an accurate summary?
Amy Porter: You’re exactly right and we’ve got a staff here in the LawPay office that handles this situation and they’ve got the knowledge, they’ve got the experience and they know how to defend those.
Christopher Anderson: Fantastic. The last thing I want to touch with you on in the time that we’ve got is I talk with attorneys all the time about whether or not they do take credit card payments and who they use for merchant services. And one of the things that rings out all the time is this concern about processing fees; attorneys not wanting to pay the 1.5, 2.5, 3.5 whatever it is percent in processing fees. How do you talk to attorneys about the benefits of accepting credit card payments vis-a-vis the percentage that they have to pay off the top to pay the merchant service provider?
Amy Porter: Sure, and that’s always the number one question we get. “Okay, this sounds great. What is it going to cost me? Oh my gosh, I don’t want to have to pay a percent on all of my billing, that sounds crazy to me.” But when you look behind the curtain and you realize the amount of invoices that are being written off, that are being discounted, the ability to accept those upfront and to accept those in a timely manner is the 2 to 2.5 percent that’s charged to run the payment becomes somewhat irrelevant. So it really comes down to the cost of doing business, the cost of being efficient, of creating that convenience for your client. And it generally ends up saving the law firm significant amounts over time because they’re not writing off those invoices.
Christopher Anderson: Are you saying they’re being a little pennywise and kind of foolish?
Amy Porter: That’s perfect, you’re exactly right.
Christopher Anderson: So I think you guys did a study recently. Can you just share with us a little bit of the information you learned? Because I think it’s on one hand easy to say and easy for people to hear that the 1 to 3% whatever pales in comparison to the losses you’re taking. But the natural reaction I think for most lawyers is, “Yeah, but that’s not me.” What are the actual statistics? What’s going on out there?
Amy Porter: What we’re generally seeing in the various companies that have done these studies – especially smaller firms – on average, it takes them 30 to 60 days to even put together an invoice and then it takes 87 days on average to have that invoice paid. So you’re looking at anywhere from 4 to 6 months sometimes, from the time you actually perform work for your client, by the time you use your time to the time that you’re actually getting paid for that time. With a credit card payment, you can get paid in as little as 24 hours. So if you look at the difference and the cost of that money and spread it out over 4 to 6 months, all of a sudden 2% doesn’t look too bad.
Christopher Anderson: And that’s just on the cost of money. My grandfather always used to tell me and say nothing in this world loses value faster than services already rendered. So over that 2, 3 or 4 months that you’re talking about, I imagine clients also are getting less and less and less willing to pay 100% on the dollar.
Amy Porter: That’s right. Of the law firms, for the most part, what surveys will say, over 70% of law firms report that they either discount or write off legal work. 45% say that once an outstanding invoice has been out for past 90 days, it’s either unlikely or very unlikely that they expect to get paid on it. It’s certainly not for the full amount. So when you start really taking a deep dive and looking at what your invoices really look like and your collection rates and the time period for collection, lawyers are sometimes not happy with those numbers. And it makes sense to take a look at put together better systems in place.
Christopher Anderson: Yeah, and I think a lot of lawyers really don’t understand how poisonous accounts receivable are. They see, “Okay, this client owes me $1,000. I’m owed $1,000.” Now what we’re talking about right here is $1,000, if we can speed up collections by 60 days, 2-3% for 60 days loan to your clients starts to sound like a reasonable amount of money. But the truth is that’s worse than the thousand dollars because you paid. A well run law firm might have 50% margins. Most law firms fall in the 25-35% on their gross margins, let’s call it one third. So that thousand dollars has cost you maybe $650 to produce between your payroll and your overhead and everything else. So you’re actually out the thousand dollars the client has owed you, but you’ve had to pay out that $650 to your staff and to your rent and to your utilities. And that’s another thing that the thousand dollars isn’t available to you to market or do other things to grow your business. So it costs the business in so many different ways. It really starts to sound like the objection to 2-3% is a false one if you can actually achieve that speed up in collections. So let me ask you: Does accepting credit cards speed up the time to collect?
Amy Porter: No question. No question, and every study we’ve done has shown that. And what usually is the case is the type of law being practiced. The more urgent the matter, the faster they get paid and the faster the credit cards provide that avenue and that tool to get paid. So there’s no question that it makes a significant difference in their invoicing and their cash flow.
Christopher Anderson: Fantastic. Amy, we’re coming up to the end of our time together; it really has flown past. If people want to learn more, how can they get in touch with you to get some more information about the advantages of taking payments to speed up and benefit and make a better profit with their law firm?
Amy Porter: We’d love to have them visit our website at LawPay.com. There’s live chat available, or call into our office. We’ve got account managers that are trained on credit card payments for lawyers and they’ve worked with over 10,000 law firms on implementing credit cards for the very first time with firms that are just thinking about it that are looking for a better solution and looking for a way to get paid.
Christopher Anderson: Fantastic, thank you.This wraps up this edition of the Un-Billable Hour, the law business advisory podcast. Our guest today has been Amy Porter with some fantastic information about how using credit cards is not just a better way to accept payment, but it’s a better way to run your law firm and a better way to make more profit. That’s just been fantastic information, Amy, thank you so much.
Amy Porter: You are so welcome. It’s been a very serious podcast. I will say, lawyers always tell me, “Getting paid is fun. It’s fun to get paid!”
Christopher Anderson: It is, it is.
Amy Porter: I’d love to talk to them.
Christopher Anderson: My name, again, is Christopher Anderson. I look forward to seeing you next month with another great guest as we learn more about great topics that help us build the law firm business that works for you. Remember that you can subsrbie to all the editions of this podcast at LegalTalkNetwork.com or on iTunes. Thanks for joining us and we’ll see you again soon.
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