Best practices for electronic payment solutions and escrow account management.
Today, clients want - and need - to be able to pay lawyers with credit cards. And, law firms that accept credit cards benefit from the access to ready cash and reduced operating costs - not to mention eliminating the nightmare of trying to collect an aged receivable.
Here are some best practices for lawyers and law firms to follow when accepting credit card payments for legal services:
- Get it in writing. It is always best to "get it in writing" and the same holds true for credit card payments. Even when an agreement is reached after the client signs the initial engagement letter, best practices dictate that lawyers get the terms of payment by credit cards in writing. Stipulate how the card will be used and have the client sign an authorization to charge their cards. Spell out how and when you will notify the client that approved charges have been made to their card.
- Handling disputes. One reluctance law firms may have about accepting credit cards is the ability for the client to get a charge refunded or reversed by the credit card company. In a worst case scenario, a client may dispute a legal bill, ask the credit card company to reverse the charge and the credit card company may then debit the law firm. This risk can be mitigated by having an agreement in writing with the client that disputes will be handled between the parties in accordance with the rules governing lawyer's professional conduct. Get the client to agree in writing that they will not seek refunds or reversal of charges from the credit card company.
- Absorb processing fees. Lawyers have traditionally charged clients for expenses such as postage, photocopies and telephone. These extra expenses have become a sore spot for clients. While charging for expenses may be necessary in huge corporate matters involving hundreds of dollars for copies and overnight shipping, processing fees for credit card charges pale in comparison with the cost of carrying an aged receivable or taking a write off. Law firms that absorb credit card processing fees as a cost of doing business will benefit from greater client satisfaction.
Funding Escrow and Trust Accounts with Credit Cards
Yes, law firms can accept credit cards to fund escrow and trust accounts. This is surely one way law firms can make it easier for clients to do business with them. Engaging a merchant services firm to set up a process for debiting credit card processing fees from the law firm's operating account simultaneous with the funding of the escrow or trust account allows for this convenience and compliance with escrow account rules. When choosing a merchant service provider, law firms should look for one with legal industry experience.
As a further option, law firms will benefit from setting up an Attorney Escrow Management master account for savings and checking with their local bank. With a master escrow management account the law firm will be able to:
- Open and close an unlimited number of separate client accounts as needed, each in the name of a specific client without the time and effort required to open or close individual accounts.
- Process all transactions - deposits, withdrawals and transfers - from the master account.
- Have the local bank provide year end 1099 statements and manage all required IRS reporting responsibilities for the firm.
- Adhere to escrow management requirements by automatically applying credit card fees against the firm's operating account, depositing the escrow payment in full.
Accepting credit cards and other forms of electronic payment solutions to pay legal fees and fund escrow and trust accounts allows law firms to improve cash flow, increase business volume and efficiently administer escrow and trust accounts. We think word will quickly spread that your law firm accepts credit cards and your business may grow as a result.