LexCharge CEO Jeff Shavitz shares why “Legal Payment Processing Must Change” in a recent ABA Law Practice article.
It’s obvious that the world of payments is changing rapidly. And for law firms that have been set in their ways for years, demanding payment via traditional checks or cash, it’s time to consider other forms of payment acceptance immediately. Some firms and attorneys choose to ignore technology and change altogether, hoping it will just away—but, I guarantee you, it won’t.
Indecision and an overwhelming sense of dread is the stock-in-trade of attorneys when it comes to making decisions about selecting the technology necessary to fill their need for invoicing, keeping track of time spent on client work and other means of charging for work delivered. It’s simply difficult, and time-consuming, and not always in their realm of expertise. More time is spent on these matters than getting to the important work of completing cases and delivering them to clients.
One of the most critical areas of changing technology is the method of payment, especially with regard to credit card processing. Many lawyers have not set up the means of accepting credit card payments because they do not see their practices as traditional businesses. Rather, they see themselves as professionals. Although it’s true that attorneys have an ethical duty to their clients—and an even higher calling to uphold justice—in reality, they have to run successful businesses first, and this involves getting compensated for their work. If not, their ability to successfully practice may well be in peril. The health of your law firm at the end of the day is the profitability that it nets at the end of each year. Too many attorneys and professionals enjoy the numerous aspects of practicing law but forget that the core of a business is to be financially profitable, which often depends upon using the latest technologies and strategies.
Credit card processing is the focal point of the ever-changing technology in payment methods. Generally the traditional method of payment for many attorneys has been the client sending a check. This methodology has certainly worked in the past. However, in today’s business climate, a successful business operation goes hand in hand with an ethical and successful law practice. The days of “Perry Mason” are a wonderful reminiscence of a law practice from a bygone era. Today it’s more about streamlining the business of the legal practice to benefit both the client and the attorney.
The Means of Payment Are Changing
PayPal is now a ubiquitous term; so are Square, Stripe and Apple Pay. Venmo is up-and-coming. During the last quarter of 2017, $10.4 billion was transacted through Venmo, according to Statista, a market research company. The emergence of Bitcoin, Ethereum and other cryptocurrencies has created a quagmire of information overload for attorneys. Blockchain technology is here to stay and, although many law firms can’t imagine accepting payment for their legal services in a cryptocurrency, it’s going to happen. Actually, it’s already happening, with some entrepreneurial law firms now accepting cryptocurrencies as payment.
At the ABA TECHSHOW in Chicago in March, one very well-attended seminar was hosted by the Global Legal Blockchain Consortium and, as I was performing internet research for this article, I noticed BlockchainLegal.Org on LinkedIn—another new site that should be launching soon.
The world of payments is changing right before our eyes. Many tech professionals consider its time is now, analogous to the launching of the internet a few decades back. This technology era is evolving at a record pace—and it’s hard to keep up with all the changes.
Let’s Start With Credit Cards
And let’s not forget credit cards. Law firms are already accepting Visa, Mastercard, American Express and Discover. But doing this is starting to sound archaic when compared with the technological advances in the other payment forms mentioned above. Having worked with thousands of law firms during my career, it’s interesting that many, before my working with them, did not accept credit cards from their clients. Some firms began to accept cards for the first time because an important client insisted, “in order to earn the points.” If the card wasn’t accepted, the client would seek another firm.
Why not use the card? Is it because the firm isn’t prepared to pay the percentage to accept the card? Is it because it just seems too difficult to set up your merchant account? Or perhaps attorneys are just too busy to fill out the application? Firms that accept credit cards are paid 40 percent faster, according to 2017 Legal Trends Report by Clio. Intuit, the maker of QuickBooks, also echoes this sentiment across all industry types. It believes that businesses that do not accept credit cards lose thousands of dollars per year in business.
Law firms are definitely different than traditional brick-and-mortar businesses such as your local retailer or internet website companies for one significant reason—the IOLTA operating and trust account, and the significance of the separation of both monies when accepting payment for services rendered.
Key features when choosing your legal payment processing company include:
- Trust account and IOLTA compliance. All payment-processing companies are not the same. Make sure that your payments company ensures that no processing fees will ever come out of your trust account.
- Faster funding. Cash is king. Make sure that your payments provider can fund all your card types in 12 hours, commonly called “next day” funding.
- Payment plans and recurring payments. Payment plans are perfect for any practice area where clients can’t pay a large balance at once. The concept of autobilling a specific amount of money on a set day of every month or quarter is very beneficial for your clients as well as for your firm to collect its open receivables.
- Integration with your time and billing management software. Many law firms are now employing third-party software systems to more efficiently run their practices. It’s important that you understand the integration capabilities of your payment processor so that they can work seamlessly with your back-end system.
- Understanding the differences. It’s important that you understand the difference between a law firm that swipes credit card payments versus one that takes payments over the phone or via the internet. There are different fee classes, developed by Visa and Mastercard, depending on how a law firm is set up to accept credit cards.
Since 1974 the ABA has approved attorneys accepting credit card payments for their fees. But you still need to do it correctly. There are ethical considerations and processes to consider before putting credit card payments into place.
The good news is that it’s easy to make the switch. It might seem daunting, but once you learn how to use payment processing in your practice, you’ll be amazed that you ever lived without it. And then you can consider adding other technological payment services like bitcoin to really become tech savvy!
Online Payment Is Flourishing
For your law practice to continue to thrive in the coming years, stay current with your technology (i.e., your practice management solutions), which includes payment processing (i.e., whether you integrate payments into your solution) and/or employing a third-party payment company. Regardless, Millennials and the population at large are looking to work with law firms that are embracing technology.
Today’s legal consumers have different expectations than they did even five years ago. Your clients are used to conducting business and obtaining the information they need online, whether it’s with their bank, their doctor or you, their lawyer. Think just a decade or three ago about the proliferation of fax numbers. Now the present: When was the last time you used a fax machine versus scanning and sending information via email?
How do you manage your personal finances? Do you still use paper checks, or have you advanced to an online payment portal? The latter saves time—no more writing checks and no stamps, and with the click of a mouse, the transaction is done. The same thing holds true for your law practice and how clients want to work with you.
According to the 2017 TSYS U.S. Consumer Payment Study, when it comes to making one-time online payments, 76 percent of consumers preferred to use their credit or debit cards, compared with 58 percent in 2016, and it’s no surprise that the number of dollars collected via online payments has increased dramatically in recent years. For example, in 2011 only $1.00 out of every $17.00 was collected online whereas in 2014 $1.00 out of every $6.00 was collected online. And it likely has increased today.
The good news for solo and small-firm lawyers who accept online payments via credit card, ACH or eChecks is that doing so increases client satisfaction and allows your law firm to compete with the whopping 62 percent of large and midsized firms that are already offering these options to their clients.
Alternate Payment and Acquisitions
Many law firms are seeking to grow and looking to acquire and/or consolidate firms, to have a stronger local presence or a national footprint. Understanding credit card processing fees isvery important as it has become a meaningful expense line item for your annual budget and profit and loss statement. The amount of hidden fees—meaning fees that have not been disclosed to a firm (or attorney) and that are considerably higher than anticipated—has escalated over the past 10 years, and the low base rate of 2 percent is now reaching a significantly higher effective rate of 3 percent or greater.
As deal makers interested in potentially acquiring an existing law firm, we’re all seeking to get involved with firms that have real upside, positive cash flow and growth opportunities. I wish to share several points below that will highlight opportunities to recognize valuable margin with a potential investment in a new firm.
Credit card fees are considered a commodity. “What’s your rate?” is a common question asked by a CEO or chief financial officer. However, there are more than 600 fee categories and interchange levels that comprise the “what’s your rate?” question, and it’s not just as simple as lowering your transaction fee or shaving off a few basis points. The opportunity to reduce your credit card rates is straightforward if you know the proper questions to ask.
We are all well aware of software-as-a-service business models that are showing zero profitability but continued user adoption that get sold for a big multiple on top-line growth is still a reality. As a banker in the late 1980s working on Wall Street, earnings before interest, taxes, depreciation and amortization, commonly known as EBITDA, was our constant metric to determine a business sale price—and, yes, it still continues to be a very important factor in market valuations for law firms and business acquisitions in general.
Think about your business from both perspectives: growing top-line sales and also sharpening your pencil on all your expense items. Many attorneys I work with are always looking to grow, grow, grow with new cases, and they always seek new clients. However, take a breath, review your expenses, think about your technology and recognize how to exponentially grow your practice in the coming years.