One topic that is not obvious is why law firms should be incentivized – after all, lawyers are full partners in the success of collections, and their remuneration increases with the increase in the efficiency of legal collection.
The answer may lie in the conflicts of interest that exist between the organization’s profit targets and the profit of the law firm which faithfully carries out the collection. It also turns out that maximum legal collections efficiency for the organization does not mean maximum efficiency for the law firm. We will list some conflicts of interest and conflicts between efficiencies, and we will try to provide the organization with some guidelines for bypassing them:
Sometimes, there is a gap between the maximum profit of the organization and the maximum profit that the lawyer can achieve in a case. We will illustrate with an example.
Let’s assume that there is an engagement agreement between a law firm and the organization, according to which the law firm is paid only the legal fees it collects from the debtor. If the lawyer charges a fee at the notice letter stage, he will be able to charge a relatively low fee, depending on his efforts. On the other hand, if he continues to file an automated claim and the client pays spontaneously as soon as the judgment is received, then his fees will be much higher. Hence, in some cases, the lawyer should continue proceedings against the debtor when the interest of the organization is to collect from the client as quickly as possible and without expenses. This is not always true, because there are cases where handling the claim requires a lot of resources from the law firm.
• Law firms have many clients, some of them larger than others, and sometimes, the law firm provides better service to one client at the expense of the quality of service to the other client.
• The profitability of the various clients also affects the allocation of resources by the law firm. The law firm’s profitability is measured according to the number of cases and their “quality”. The term “case quality” for the law firm refers to the quality of the documents and evidence in relation to the value of the fees that can be collected in the case and the total efforts that he must invest in the case. A case that is easy to collect and with a high fee will always have priority over a case that is difficult to collect and with a low fee.
Hence, an organization should carefully examine the importance of its client portfolio in relation to the other client portfolios of the law firm, and sometimes it is better for an organization to be a large client to a smaller law firm than a small client to a large law firm (although this is not always true – like anything, probably…).
In large firms that serve a large number of important clients, the organization should contractually guarantee the continuous existence of a special unit that will exclusively handle the organization’s files to prevent the loss of dedicated resources in favour of larger and more profitable clients. The unit’s specialization in the organization’s files will strengthen the ability to control its effectiveness and prevent the transfer of shared resources to other clients. In addition, the employees of the dedicated unit become a “sub-unit” of the organization and can be recruited for the task, encouraging their loyalty to the common goal and even influencing their compensation system at the lawyer.
Finally, perhaps the best way to achieve maximum efficiency from the external law firms, despite the conflicts of interests listed, is the internal self-efficacy of the organization, which is the best guarantee for effective external treatment of cases. If there are clear work practices, ongoing controls and quick responses to the needs of the lawyer’s office, the efficiency will reflect in the productivity of the work team at the law firm, who will constantly try to prove their effectiveness in order to get more work from the organization.
Incentives
In the previous section, it was clarified that sometimes, there is a conflict of interest between the law firm’s profitability and the organisation’s profitability. In these cases, when the organization is interested in changing the lawyer’s collection policy, it is useful to use a motivation tool for the lawyers to bridge and “bring closer” the goals of the organization to the goals of the lawyers. There is no limit to the creation of incentive models, and each case should be examined on its own merits.
We propose here a few illustrative examples:
Distribution of new cases
Giving priority in the distribution of new cases is a significant incentive for the lawyer. It is possible to set different goals for the lawyers, the reward for achieving them, or the place in their ranking in relation to the other offices, will be the allocation of a larger number of cases.
Annual award
Sometimes, it is possible to organize an annual or periodic competition carrying an annual cash prize, which will be distributed to the lawyer who excels in legal collection or to the entire work team. The calculation of the award should be adjusted to the increase in profitability obtained due to the improvement in achieving the goals.
Financial incentives – according to monthly goals
When the organization wishes to encourage collection at the warning letters phase, before filing a claim against the client, a financial supplement can be granted for achievements beyond the stated target in the pre-claim phase. Here too, the size of the award should be a function of the additional profit achieved by the savings in legal expenses.
Promotions for debtors
Everyone loves promotions: both law firms and debtor clients. This may be because we are all “programmed” to look for alternatives to visiting the neighbourhood mall… In any case, “holiday deals” in which the organization “participates” in the holiday joy of the obliging customer make it possible to achieve good to very good results sometimes.
The organization announces a “holiday sale” through the lawyer, granting a predetermined discount of 10%-30% of the value of the case for a limited period of one month, and the lawyer’s office calls all the clients and announces to them: “Get rid of the debt for a substantial discount for a limited period”, and that definitely works.