Getting paid in advance these days is not only a good idea, it should be your default policy, particularly when it comes to USPTO or PCT fees you have to pay. Not getting paid is far worse than having no work at all!
2011 has not been a good year for many Patent Attorneys. I am getting calls from a lot of my old friends, grousing about the lack of work and when it does come, low prices. While filings are way up, the number of Patent Attorneys has also increased. And since Patents are viewed as being worth less (but not worthless, just yet) people are not willing to pay as much.
The land-office business of the 1980's and 1990's is gone. We are back to selling tract homes and collecting modest commissions.
In this environment, a practitioner has to shave expenses in order to make ends meet. Getting paid is one area where costs can get out of control.
Accepting payments by credit card, PayPal, or wire transfer are always a nuisance, as each transaction takes a percentage or flat fee for the transfer. For Credit Cards, not only do you have to pay monthly merchant fees (and now new quarterly fees) but also a percentage (2-5%) of each transaction. PayPal can take as much as 5% as well. Wire transfers can cost up to $50 to send, at some banks, and many banks are charging fees to receive fees as well!
But the hassles of just getting money are trivial compared to not getting paid at all. For some reason, historically, we Patent Attorneys have gotten used to being paid on 60, 90, or even 120 days. Every firm I have worked for has a huge outstanding Accounts Receivable (A/R) representing three to six months of billings. Especially when dealing with overseas companies and law firms, it seems we are expected to wait, wait, wait, to get paid.
And the irony is, often those same overseas entities demand instant payment from us, while sitting on our invoices for months. It is an odd situation.
But there are cases where this can cause real damage to your practice. Advancing large fees, such as filing, maintenance, or PCT fees, on behalf of a client, can be problematic. If you pay the fee with a credit card, and have to wait months to get paid, the interest charges can cut into your bottom line. Even if you pay cash for these fees, you are losing the opportunity cost to use those funds.
And then, of course, there are clients who go bankrupt and do not pay at all. In the last two years, I have had two clients go "belly up" after I advanced thousands of dollars in PCT fees on their behalf. Not getting paid for services is one thing (you are working for free). Not getting paid for fees is paying to work.
And once you agree to get paid "whenever" you are sort of on the hook. You have agreed to accept payment from the client at their whim, so you cannot let cases go abandoned for lack of payment without risking some malpractice exposure.
On the other hand, being stuck with $10,000 in unpaid PCT fees can be enough to bankrupt you. While this may represent only a small part of your overall billing, it may represent a big chunk of your personal disposable income for the year.
If you make, say $100,000 a year as a solo practitioner, your take-home income, after taxes may be less than half that. Subtract your mortgage, car payments, and whatever, and you are lucky to have ten grand left over at the end of the day. If you have to "eat" that much in unpaid fees, well, you'd better get used to eating a lot of Raman noodles!
For this reason, I have changed my billing practices this year. While I have always asked for at least a 50% advance on fees and services from new clients, effective 2012, I now ask for 100% of fees for any transaction, particularly maintenance fees (all fees, no services) or PCT cases - even from existing clients. There is no legitimate reason why a client cannot cut you a check, within 30 days, if they want to file a Patent overseas or pay a maintenance fee.
Of course, there are ways to use existing extension of time techniques to avoid paying fees until paid. If a client will not or cannot advance filing fees, I file without fees, when I can, and then inform the client, per our agreement that the case will go abandoned if they do not come up with the fees. I am not running a charity. And yes, if they can't advance fees at the time of filing, they have to pay the late fee and my fees for filing a Response to Missing Parts. Tough Love, baby!
Of course, in some instances, you may have to pay fees up front, as is the case with 371 national stage filings. And for this reason, I turn away these cases unless the client can come up with the dough in advance. If you get an e-mail from an overseas firm wanting you to file a 371 case with a week's notice, with no advance, chances are, you will never get paid. It is a racket, and these overseas firms use small practitioners as a means of getting "free" filing services. And if you fall for this scheme, you have no one but yourself to blame when it all goes horribly wrong.
Some practitioners would argue, however, that getting paid "in due course" is part and parcel of the business. And perhaps this is true in litigation or other matters. But for Patent Prosecution, which is labor intensive, fee-intensive, and a very marginal, if not in fact a loss-leader business for many firms, not getting paid at all is just not an option.
It is tempting, if you want to "get business" to agree to such payment terms. But bear in mind that if you do this, you really might "get the business" in the worst sort of way.
Many Attorneys worry about taking advances on fees, on the grounds that they have to set up escrow accounts and keep double-books. I actually did this, early in my career, thinking that fee advances were client money and I should keep them in escrow until the Patent was filed. I am not sure what the answer is on this, but I talked with the folks who run the IOLTA accounts section at the VA Bar and they told me my concerns were a little overblown.
While it is true that you should keep funds for "future legal fees" in a trust account, their take on this (or at least the person I spoke with) was not that these meant fees that were being paid in the same day or even week. I suppose the decision is up to you, but the real concern with trust accounts is where you are holding money that belongs to the client to which you have no claim, such as lawsuit judgment awards, real estate closing proceeds settlements, and the like.
I am not sure you are going to jail or are going to lose your law license because you deposit a check for a $580 filing fee to your general funds account and then pay that fee the next day - particularly in situations where you have already invoiced for that fee.
The abuses with trust accounts and the issues of "co-mingling of funds" usually involved tens of thousands of dollars of client money that you are holding for the client. An advance on legal fees might constitute this kind of money, where it is, say, a retainer paid on the premise that you might perform some work in the future. I am not sure it applies to work or fees already invoiced, for work that is already in progress. The client has no expectation of a refund at that point.
But if it worries you, set up a trust account, linked to your checking account, and then deposit the funds there and transfer them immediately to your working account. Either way, don't pay a fee without being paid first!
NOTE: With regard to overseas prosecution, I have found that the best way to avoid problems with getting paid (and then having to pay overseas associates) is to have the overseas associate invoice the client directly. That way, I am not "in the loop" and "playing the float" with tens of thousands of dollars in overseas legal fees.
