When Your Fixed Fee is Not a Fixed Fee

Are you missing out because you do not understand the Solicitors Accounts Rules as well as you should? Many Solicitors firms could markedly improve their cashflow without any new clients coming through the door. But it takes some skill and an understanding of the Accounts Rules.

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You may often quote a fixed fee, taking money on account of costs and paying it into your client account. You send an interim bill or invoice at the end, transferring the money within 14 days in accordance with Accounts Rule 17.3. When you are busy, it’s easy to overlook making the transfer. Your rewards; poor cashflow, unnecessary work and a qualified audit report.

Alternatively, if you pay the money into your office account you are misusing client funds. The Accounts Rules treat it as a payment on account, meaning that it is client money. Many firms do this without thinking.

The solution: use an agreed fee. An agreed fee cannot be varied, whether up or down, and it remains at the agreed figure for the life of the transaction. Accounts Rule 17.5 states that you cannot change an agreed fee. This is a critical distinction. On payment it is the firm’s money and must be paid into the office account.

So, how do how do you establish an agreed fee? You must use the words ‘Agreed Fee’ and you must clearly spell out to the client the consequences in your initial letter. You must say that the fee cannot be varied up or down. This is because Indicative Behaviour 1.14 requires you to explain your fees and whether they are likely to change.  You must tell them that it is non-refundable, even if the client’s circumstances change; for example the prosecution drops the charges.

Also under IB 1.11 you must state that the money is not client money. You must tell the client that it is not subject to the protections of the SRA Compensation Fund. Your COLP/COFA should be checking the wording of the initial letter.

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If you have used an Agreed Fee, there is no prospect of increasing it. So, you must set out precisely the terms of your retainer. If the job turns out to be bigger than expected you cannot charge more. So, for example, if the job requires a hearing in the Employment Tribunal, you could limit your retainer to a hearing, stating that it does not include any adjournments. If there is an adjournment, that will trigger a further retainer and another Agreed Fee. If you do not clearly say it, the client is entitled to assume that it includes as many hearings as are necessary to dispose of the matter.

Get it right and you can pay the money into the office account upfront. Get it wrong and you are misusing client money and breaching the rules.

How Can Enderley Help You?

If you are still not sure how to comply with these rules or want to check that you are getting the wording of your letters right, please contact us. Similarly, if you want to improve financial stability (a key factor in law firm authorisation), we can help you with that too.

Ed Austin

Solicitor

Enderley Consulting Limited