Flat rates: When do you transfer funds to the operating account??
If you are the kind of attorney who charges flat rates to your clients, you probably know the bar association rules are pretty vague as to when to transfer this money to the operating account. Most say something to the effect of, you transfer funds to the operating when it is earned. But who is to say when something is earned? One of the greatest benefits of charging flat rates is that you don’t have to keep track of your time, so you probably aren’t keeping track of your time. If you cannot use your time card as an indicator, how can you justify when the flat rate is earned?
One way to do this is to set up a system to transfer funds to the operating account at different points in the case. Usually, with flat rates, you are filing something. Whether you are an immigration attorney, patent, or DWI attorney, you always have some sort of filing. How much of your work is done once you do that filing? Is that filing done as soon as you get the client or do you do a lot of work before then? These questions will help determine the percentages or amounts you should use. Here are some examples of different systems:
You have a court filing immediately and that is the majority of the work that will be performed for the client
You might want to set up a system, when you make the filling, you take the flat rate and minus out the filing fee (to save that in the IOLTA account until it clears), and then take 70% of the flat rate. And then when the case is closed, you take the remaining 30%. Here is an example:
$1500 flat rate charged to the client
-$450 filing fee
$1050 attorney fee
$735 transfer after filing (70%)
$315 transfer after the case closes (30%)
You don’t really do any work but do make a filing immediately, then you do the majority of the work
You should leave more in the IOLTA account initially. For example, you only take 20% when the case is filed leaving 80% left in the IOLTA. Then at another point in the case, you earn another 30%, and then you earn the rest when the case is closed. The different points in the case could be time (like one month later), or it could be after the paralegal has completed their work and handed it to you for review. Here is an example:
$1500 flat rate charged to the client
-$450 filing fee
$1050 attorney fee
$210 transfer after filing (20%)
$315 transfer one month later (30%)
$525 transfer when the case closes (50%)
What about payments??
A lot of attorneys accept payments, so how does this work? When you accept payments, you want to leave the percent that you were going to transfer when the case closes in the IOLTA. If you were going to transfer 50% when the case closes, leave 50% of each payment in the trust account until the case closes. Here is an example:
January $500 payment
January -$450 filing fee
January $50 remaining attorney fee- transfer $25 at this point leaving $25 in the account
February $500 payment- transfer $250 to operating and leave $250 in IOLTA ($275 is now in the IOLTA)
March $500 payment- transfer $250 to operating and leave $250 in IOLTA ($525 is now in the IOLTA)
April the case closes and you transfer the remaining $525.
There are a lot of different ways you could do this and depending on your bar rules and the type of law can determine what percentages (or dollar amounts) to use at different points. You want to make sure you are not taking all of the funds before a case is closed and you want to be consistent. If you need help setting up a system or need help figuring how much to transfer each week or month, click here to set up a consultation with me and we can see how to help you =)
