Law firms suffer quietly while waiting for cash-crunched clients to pay up

Polish law firms are suffering quietly as their biggest sources of revenue - domestic businesses - find it increasingly difficult to pay their bills on time, law industry sources said. While clients have always been late with payments, the delays have gotten longer since the economy stalled last year, according to Leszek Cholewa, a partner at the Katowice-based law firm A&D Adwokaci i Doradcy. Under Polish law, invoices must be paid within two weeks. While a few years ago bills were paid after an average of three weeks, today lawyers have to wait about two to three months for their money, Cholewa said. "Delays occur with some 70% of invoices," he said. Polish law firms have been hit harder than their multinational counterparts since they primarily work for domestic clients. "Foreign clients pay, but Polish companies have no money due to the recession," said Ryszard Kuciński, an owner of the law firm Kancelaria Prawnicza Ryszard Kuciński Radca Prawny. Faced with a mountain of debts, many companies pay their most urgent liabilities first and leave lawyers' bills for later, Kuciński said. "When a client faces the choice of either paying their law firm or paying the phone bill, they choose the phone bill because the company would have to cease operations without phones," he said.

Given their resources, though, lawyers could easily threaten court action to speed up payment. Instead, most choose to wait rather than jeopardize client relationships. Cholewa said he doesn't even charge interest on late invoices. "If you can give your client relief this way, then you compromise and hope for a bigger order in the future," said Józef Forystek, a partner at Forystek Góralczyk Rychlicki Budzowska Fiutowski Jamorski Adwokaci i Radcowie Prawni. Still, not all law firms are willing to wait for their money. In the past few months, more firms have taken their clients to court, marking a change in lawyers' attitudes toward customers. "There were no such cases three years ago," Forystek said. Law firms' biggest debtors are usually state-owned companies in heavy industry such as mining and steel, lawyers said. Coal mines take the longest to pay, while banks are the most reliable partners, according to Cholewa. In terms of size, big clients have fewer problems paying than small- and medium-sized firms, with the latter even beginning to give up legal services entirely, Cholewa said. The smaller revenue stream flowing from clients to lawyers hasn't yet caused any major closures or mergers among Polish law firms, but in extreme cases it has pushed them to reduce staff and move to cheaper offices, Kuciński said. And payment delays only exacerbate their woes. "When a law firm sends a zł. 5,000 invoice to a client, it must pay more than zł. 1,000 in value-added tax, no matter whether the client pays the invoice or not," said Dariusz Śniegocki, the dean of the Warsaw Chamber of Legal Advisers.