When firms are asked, “How do you want to define growth,” the leading response is always through revenue. This response consistently outranks growing a larger client base, expanding staff or hiring more attorneys, and adding more practice areas or geographical locations. 

However, not every firm is growing. Today, there are three groups of law firms in the industry that are actively working on open matters. Those are firms that are growing, firms that are stable, and firms that are shrinking. The biggest hurdle that solo, small, and even medium firms are facing is finding billable work. In a typical 8 hr workday, most law firms have trouble billing more than 2.5 hours of work per day (we call this utilization rate, this is important for later). And even then, once the actual bill goes out, firms are only collecting about 1.7 hours worth of billed time. So, not only are firms having a hard time finding and focusing on billable work, but they’re having a hard time collecting on the time they do bill.

A firm’s utilization rate is calculated by dividing the number of billable hours by the number of hours in your workday day. So for example, if you’re billing 4.3 hours of work in an 8-hour workday, your utilization rate is 54%. When we look at the utilization rates of each of the three types of firms, this is what we see: stable firm’s utilization rates stay very similar throughout the course of time. Growing firms are experiencing increased utilization rates, meaning they are finding more time they can bill for, while conversely shrinking firms face lower and lower percentages over the course of time. The takeaway here is there’s a paradox that is happening between law firms and growth, and it’s something the industry needs to figure out how to tackle.

The Basics

Before we jump in, it is important to note that you’re not supposed to know everything we cover in this blog. If you do great! But if not, that is okay, you’re lawyers, not accountants. However, as a business owner or as someone heavily involved with the revenue projections and future evaluations, it is important that you have a foundational concept to improve your firm.  

A third of an average attorneys day is spent doing what makes them money. So that means a whole ⅔ is spent on tasks that don’t bring in money, really think about that. The problem with this is that the industry has seemed to settle. These rates have become normal and standard and because of that, we have seen little change. But the real problem stems from the fact that we cannot manage what we do not measure. 

Let’s go through some basic accounting terms that everyone should be familiar with: 

Some common questions that come up include:

Financial statements are typically structured by columns and rows, with comparative periods, and the overarching reason we use them is to tell better stories. The accuracy to which you can tell your firm’s story relies solely on your record keeping. Your chart of accounts is a list of categories to record business transactions. The transactions recorded within these categories are listed in detail on your general ledger. Financial statements summarize those details entered in your general ledger. The basic elements of a chart of accounts is the account name, account number (if used), the account type, and balance. The right chart of accounts is so vital because it will provide a picture on your financial statements of your firm’s financial health. 

Now that you have all this information, the next question you may be asking is why is this important to me and my firm? Why do we even need these things? 

Of course, law firm’s are businesses, and financial statements provide the best way to manage a business. Oftentimes, we see firms who do not have heavy experience with accounting or finances turn a blind eye to the numbers because they simply do not know how to use them. And with accounting particularly, it is second nature for people to shift the ownership of the task versus jumping head first into doing it. If your firm’s number one priority is to grow revenue, how are you tracking that? Are you setting targets?  How are you measuring your progress?

Profit Margins

Your profit margin essentially illustrates (by percentage) how many cents on the dollar are being generated for your business. And this can be determined by dividing your net income (income after taxes) by your income. 

Profitability by Practice Type

If you have multiple practice areas within your firm, you may be tempted to blend your profit margins together. It is best practice to keep these margins separate between practice types to provide you with a better picture. Bad numbers have incredible power to give you bad advice. You could have one practice area that is considerably underperforming, but if you’re blending your margins, it would be unlikely that you would be able to see that. Without that information, you would have no idea where to best shift your resources to either continue bolstering your more profitable areas of practice, supplement the areas that are falling behind, or even eliminate an area that continues to be unprofitable.

Balance Sheet    

This data on your balance sheet shows the assets, liabilities and owner’s equity at a specific point in time for your firm. 

Types of assets include:

Liabilities include: 

Lastly, equity is synonymous with net worth. It is the ownership interest in a business. It includes: 

When all is said and done, your assets must equal your liabilities plus the ownership’s equity. If they don’t there is something wrong. 

It is important to note that although equity and debt are ways to fund your business, both are vastly different in the way they affect your business’ financial health. When using equity, you are either giving away future earnings or purchasing future earnings of the business. When using debt, your business borrows from another party, with the condition that it is to be paid back, usually with interest, at a later date. When taking on debt, you are assuming that you will be able to pay it back within a certain period of time, but you are also taking on the risk of default.

By looking at the balance sheet, you can quickly identify your current cash on hand, as well as what your firm currently owes to its creditors. 

Balance Sheet Hot Tip

On your balance sheet, your IOLTA cash is represented both as an asset (IOLTA bank account) and a liability (client retainer liability). These funds belong to your clients and should never touch your operating account or profit and loss statement until you actually earn that money. IOLTA accounts are heavily regulated and the misuse of these funds could potentially cause a multitude of problems for you and your firm, up to and including disbarment.  Because of this, IOLTA accounts and the balancing client retainer liability accounts have a unique place on the balance sheet.

This is incredibly unique to law firms. So much so that it is advisable that when you are hiring an accountant or expanding the team who controls your bookkeeping, you ensure that they are very familiar with law firm accounting. 

If you believe you may be running into issues with your trust accounting, review your current balance sheet.  Your IOLTA bank account balance should always be the same as your client retainer liability account balance.  If it is not, first determine if your trust account has been reconciled with your bank statements.  During reconciliation, you can very often identify a missing transfer or other transaction that will bring your accounts back into balance.  If that doesn’t rectify the problem, then a deeper dive into your billing and accounting transactions may be necessary.

Trust Accounting Essentials 

Trust accounting is the most critical part of bookkeeping for firms. If we were going to explain it to a 5-year-old, we would say that money that is given to you in trust is money that is not yours. So, you should keep all money that isn’t yours in a separate account. Simple as that. These accounts are governed state-by-state and are an incredibly high-risk area for your firm. 

Trust Accounting Dos

One of the harder things about trust accounting is the 3-way reconciliation. First, your balance sheet, trust asset account, and trust liability account balances must match each other.  Next, the trust asset account (or IOLTA bank account) must balance back to your bank statement.  And lastly, if you have multiple clients for whom you are holding funds, you will need to have a way to determine whose money is whose. 

A sub-ledger that details all trust transactions by client or matter is necessary to provide an accurate current balance of the trust funds being held for each client at all times.  The total of all the client trust balances should balance back to your trust liability account. That is a 3-way reconciliation.

Trust Accounting Don’ts

Get Paid More

The Risk 

There is risk around firms getting paid by their clients. In most service industries, you do the work but money must leave your hands to ensure that timekeepers and other vendors get paid to properly provide services to your client. Next the client is billed, but it takes time to collect on those bills. Cash outflow occurs first, then the cash inflows come next, if you’re lucky enough to collect on them. So immediately out of the gate, you’re spending money before the guarantee of being paid back on it.      

Mitigate the Risk

This is where trust accounting comes in. It helps to mitigate the collection risk by taking funds (retainers) upfront from your clients. By doing so, you have the ability to match the cash-out and in flow. Trusts do require more work on the front end, but they can really improve your cash flow through this process. Additionally, you can better filter out the clients in your book of business who will reliably pay you versus those who will short change or delay paying you.

Run A Few Tests 

The first thing you should do if you’re not already doing this is take a step back and look at it holistically. Is trust accounting right for your practice type? Is this something necessary for you to do? If the answer is yes, then your step 1 should start by putting in place the proper internal processes. Think about what happens when a client walks through your door and hands you a check for $10,000 to do work across a 3-month period. What then does your firm do? How would you handle that? Step 2 should be making sure you have a proper separate trust account. And lastly, don’t do everything all at once. Start small, ask for one new client to pay half your estimated bill upfront. 

The Takeaway 

Today, it isn’t enough to just be an expert attorney. You need to have some business savvy too.

But that doesn’t need to be a huge hurdle. By familiarizing yourself with what we discussed in this blog and ensuring that your trust accounts are set up properly and accurately, you will move your firm from the static stage to the growth stage. Sustaining profitability is no easy feat, but with the proper tools and accounting skillset, you are one step closer to making that a reality for your firm.

In late December 2020, Congress approved an additional COVID-19 relief package as part of the Consolidated Appropriations Act, 2021. Included in the $900 billion aid package is funding intended to provide a second round of relief for small businesses that are still struggling in the wake of the worldwide pandemic. A key piece of this legislation is funding earmarked for a second round of the Paycheck Protection Program, or, colloquially, PPP2.

The PPP Second Draw legislation is sure to be met with mixed feelings by small to mid-sized law firms across the country. Many of them are still weary from the first round of PPP; a poorly executed program that was full of uncertainties, constantly changing regulations, and a mixture of dread and uneasiness over the ramifications of improperly complying with rules that were released irregularly and without clear guidance. In fact, up until late December, one of the largest areas of concern – the tax treatment of the funds – left many law firms with cash-based, calendar-year financials with little time to plan or to react.

So now the question on law firm leaders’ minds is, understandably, “Should I even apply for PPP2?” Followed closely by, “If so, what’s in it for me?”

In late December 2020, Congress approved an additional COVID-19 relief package as part of the Consolidated Appropriations Act, 2021. Included in the $900 billion aid package is funding intended to provide a second round of relief for small businesses that are still struggling in the wake of the worldwide pandemic.Here’s a quick rundown of what can be expected:

First Things First: Am I Eligible?

In order to be eligible to receive a Second Draw PPP loan, your firm must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019.

This reduction can be calculated by comparing either one individual quarter from 2019 to the same quarter from 2020 or by comparing the calendar year 2019 to the calendar year 2020.

So, for example, if your gross revenue in the 2nd quarter of 2019 was $500,000 your gross revenue in the 2nd quarter of 2020 would need to be less than $375,000.

By giving firms the flexibility to compare one quarter versus another, even if you ended 2020 without a significant revenue reduction compared to 2019, you may still be eligible based on the performance of a single quarter.

Please also note that the maximum amount of any loan is $2 million and loans less than $150,000 will have easier paths to approval.

Next: What is the Same?

If you lived and breathed the first round of PPP Loans, many of the characteristics of the Second Draw PPP Loan will look very familiar to you:

Calculating Your Loan Amount


The formula for calculating the amount of your loan will be 2.5 times your average monthly costs. Average monthly payroll costs can be calculated using the 12 months prior to your loan for either the 2019 or 2020 calendar year. Payroll costs above $100,000 for any one employee (on a prorated, monthly basis) must still be excluded;

Substantiating Payroll Amounts


The documentation required to substantiate your firm’s payroll cost will generally be the same as what was required for your first PPP loan.

Maintaining Operations


Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan.

Forgiveness Terms


If your loan is not forgiven it will carry an interest rate of 1%, a maturity of 5 years, and payment deferrals.

Usage of Funds


At least 60% of the proceeds must be spent on qualifying payroll costs.

What has Changed?

While there have been a few changes there are a few unique terms of PPP2 which many law firms will find very favorable.

Covered Period Changes


Due to the top-heavy compensation models of most law firms many found themselves at a disadvantage when the 8-week covered period was first announced. Conversely, the 24-week covered period became administratively burdensome and left outstanding debt on the financials longer than many firms were comfortable with. However, the CAA now allows the borrower to select their own covered period as long as it is more than 8 weeks and less than 24 weeks from the loan origination date;

Eligible Expenditures


While PPP2 does still require borrowers to use at least 60% of the proceeds on payroll costs, the CAA has expanded the list of qualifying expenses that can result in forgiveness. In addition to items such as coverage for property damage, allowance of expenditures associated with costs outlaid for adapting your offices to meet enhanced safety standards or purchasing PPE for employees/clients/vendors, recipients can also include costs outlaid for “covered operations expenditures” to their forgiveness applications. This is defined as:

Tax Treatment


Unlike the uncertainty that surrounds the tax treatment of the first round of PPP, the COVID-Related Tax Relief Act of 2020 (COVIDTRA- a piece of the CAA) has stipulated, from the onset, that funds received from the Second Draw PPP will not be taxable income to the recipient and that your firm can deduct expenses that are paid for with the loan’s proceeds. Finally, borrowers will not have to reduce tax attributes (such as the NOL carryover or a capital loss carryover) when the loan is forgiven.

Two more important items to note:

So, while you may not be ready to tackle this “beast” again, it could provide very favorable funding options as you march your firm into 2021.

And we know this process can be daunting, so we have tried to make it a little easier for you to keep your firm organized. Download this prep-list and stay one step ahead!

 

Prior to 2020, if your firm paid freelancers, contractors, or other non-employees $600 or more during the year, a 1099-MISC would be issued and sent to the payee. 

In 2020, the IRS released form 1099-NEC, a new form that will change the way 1099-MISC reporting has been handled for years. 

This 1099-NEC was added specifically for reporting non-employee compensation. This will include payments to individuals who are not employees, as well as payments for services to partnerships, estates, or, in some cases, corporations (such as attorneys and law firms). 

Yes, the 1099-MISC is still being used, however, it has been redesigned, so it will be especially important to pay close attention to how payments are being reported in early 2021.

Let's take a look!

New Changes

To start, let's talk about what exactly has changed. To help give you a better visual, below is a chart indicating what exactly has changed between the 2019 form and the 2020 forms:

Here is a chart indicating what has changed between the 2019 form and the 2020 forms

Any payments in 2020 to attorneys and/or law firms for services rendered should now be entered in Line Item or Box 1 of form 1099-NEC. Gross proceeds, such as settlements paid to attorneys/law firms, should now be recorded in Box 10 of 1099-MISC.

It will be more important than ever to review all vendor settings to ensure that 1099 vendor payments are reported in the correct box and on the correct form in 2020.

Form 1099-MISC must be filed by March 1, 2021, if filed on paper, or by March 31, 2021, if filed electronically. But vendor record review should begin as soon as possible because the 2020 accelerated due date for filing form 1099-NEC with the IRS is on or before February 1, 2021, whether you're using paper or electronic filing procedures.

A best practice to prevent the beginning of the year scramble to obtain missing information from vendors is to require a current W-9 prior to issuing any payments to vendors. This will ensure that each vendor record is set up properly in the accounting system. Further, an updated W-9 should be requested at the beginning of each year, prior to issuing any additional payments, to confirm that the information contained in the vendor record is accurate from year to year.

If you're using a legal practice management software, records and data may look different, but in Centerbase, each vendor has its own record where settings specific to that vendor are located. This makes reviewing and editing the vendor’s 1099 settings a very simple process. Additionally, documents such as the current W-9s can be attached and notes can be entered on a vendor record, making verification of 1099 information quick and easy.

Remember that any credit or debit card payments to vendors should be excluded in what is reported to the IRS since each credit card company (payment settlement entity) reports payments via credit card to vendors on form 1099-K. If credit card payments were to be included in the amounts reported on 1099-MISC or 1099-NEC, it would result in the reporting of the vendor’s income to the IRS twice. This may ultimately result in the necessity of filing corrected 1099’s if requested by the vendor. Centerbase provides the ability to filter out credit card payments from the 1099 vendor report, eliminating the necessity of manually reviewing all vendor payments. This report can be downloaded and used to prepare 1099’s each year.

The Takeaway

Preparing for filing 1099’s is going to take some additional effort in early 2021, specifically as it relates to legal settlement accounting. With the filing deadline for form 1099-NEC only 31 days into the new year, getting started on vendor review as soon as possible will be essential.

Now that you are armed with the knowledge of the changes to 1099-MISC and what is to be reported on the new form 1099-NEC, you should be able to accurately conduct 1099 reporting for 2020.

For more detailed information regarding 1099-MISC and 1099-NEC reporting for 2020, check out the IRS instructions. 

For many firms, accounting is a huge pain point. It’s time-consuming and tedious, but it’s crucial to any business’s operations. 

But before we get into the nitty-gritty, what does it even mean to close out a firm’s books? Keep reading and we’ll tell you!

Closing a firm’s books is the process of finishing up all accounting activity for an accounting period and ensuring that the general ledger accurately reflects the financial activities of the firm.  

There are many closing procedures that should be followed on a regular basis throughout the year, but there are also additional procedures to include at year-end. We know, that’s just adding more to your plate, but these year-end procedures should be given special attention prior to closing the books for the fiscal year and we’ll tell you why.

Profit distribution can occur at any time during the year, so it is critical to maintaining a complete and accurate financial picture so that appropriate projections of net income and cash flow can be made whenever required. By establishing regular month-end procedures, your firm can better maintain an accurate financial picture throughout the year and, in turn, will ensure a smoother year-end closing of the books.  

Of course, each firm is different and the procedures that are put in place will vary from firm-to-firm, but we have tried to make it as easy as possible for you and compiled a list that includes some basic, monthly procedures that your firm may find useful. 

Accounting Procedures to Consider Following

 

1. Distribute a list of outstanding, unpaid accounts receivable that are 90 or more days past due to the responsible attorney for collection efforts.

2. Ensure that all timekeepers are current with their time entries by the end of each month so that billing will not be delayed.

3. Record all incoming cash. 

4. Review the Aged WIP Report to identify fees that can be billed and those that should be written off.

5. Reconcile all cash and credit card accounts, entering all unrecorded transactions.  

6. Review and reconcile petty cash.

7. Record month-end payroll journal entries.

8. Review the Payment/Credit Allocation Details report, filtering for any credits for expenses.

9. Review liability accounts to ensure accuracy.  

10. Review the Comparative P&L Report.  

11. Review the Trial Balance.  

12. Prepare draft Profit & Loss Statement, Balance Sheet, and Trial Balance and provide to CPA for review and tax planning (and tax preparation at year-end).  

13. Enter any adjusting journal entries per your accountant's instructions.

14. Print and save finalized financial statements.

15. Update the closing date in System Settings to ensure no changes can be made that will affect the financial statements for prior periods.

And if you were thought that was it think again because we have more! In addition to the above, at year-end the items below should also be added to the closing procedures.

Additional Closing Procedures 

1. Request that all expense reports be submitted to accounting in plenty of time for processing, so they can be paid prior to year-end.

2. Review IOLTA balances and request replenishment according to the firm’s policies so there are sufficient funds on hand to apply to client bills at the end of the fiscal year.

3. Update accounts payable.  

4. Pay down line of credit.

5. Plan for and enter any retirement plan funding.

6. Plan for and enter any year-end bonuses.

7. Budget for sufficient cash on hand and adequate line of credit for the first quarter of the following fiscal year.

8. Account for partner/shareholder distributions.

9. Enter adjusting entries for depreciation, bad debt, etc.

10.Enter final adjusting journal entries per accountant's instructions.

11. Per the Accounting Period End Date set in the Accounting System Settings, Centerbase will process the year-end closing entries to book the current year’s net income to retained earnings. 

The Finale!

At this point, you’re either thinking “oh boy,” or “wow that was helpful!” Either way, we want to try to make this process as easy as possible for you so we have created an Accounting Period Closing Procedures Checklist to assist you in assigning and tracking the tasks listed above.  

End-of-year closing is never fun, but hopefully these steps and checklist will help you keep billing, collections, and your financial records up to date!

As we draw near the end of 2020, many attorneys find themselves faced with the same universal question — “Is there any way I can collect on my outstanding receivables before the year is out?” Although it’s not something you dreamed about in law school when you thought about practicing law, collecting on unpaid bills is a vital aspect of your business. Ideally, you should want to end your year with as much money in your pocket as  possible. But, how can you collect on invoices that some clients thus far have ignored or refused to pay?

First, some quick definitions. Accounts Receivable, or “A/R,” is a term that refers to unpaid balances left on a client’s account. Furthermore, an “Aged A/R” is an unpaid balance that has been left standing for a certain, prolonged amount of time (say, for example, a client has not paid their invoice in over 60 days).

Now, let’s present a common scenario: Your client emails you saying she cannot pay her outstanding invoice. In this instance, many lawyers choose one of three options: 1) hang on to the invoice and hope their client eventually pays it; 2) enlist the help of a debt collector to obtain the funds; or 3) simply write off the debt when the year is over. Option One is less than ideal, because you have no assurance of ever getting paid. Option Two is hardly ever preferred because you still want referrals from that client, and handing over their outstanding balance to a collections firm is not likely to instill good feelings between attorney and former client. Thus, the majority of attorneys end up choosing Option Three, wherein they simply write-off the debt at the end of the year.

But, is there another way to get paid on an account that you were all but ready to write off? 

The short answer, for the most part, is yes! Attempting to collect on unpaid invoices is not a fruitless endeavor, no matter how aged the invoice is. Let’s look over a few quick tips to point you in the right direction.

Get organized

Naturally, every client you take on is unique in their own special way, and this also translates into their invoice payments. There is no “one-size-fits-all” solution to collect on A/R—every client with an outstanding bill will require a different strategy, but there are still some universal applications that you can utilize to track down your payments.

You can accomplish this by first creating a list of every client with an unpaid invoice, including their name, their matter number, the amount they owe, and how long the balance has been overdue (i.e., 30 days, 60 days, 90 days, and 120+ days). If you work at a firm with multiple attorneys, you could also label each invoice based on the primary attorney overseeing the case.

Once you’ve put your list together, you can then determine which invoices you should go after first. You may consider tackling the “youngest” invoices first—that is, the invoices that have gone unpaid for the shortest period of time (let’s say 30 days, for example). Set aside time in your day to email these clients with a short, to-the-point message about their outstanding invoice, including the amount they owe. Include a link for the clients to pay online - the goal is to eliminate friction between your client’s pocketbook and your bank account. From there, you could expedite the process by duplicating the email for the remaining clients on your list—simply change the names and the amount owed, and send it off. This email should come from the attorney working the case; the attorney’s email address is more likely to grab the attention of the client. 

When dealing with the older invoices, you can follow a similar plan as above, at least with the clients whom you believe will pay if prompted (or will have a way to do so in the near future once you’ve reminded them). However, there is a high likelihood that you have clients on your A/R list whose ability and/or willingness to pay don’t inspire much hope on your part. These are the clients that you fully expect to write off at that end of the year. 

In these cases, consider offering the clients an opportunity to wipe a portion of the debt away if they pay within a certain period of time. For example, if a client owes you $10,000.00 and has not paid you in over six months, consider emailing them with an offer that if they pay half of their balance ($5,000.00) within the next three business days, you will forgive their remaining balance. You would be surprised at how many clients will take you up on this.

Adopt online payments

Another way to turn unpaid invoices into paid invoices is to make it easier for your clients to pay you. That’s where an online payment solution can make a big difference. These solutions give you the power to email your clients an electronic invoice that they can pay with a credit card, debit card, or eCheck. Rather than having to find their checkbook, write out a check, find an envelope, and break out their stamps, your clients can pay you with a few clicks of a button.

You would be doing yourself a favor in the long run by integrating online payments into your practice. Like it or not, cash and check payments are becoming less popular in favor of online payments and credit cards, with less than half of U.S. adults carrying cash on them on a regular basis.

Ideally, you should use an online payment solution that was built with the legal industry in mind, with features that can correctly separate earned and unearned fees and protect your IOLTA account from third party debiting. You can stay compliant with your state bar and also provide a benefit to your clients at the same time.

In short, giving your clients the ability to pay online will not only entice your late-paying clients to pay their invoices, but will also entice future clients to seek your services by giving them the payment options they most commonly use for most every service in their daily life.

This is only a cursory look at some of the strategies you could employ to get more cash in the door before the year’s end. If you’re looking for a deeper dive on collecting unpaid invoices from clients by the end of 2020, read LawPay’s latest e-book, Finish Strong: How to End the Year on Better Financial Footing. You’ll discover essential steps to keeping your cash flow strong at the end of your year, and you’ll leave with the right tools to reduce your outstanding receivables going forward into the new year.

Jordan Turk is a practicing attorney in Texas, and is also the Legal Content and Compliance Manager at LawPay. She earned a B.A. in Classics, History, and Religious Studies from the University of Texas, and went on to earn her law degree from the University of Arkansas School of Law. Prior to LawPay, Jordan worked with a high-asset family law firm in Houston, Texas.

You can be the greatest law firm in your city or even your state, but lacking the necessary legal billing processes means your practice won’t be sustainable. Proper client billing is not a one size fits all approach – you must find what works well financially and work with a system that allows the flexibility needed to be efficient (without reinventing the wheel). There’s a major shift to cloud-based software for firms looking to get their bills out faster and to consistently generate more billable hours.

We’re going to walk you through the top legal billing features your law firm needs in order to account for the specialization and unique processes that go on in day-to-day billing. Chances are, you’re aware many of these systems must coexist, but you may not realize how to make them work together to effectively work for your staff.

From the moment a client contacts you to when they pay their last bill, a lot of things are happening behind the billing curtain that they don’t see. There are so many intricacies and steps that have to be taken to ensure the right bills go out to the right clients at the right time. Because of this, it’s important to have a solid standardized billing policy that is accepted uniformly across the firm. This policy may differ from firm-to-firm but consider including elements such as a timeline for pre-bill approval, a hard date for when invoices should be sent to clients, how the bill should be delivered to the client, and how your firm would like to accept payments.

You’re familiar with how it goes:

  1. A client signs up and is onboarded into the system
  2. Billable work is accrued throughout the case (hourly, ad hoc, flat-rate, subscription, etc.)
  3. Depending on the billing cycle and the length of your case, bills and expenses are compiled at the end of every month or quarter
  4. Attorneys review and approve bills with any edits
  5. Bills are sent out to the client
  6. Clients pay via the client portal, accepted credit cards, by mail-in check
  7. Follow-ups from billing staff are sent if payments are late
  8. Ask yourself where bottlenecks may be happening and where there’s room for improvement. And also, ask your staff – they’ll be sure to know the process best since they’re embroiled in client interactions every day.

Read more: Know the five questions to ask a legal practice management software vendor before purchasing

When going through all your features, ensure you’re transparent when presenting the billing process to clients. Not bringing up expectations on the cycle, billing method, payment timeline expectation, and stance on late payments can create lots of problems later when alignment isn’t there regarding a bill.

With that said, here’s what you need to have for a smoother, more efficient legal billing process:

1. Flexible Billing

While you may be accustomed to billing for work at an hourly rate, that may not be the best way to retain clients. According to the 2019 State of U.S. Small Law Firms Report, only about 60% of the day is spent actually practicing law – making generating billable hours difficult. It’s why having new billing strategies can help reevaluate the way clients are billed, and how to add more time back in everyone’s day with revenue-generating activities versus client onboarding or administrative work.

Depending on your area of law, if you’re representing a single person, a contingent fee or flat fee may work better for clients’ needs.

Consider all methods of billing, such as:

2. Rate Table Management

For each attorney at your firm, there may be rate adjustments due to tenure and other experience. For the ability to fluctuate between them, rate tables are one of the most useful features to staying agile around billing.

Some software today allows you to configure your rate tables around the matter, client, system default, and timekeeper. Not two matters are the same, and the work you provide per case is not cookie cutter.  Because of this, it is important you have the ability to change your rates and make one-off exceptions on services that may not be standard billing protocol. At the end of the day, rate tables should be as flexible as you are.

Learn more about how Centerbase uses rate tables to manage rates from multiple users seamlessly

3. Billing Portal

If you ask someone on the billing team how many times they've been asked to print out a client bill or bill payment history, you can bet that you'll probably be met with an eye roll and a chuckle. Clients can be relentless. They want hard copies when you don't have them and they want electronic copies when you have paper.

Providing your clients access to a secure billing portal will take some strain off your billing team and allow your clients 24/7 access to view, pay, and download their bills. The job of a billing portal is to increase visibility into what is due and make it easier for clients to review and pay their bills. Additionally, this increased visibility will allow your clients the ability to find answers to their billing questions on their own before calling in for support. This way, your clients get what they want, and you have peace of mind knowing that you have provided them with a solution to all of their possible requests. 

It's no secret that clients don't always pay on time, but the fact of the matter is, your client's actions shouldn't influence your firms. The more consistent your firm is about sending bills, or having them readily available to view will help create a level of consistency where your clients will soon grow to expect to see your bill and pay them more regularly.

4. Mobile & Automatic Timekeeping

In 2020, most people are texting. Compared to ten years ago, people actually prefer to text with businesses vs communicate with them through email. Not only does texting elicit faster responses, but it is much more convenient. All of this sounds great, right? Well yes, but what about for attorneys? Your time is precious, and although texting your clients may be easier for them, how do make it easier and more profitable for you? If your clients are mostly texting, and you spend hours responding to their messages on the train, at home, or on the go, you have to have a way to track how long you communicated with them for. Otherwise, you are losing thousands of dollars each month.

Today, an agile law firm has the ability to capture the time spent sending messages or making phone calls. This mobile timekeeping feature is incredibly important to not only capture more billable time but also eliminate the manual work of logging it after a conversation. The goal is simple: provide better, top of the line client services while increasing your billable hours.

5. Electronic Pre-Bill Approval

You can substantially improve your firm’s cash flow by having a simple, easy-to-follow approval process for everyone involved to send out invoices more efficiently. With electronic pre-bill approval as a feature, you can create a single or multiple step approval process, and flow a pre-bill up the approval chain. What this allows you to do is move a single bill from one attorney to the next once it’s been approved. You can keep track of every change and edit through electronic records and ultimately you'll relieve pressure on your billing team by having the attorneys make mark-ups directly to the bill.

For example, this is how it works in Centerbase:

 

Watch our four-minute video about how electronic pre-bill approval adds more time back in everyone's day

6. Centralized Reporting

For billing insights and monthly reports, having everything in one place is an excellent resource to make informed decisions about your firm’s financials. With robust legal billing software, everything from matters, billing, and accounting data can be viewed in custom reports that suit your preferences and needs.

All the legal billing features mentioned in this blog are made possible with the right practice management software. While many firms are continuing to move to the cloud in this new world of remote work, it’s important to choose the right software that meets your needs and everyone’s in your firm. This includes steps involved to get onboarded and what should be imported into your new legal billing software.

Are you ready to step into the conveniences and revenue-generating abilities of cloud software? Then let’s talk. You’ll love seeing what Centerbase can do – all at no obligation to you. Contact us today and let’s talk.

Although eBilling may seem intimidating if you have never done it, there are ways to make the adoption easier. You may have questions if you’ve never done eBilling, or if you’re thinking of taking on a client that relies heavily on an electronic billing system, but don't worry, we have some tips on how to make this painful process a little bit easier. 

What is eBilling for Law Firms?

eBilling, summed up, is electronic billing for your clients, so your billing department doesn't have to send invoices through the mail. This makes transactional payments for matters easier – especially in a COVID-19 world where in-person contact is made to be limited. 

Importance of Following Strict eBilling Protocols and Procedures

Many guidelines have been put in place for law firm billing procedures for standardization and convenience for your billing staff. The nice thing about establishing eBilling as a precedent is that it helps avoid errors earlier on in the legal billing process. There’s no more re-typing or manually generating invoices with eBilling – as you can program what in-house can enter in as a bill against invoices outside counsel sends for payment. 

System parameters such as checking for budget limitations or accidental duplicate entries can be caught before it’s officially submitted on a matter. The same can be said about bundling bills, which can create confusion when processing and understanding what’s being paid for. 

This one-time implementation of eBilling in practice management software (or combined in a software solution you may already be looking at) helps put a stop to rogue charges that are difficult to track. 

How to Submit eBilling Invoices

Using a preconfigured billing system, outside counsel will need to submit a digital form detailing what the charge(s) for clients are in that cycle. Then, the eBilling system typically accepts and generates an invoice and ensures there are none of the aforementioned parameters that can occur due to human error before going to the in-house team to evaluate. 

Top Benefits of eBilling

Although eBilling may seem intimidating to those doing billing the traditional way, there are many benefits for firms ready to make the switch

The best value for implementing eBilling? Data insights. You can automatically capture data insights and ensure your matters don’t exceed the budget for certain services from outside counsel. All of this can be configured into the system so it automatically sweeps for this every time. 

  1. Cost Reduction

    It’s undeniable having eBilling in place saves time – thereby saving money. Many firms that have switched over experience valuable time to focus on revenue-generating tasks, rather than the arduous manual upkeep involved with bill processing. eBilling helps by setting caps on a type of case, meaning you’re protecting the bottom line for everyone involved.

  2. Increased Efficiency

    While anything takes a learning curve to understand, the amount of time saved over the months and years will be paramount to your firm’s budgeting and in-house team. At Centerbase, we have a proven system to get bills out 30% faster for your timekeepers. Imagine the boost in time that can be spent on refining processes and getting invoices paid quicker.

  3. Ease of Use

    Being able to control costs and save time processing invoices from outside counsel are big benefits to eBilling software. Ultimately, this ease of use will boil down to managing costs much better and being able to analyze where discrepancies and limits may be becoming a recurring problem. eBilling makes spotting these problems with robust reporting and is a huge benefit to gain insights with just a few clicks..

  4. Improved Client Experience with Online Payments

    Credit cards are the primary way your clients and prospective clients pay for purchases today. With an online payment solution, you can send bills that include a payment link, which your client can pay instantly from the safety and comfort of their home. Centerbase's payments feature is powered by LawPay, and it makes securely accepting credit and debit cards as well as IOLTA compliance easier than you might think. By giving your clients the ability to pay online, you will not only see your bill gets paid faster, but you will also be able to control payment options on a matter-by-matter basis. Services like LawPay do all the leg work for you, allowing your firm to seamlessly send and receive payments so you can spend more time serving your clients.

What Firms Love About e-Billing

For many of the reasons stated above, firms love the convenience of sending electronic bills for the quickness and added accuracy from the settings. Having a simplified invoice review process makes managing budgets and keeping track of where your billing is at during any given time is a huge convenience many firms have already switched to and reaped the benefits. 

Read more: Key Demands for Your Next Cloud-Based Law Firm Billing Program

Eliminates Printing eBills

With eBilling, there are no more wasted ink or duplicate bill prints. With legal billing software, you can make markups and approvals for bills directly in the software. Having trackable comments and feedback also ensures those extra copies and notes don’t get thrown in the trash in lieu of the newest, most updated copy. No one misses anything, and that multistep process gets whittled down to smooth, easy sailing.

Streamlined Approval Process

Because you won’t have to print pre-bills, the multiple rounds of approvals can be completely eliminated. That single pre-bill can be moved up the approval chain, with the software automatically tracking it to the next person needed to see once it’s approved. This relieves pressure from your billing team to have to track anyone down or clog the inbox with reminders.

Visibility and Documentation

Electronic records will always be kept of any notes attorneys make on pre-bills, making it easy to go back into the software to check anytime. This is especially useful if someone is out of the office or an attorney has left, who may have taken tribal knowledge with them on a certain client matter or bill. With extra visibility comes increased alignment from all departments.

Improving Your Staff and Your Clients’ Billing Experience

There’s no getting around it: eBilling has boosted efficiency and accuracy in law firms, all while saving time. By getting bills out more efficiently, clients have more time to review and pay their bills, keeping everything neater than before. At Centerbase, we’ve been able to help timekeepers at firms get bills out 30% faster – creating more room for firm-wide improvements that generate revenue and maintain a “work smarter, not harder” mindset. 

How Firms Can Prepare for a Move to eBilling

Interested in learning more based on the question “What is eBilling?” Some systems sell eBilling as a separate offering that can be on-premise or in the cloud. But while that can offer customization, it won’t integrate seamlessly with any existing software or outdated systems you may currently be using. 

You can prepare to move to eBilling with a few simple steps:

Read more: 5 Questions to Ask a Legal Practice Management Software Vendor Before Purchasing

Are you Ready for eBilling?

Cloud-based practice management software and eBilling are packaged together with Centerbase, which means you only have to worry about one software for everything vs. a la carte options. We’ve helped thousands of firms implement solutions that work with their team, and not against them. 

We encourage you to read more into how you can integrate eBilling into everyday processes sooner than you think, and hope this has been helpful. Feel free to subscribe to our blog or check out our resources page for more content.

 

In the unpredictable world we live in, it isn’t uncommon for you to wonder if your firm is charging too much or too little. Are your billable rates in line with your competitors? Is it best to bill by the hour? By flat fee, subscription?  It's no question that there are a lot of options. So with all this in mind, how do you determine your firm's profitability? How can you make decisions that will be in the best interest of both your firm and your clients? Let's take a look.

Determining Your Profitability 

There are five critical steps you should be taking when you're considering how to price or re-evaluate your legal services.

  1. Think about the products you’re offering
  2. Identify your revenue model
  3. Consider your customer acquisition costs (CAC)
  4. Determine your case value and customer lifetime value (LTV)
  5. Understand your fixed costs

Product Offering 

Yes, you are delivering legal services, but that is not your quote-on-quote product. Take the time to evaluate your niche and your unique value proposition. 

Whether you’re a software company or a law firm, you are ultimately selling a product. There are millions of products in the world, so being able to narrow down and pin-point your offering is crucial to making you stand out. Are you a real-estate attorney with subject matter expertise in environmental liability issues? Are you a family law attorney who has expertise in same-sex couple adoption? As you begin to look at your profitability metrics, it is important to narrow down what your firm specializes in and use those case numbers to more accurately reflect how lucrative your firm is. Drilling down on what makes your firm unique will only bolster your client experience, but your profitability as well. 

Revenue Model 

When you look at your revenue model and you’re considering how you want to bill your clients, the first place you need to be looking at and research are the market demands. Analyze what your potential clients want, what they are looking for, and what they’re demanding. Are you serving small business owners who may want to pay for services as work pops up? Or perhaps you’re serving primarily start-ups with small budgets who prefer to see all costs upfront? No two clients are the same, so it is important to understand what they’re looking for and how you can best meet those expectations. Additionally, you must also take into consideration the operational requirements needed to manage those clients. For example, if you’re billing hourly, then the operational requirements to successfully do this would require a software that allows you to capture and track your time. 

Customer Acquisition Costs (CAC)

The truth of any business is that it costs money to acquire new clients. Customer acquisition costs represent the time, money, and effort required to get leads and then convert those leads into paying customers. 

Look at the data you have available. It is best to go over things in increments of 6, 9, and then 12 months to ensure you’re getting the most accurate information. When you’re considering your sales and marketing costs for your firm, the first thing you should think about is your time. This could be the time spent on business development, networking events, anything that takes time out of your day to pursue in the effort to expand your book of business. Next, tabulate any additional money spent on digital advertisement, or direct mailings. These hard costs will be the foundation for determining your customer acquisition cost. Your costs to close a lead are incurred through the bottom of the funnel activities that take up your time like consultations or meetings.   

Let’s go through a fictitious example utilizing 12 months of made up data:

In this example, we took the estimated cost of your time plus the amount you spent on marketing and targeted campaigns to determine a total sales and marketing figure. We then took that figure and divided it by the total number of clients you work with throughout a given year. With that number, you subtract the final estimated costs associated to close that specific lead, and what is left is your total cost to acquire that particular client.

So going forward when you consider growing your business, this type of easy calculation will be able to help you understand that if you invest X amount of dollars, you will be able to attain X amount of new clients. By adding some predictability into your equation, you will be less surprised at the end of the road if things don't go your way.

Customer Lifetime Value (LTV)

Customer LTV represents the amount of business value or gross margin that is received over the course of a client’s lifetime. When that client first steps through your door, you must begin to evaluate how much revenue you are gaining from your client on a case-by-case basis.

Let’s go through a fictitious example of an attorney who bills by the hour utilizing 12 months of made-up data:

In this example, we took the number of hours this fictitious attorney was spending on Client X’s matter and multiplied it by their billable rate. Next, we took a look at how much money the attorney was spending to do that work. In this case, 25 hours of work resulted in 17 billable hours, which converts to a little over 70% profit margin. And lastly, we multiplied that total profit margin number by the total number of matters Client X typically brings to this attorney in a 12 month period. This resulted in an LTV around $14,400. A customer’s lifetime value is important to calculate because it will highlight to you which clients bring you repeat business without you having to spend those marketing and sales dollars to get them through the door.

Understanding how to calculate LTV in this easier scenario will allow you to replicate this information when you start looking at multiple fee arrangements. Like discussed earlier, if the market is demanding subscription billing, or consolidated billing (to just name two), you and your firm need to be able to meet these needs in order to remain competitive. Your customer experience will make or break your business, and how your clients want to be billed needs to be met with “yes we can make that happen,” not “sorry, we cannot accommodate that billing arrangement.”

Fixed Costs

At this point, you have figured out what expertise and skill set you have that sets you apart, you have determined what specific product you’re offering, how your want to set up your billing structure, how much money it costs for you to get clients in the door, and how much margin you can generate from that client in a given period of time. The last step now is to understand your fixed costs. Fixed costs represent the amount of money you are spending to support your law firm as a whole. On an annual basis, how much money are you spending to pay the firms office rent, support staff, legal technology, annual license fees, etc? These are your fixed costs.

What Does All This Mean?

The things that are really important when you look at customer acquisition costs and lifetime value are the scalability of your law firm and whether or not you can be sustainable in the long term. 

The first thing you can do when you have these numbers is to look at how long it takes you to recoup your customer acquisition cost. To do this, you take your total $627 CAC cost and divide it by how much profit you generate, which in our fictitious example was $4,800. So, what this means is that you recoup your CAC by the time you are 13% of the way through your first case with that client. A general rule of thumb is that you recoup your customer acquisition costs within that first year of starting the particular matter. This low percentage indicates that you have a little more room to spend on acquiring new clients if you so choose.  

The second thing you must do is ensure you’re making money over a customer’s lifetime. If you take the $14,400 LTV we calculated in the fictitious example (profit per case multiplied by the number of cases that client brings to you in a year) and divide that amount by the $627 CAC cost, that’s roughly a 22.3x return on investment per client. This is a huge number! This indicates that you could lower your billable rate to get clients through the door and still make a decent size profit. Do your research and determine where the market stands and then evaluate if you have room to adjust.

Scalable Business Model

Your CAC and LTV are what we describe as unit economics. In the long term, if what we calculated are your unit economics, can your firm ultimately make money? The answer would be yes. From a business perspective, there are always things you can do in the short-term that will get you by, but those bandaids will eventually come off to reveal a less than favorable result. Let’s do some quick calculations. If you’re generating $6,800 in revenue per case (determined from our LTV example), and you’re taking on about 50 cases per year, that’s about S340,000 in annual revenue. Now let’s say your direct costs total around $95,000 a year to serve that revenue, you’re left with a gross margin of around $245,000. Now, after your fixed costs, and sales and marketing expenses (for this hypothetical example, let’s say those total up to $50,000), your total income before tax comes to $195,000. If you can make these calculations each year, you will be able to determine if you can serve your clients profitably, while also saving enough cash for future growth.

All of this leads to what you should walk away with… without favorable unit economics, you will not have a sustainable law firm in the long run. Understanding how much it takes to bring new clients in and how much money those clients bring to your firm over the course of their lifetime will ultimately tell you how successful your firm will be in the future. There are levers you can pull after you understand this data. These levers are either revenue or pricing driven like billable hour vs. flat fee, or whether you’re above market or below market. You can adjust these metrics accordingly. The other thing you can do is adjust your service levels. If you’re spending too much time serving one client then you need to either keep your service level the same and bump up your rate, or if your rate is already in line with your competition, then keep your rate the same and spend less time performing that work. 

The goal is to understand your data at the customer level to determine whether or not you’ll be successful in the long term with your entire book of business.

Ideal Billing Workflow

The purpose of a billing workflow is two-fold: save your firm time and drive the collections process. There is a lot going on in the world and for your firm, if you can save time on non-billable tasks, stay organized, and increase client satisfaction, wouldn’t you want to? Sure it isn’t always easy to adopt new change and break old habits, but if it means increasing your profitability wouldn’t you want to try? 

It’s this simple, technology can help you bill while you work, get your invoices out much faster, and reduce your bottom-line. We’ll show you how.   

Create a billing workflow to increase your efficiency and get you paid faster

Invoice template

The first thing you should do is set up your invoice template. Your template needs to be consistent, clean, on-brand for your firm, and easily digestible for your client. It is important that everyone at the firm is trained on how everything is documented so that there is a level of uniformity that is maintained. Additionally, you should ensure your invoice templates account for all of the critical information that your clients want to see, like who worked on a particular item, what they’ve paid you recently, any money in Trust, ledger details, etc. This is an essential piece of communication for your clients, so it is imperative that you give an adequate amount of detail. Your invoice also contributes to your professional appearance, so make sure that it accurately represents who you are.   

Electronic invoice sharing

First, you need to ask your client for approval to email your invoice rather than sending it via snail mail. It is strongly recommended that clients opt into this agreement in a written way. This will help combat those individuals who claim they never got your bill in the mail. 

The beauty of an electronic invoice is that it will eliminate the time spent on printing, folding, stuffing, and then mailing every invoice you have each month. This is will also help you keep an electronic repository with documentation on who has paid what and who hasn’t, and depending on what platform you use, some systems will give you the ability to track whether the email with the bill was opened by the recipient or if it went unread. 

Legal technology is really opening the door to so many possibilities when it comes to your billing practices. For example, there are some software that will allow you to take advantage of a billing portal where you can provide your clients access to view and pay bills or to access a complete history of bills. Your clients want visibility, and with a portal like this, they're given the autonomy to review what they owe, on their time.

Set-up and apply taxes, interest, and discount rules 

Taxes need to be accounted for in jurisdictions where taxes apply to legal services rendered. Whether this is applied based on where your client lives, or where you’re performing the services, these rates can automatically be applied when you’re creating your invoices. The goal here is to prevent any kind of bottleneck at the end of the month when you’re trying to send your bills out. You could also consider assessing interest on past due invoices to help drive the speed of collections. This will need to be discussed with your client beforehand, it should be drafted up in writing, and something that they can expect if they’re late on a payment. Additionally, some states have found this to not be usury, so please take note of that and do your research as you’re making decisions. Lastly, you can incentivize early payments with discounts. If a client pays within the first 5-7 days of receiving the bill, you could consider offering a loyalty discount. Especially for clients with multiple matters, this will not only get you paid quicker, but it will build trust and establish a stronger partnership.   

Even if your firm chooses to pursue only one of these options, you will still be contributing to the reduction of bottlenecks and ultimately speed up your collections process!

Capture Time as Your Work

Do you want to hear something shocking? According to studies compiled in an ABA blog, if you don’t get your time in by the end of the day, you’re likely to lose 10% of your billable hours. If you don’t get your time recorded the next day, you’ll lose 25%! If you don’t get it in by the end of the week, you’ll lose a full 50%. 

So at this point, you’re either thinking, wow, I have lost my firm a lot of money or wow, I need to figure out more efficient ways to track my time.

If you’re thinking the latter, we’ve got you covered. There are services that address the pain points of being a timekeeper. With today’s technology, you have the ability to bill directly from tasks, phone and text conversations, email, and word documents. You can use multiple timers, you can set time to bill in advance and then adjust the figure accordingly in the pre-bill process. All of these solutions aim to remove the inaccuracies that come from waiting until the end of the month to record all your time. 

Schedule A Billing Cutoff Date 

As you are creating your ideal billing workflow, consider setting a hard billing due date. The most well-run law firms bill on a bi-weekly or monthly basis. When you’re ready to bill, you need to identify a cut-off date. Utilize a firm-wide calendar or practice management system to schedule these dates, so any work that was done between that designated time frame needs to be recorded before that billing cut-off date. This does not mean that the billing stops for any work moving forward, but any work that has happened previously needs to be submitted to allow the person in charge of billing time to run those pre-bills.

Set-Up Automated Payment Emails

The next thing your firm should do is set-up automated payment emails. This communication is a reflection of your firm and should motivate your clients to take action and to pay those bills. The email should not be abrasive, but rather warm and include their invoice and clear descriptions for how payment is accepted. If you have it set-up in your system to pay securely online, then this would be an opportunity to include that link. It should also include contact information if questions arise on the bill. The objective here is to make it as seamless as possible for your clients to pay you.

Run Pre-Bills, Then Batch Billing 

Running pre-bills and batch billing is the ideal, most efficient process. You get all of your information into the system regarding the work and services you’ve performed by that billing cut-off date, then pre-bills are run. Pre-bills allow you to see a preview of your invoices so that you can check for formatting, errors, or omissions without changing matter ledgers. The best part about pre-bills is that they can now be done electronically. Gone are the days where firm administrators have to give their timekeepers different colored pencils to mark up a pre-bill by hand. And did you know that by electronically reviewing and sending your bills, you will speed up your billing by 30%! That is a lot of time!

If you use batch billing, this will allow you to generate all of your invoices at once, in whatever format you designate, in just a few minutes. A lot of powerful billing systems have this feature for you to capitalize on to increase your billing and collections processes. 

Managing Alternative Fees 

In, 8 Tips to Improve Your Firm’s Collection Process Right Now, we talked about alternative fees and why you should set those up on your retainer or fee agreement with your client. If you have a situation for example, where you have a monthly retainer agreement, you can set this up to bill automatically. This is one less thing you would have to take care of. If you have matters that you’re billing hourly and then collecting on or deducting from Trusts and you have a monthly retainer agreement, you can set all these permissions up to draw directly from the bank account, or to automatically charge the credit card on a specified day. For payment plans, this is useful to accommodate your past-due clients or flat fees that cannot be paid all upfront. Sometimes clients do need a little flexibility and this fee arrangement is a great way to show them that your firm can be. If your firm chooses to use a reduced rate as an alternative fee, you want to ensure that you document the rate that deviates from your standard hourly to save you time when you bill and ensure you’re not inaccurately billing your clients. Taking care of these things up front will make running your bills at the end of the month much easier.  

Conclusion

All these steps can help you deliver an exceptional customer experience while also driving your firm’s profitability. If done correctly, billing doesn’t have to be dreadful! Centerbase offers countless tools to serve your law firm, take a free product tour today, and see how!

Do you want to hear something scary? More than 73% of small law firms surveyed said they experience past due client accounts at least some of the time. And nearly half of those firms say that between 10% and 39% of their total client base is typically past due. These are staggering figures! 

Unfortunately, clients don’t always pay on time, and the truth of the matter is law firms are collecting less and less from their clients each year. 

So the question that remains is why does this keep happening? Are there specific reasons that bills go unpaid? The short answer is yes.

Aside from a clients inability to pay due to financial constraints, the primary reasons clients forgo paying their bills are as follows:

Let’s break these down further...

When bills are sent inconsistently, it breaks the client’s trust. They may feel they are receiving your services for free at some point if it has been months since they’ve last received a bill. If more than a month goes by between billing cycles, the client may feel like they are being charged too much for services performed months ago and they will consciously choose to not pay the bill. Clients may also dispute bills if they do not know what they are being charged for. Incomplete, erroneous, or unclear billing descriptions are common reasons you may not get paid. If your clients don’t understand what they are being charged for and if they don’t believe you completed the stated services, they are simply not going to pay the bill. This is where follow-up comes into play. Clients may call you if they have a question about their statement, but they also may not. It is your responsibility to follow up with them to ask if they have any concerns or if they need a better explanation of what is in the description for the services rendered. Lastly, if you’re sending your client a paper bill that requires them to fill out and mail a check back to you, you’re making it easy for them to either forget about the bill entirely or see significant delays in receiving payment. 

This all goes back to running a client-centered law firm, yes it is your client’s job to pay you, but if you can get into the habit of billing your clients the way they expect, and not the way you have always done it, what will result is a much more efficient collection process. Additionally, it is important to keep up with the technology that your clients are already using. A majority of payments are sent and collected electronically. If you have a client who pays all their other bills online, you can guarantee that they will be disappointed if they receive a paper bill from you. Giving your clients a way to pay immediately will also increase collection. For example, integrations with LawPay make it easy to accomplish modern services like this. 

Changing Your Mindset About Billing and Collecting 

There is an art to billing. Although it is a routine part of your business, it must be treated uniquely and skillfully. It can be very uncomfortable for attorneys to ask their clients for money, but you must recognize that is your value. You worked long and hard hours and you need to be compensated for that. Firms that don't put time and resources into their billing process, are typically the firms who are getting paid less and less frequently.  

Tips to Take Control of Your Billing Process

1. Identify opportunities to train and mentor young attorneys in billing and collections

Allowing younger attorneys to bill for small matters earlier in their career will help build a framework of good habits. Giving the younger generation this experience will also help encourage them to ask questions which will ensure best practice in the future. A good young biller and collector will be a good old biller and collector, and if you make it clear that your firm coaches and teaches newer attorneys on how to bill better, that is just one more advantage you have when recruiting talent. It is important to practice technique and to have worked through a few client concerns early on, that way when you’re working with a client who has a significantly larger amount owed, you will have experience navigating those waters. 

Additionally, establishing this culture of mentorship will lead to attorney retention and a greater workplace environment. In Tips For Firms to Attract the Best Recent Law Grads, we discuss how your firm can combat challenges and find solutions to gaining the best new talent. Offering this type of mentorship in the areas that are not being covered in law school will differentiate your firm and subsequently keep your clients happy.

2. Don’t force everyone to bill

Know your staff. There may be some attorneys on your team who really struggle with the client-facing nature of billing. If you have coached this attorney before, given them all the tips and secrets to learn how to successfully bill, and if they are still not getting it, then it is time to pivot your strategy. 

There are practice management software available to you that offer easy and automatic ways for your timekeepers to keep and bill for their time. Whether it’s through phone or text, email, or word documents, make it easier for your staff to bill the way that makes them comfortable while also meeting the client’s expectations.

Your good billers need to be responsible for billing your major clients. This entails knowing your staff, communicating properly, and maintaining just the right amount of teamwork. To be able to quickly detect when something is and isn’t working will be the difference between the revenue coming into your firm and a pile of unpaid bills on your clients kitchen counter.

3. Develop policies and procedures

When it comes to billing, creating, and establishing a standardized process will not only make it easier for your team, but it will ensure more timely payments from your clients. This process will look different for every firm, but billing every possible transaction in a monthly cadence with not only contribute to a routine, but it will also be better-received by your clients. And if you bill paper copies, having a minimum dollar value threshold for bills will help offset the cost and time associated with manually printing, enclosing, stamping, and then delivering the bills to the post office. 

Some staff turnover is inevitable, so writing these policies down and training your team on how your firm bills will contribute to uniformity, overall best practice, and easier transition for newer attorneys.

4. Don’t forget about the past-due invoices

This seems like a no-brainer but a lot of firms will send bills out and then never follow-up on them. If you want to turn receivables into cash, you need to be following up with your clients. Check in on them if they have questions and give them alternative payment methods if the way you originally sent the bill isn’t working for them. If the invoice is more than 30 days old, you minimally need to be sending a new statement, with the first invoice attached. If your bill still has not been paid after 60 days, you need to speak with that biller and find out not only what their billing process is, but what their communication with the client surrounding the bill has been, and their plan to recoup what is owed. If your clients do not want to pay in full, technology nowadays will give you the ability to set up reoccurring payment plans. Asking for money that is owed to you is never fun. Discussing expectations around billing and timeliness of payments with your client at the start of the matter will help increase transparency and hopefully, eliminate the need for you to consistently reach out to your client for payment.

5. Make sure your client understands what you’re billing them for

Your bills need to describe your services. If a client can understand and digest what you have done for them, it will be easier for them to pay. Each client you work with is different, some may need more explanation, others may not. Establishing what your client needs to see on their bill will help increase payment frequency and reduce any questions that may come from not understanding what the services you’re charging are. The likelihood of a client not paying their bill is higher when you give a shorter, less detailed description of your service. Investing in software can make this process easier for you.

Your pre-bill process takes a lot of leg work. But with features like epre-bill, you can seamlessly markup your bill, add descriptions, follow all the edits and streamline the entire process. To go a step further, you need to be detailing your billing processes in your retainer agreement. The most important thing you can do before you begin billing is to set expectations with your clients. Here are some potential points you should be thinking about to go over with your client at the start of a matter:

By addressing all of these questions and concerns, you will be able to quickly reference the policies you outlined with your client in the event of a dispute. 

6. Effective collections require timely billing 

The sooner you send your bill after completing a service, the faster your client will pay. Different clients will require different billing strategies. For transactional matters, make sure you bill at or before closing because your clients will likely reinvest the proceeds of their closing. If it’s a litigation file, be sure to bill monthly, and if you bill bi-monthly, make sure your clients are made known of this billing schedule beforehand so they are not blindsided by receiving multiple bills within 30 days.

7. Maintain retainers and replenishments 

If you can get an injection of cash upfront to hit the ground running, you need to. And when those funds are low, you need to be able to replenish them smoothly, and efficiently. Automation exists to make your lives easier and to improve your profitability, so take advantage of it! If you’re already a Trust/retainer heavy firm, your clients should be able to make one payment and it automatically split between AR and the replenishment retainer in trust to the correct accounts. This way you do not have to manually track and write multiple checks or transfers from one account to the other. 

Communication with your client on the fee agreement regarding retainers is important as well. Is the retainer refundable? Is replenishment on a monthly basis, or on an evergreen basis? These are all questions you need to address with your clients beforehand.

8. Financial reports can improve billing and collections habits

Use financial reports to maintain better billing and collections habits. Everyone at your firm should be receiving a WIP report and Account Receivable report, every month to review. Increase transparency, make it known where each attorney is, and what work they are pursuing. With some software, you can even set up a report center to match the way you analyze data. It will allow you to easily group important reports and set up security on each table, providing different levels of access to your staff.

If you are spread too thin and do not have time to review and follow-up on these reports, then perhaps consider hiring a part-time billing associate. This person would strictly be on board to receive the AR reports, digest them, and then begin following up with the clients who are past due. 

Hopefully these eight tricks will help assist you and your firm with expediting your billing and improving your collection process. Results won't happen overnight, but instituting universal practices and methods with undoubtably increase your profitability and keep your clients happy.