For law firms, time is money, and there’s no time to waste on inefficient billing practices. But many law firms still rely on slow, tedious, paper-driven legal billing processes that hamstring their productivity and profitability. And many have yet to implement—or enforce—billing policies that would govern the creation and review of time entries and hours worked. Yet firms wonder why they can’t shrink their revenue capture cycle.

Inefficient legal billing practices create difficulties at every level of a law firm. For lawyers, every precious minute they spend tracking and recording their time is a minute they aren’t adding value through their legal work. This drives lawyers to take shortcuts, such as omitting explanatory details or using cryptic abbreviations, that lead to unclear bills. Those ambiguous notes, in turn, require further review and clarification and add more delays. Lawyers may not check to see whether their work matches client service agreements, and they may fail to specify proper billing codes. Those that cling to paper timesheets and bills often scrawl notes incoherently in the margin of invoices or pre-bills for their assistant or accounting team to decipher, contributing to confusion and inaccuracy. At the end of the month, the law firm’s administrative team and accounting department must deal with these headaches—and more—all under the time pressure of closing out the month.

Legal billing doesn’t have to be this hard. Here are our top tips for ways that you can start accelerating your law firm’s billing processes.

1. Require Timekeepers to Enter Their Own Time in a Digital Timekeeping System

While administrative staff should support lawyers and paralegals in entering their time, they should not have the primary responsibility for it. Timekeepers themselves are in the best position to describe and categorize their time worked.

2. Require Timekeepers to Enter Time Contemporaneously

Timekeepers often wait until the end of the month to enter their time. At that point, they either consult their own manual or electronic system (both of which require duplicative work), or they comb through the recesses of their brain to recall what matters they handled, what tasks they performed, when they performed them, and how long they spent. Even attorneys who rigorously keep their time while in the office often forget those good habits when they go to court or travel to meet with clients, leading to the end-of-month reconstruction process.

When lawyers enter their time daily, they more accurately capture the time they’ve billed—and they can prepare their bills more quickly. They’re also less likely to be late in submitting their bills for reconciliation, which keeps the billing process running on time. At a minimum, your firm should require its lawyers to enter their time weekly and provide additional incentives for lawyers who finalize their bills by the month’s end.

3. Make it Easy for Lawyers to Capture Time

Lawyers, particularly when working remotely, may not capture the full extent of their billable hours. Adopt billing software that automatically captures time spent on client calls, texts, emails, and documents, whether from mobile devices, email apps, and even Microsoft Word. For example, Centerbase automatically captures client phone calls and texts as billable time, leading to an average increase of six additional billable hours per attorney each month.

4. Standardize Narrative Guidelines

To ensure consistency between timekeepers, implement, and enforce guidelines that detail how lawyers should describe the tasks recorded. The more granular your requirements are, the more uniform your bills will be—and the faster they’ll process.

5. Train Timekeepers on Outside Counsel Guidelines

Outside counsel guidelines should help to standardize the firm’s billing practices, but not all firms ensure that the guidelines are disseminated and readily accessible to all timekeepers. Make sure all lawyers and paralegals have access to the most up-to-date versions of all guidelines. Send periodic reminders to counsel to improve consistency. If you have billing software, see whether you can use the guidelines to create rules that will alert timekeepers to potential violations at the point of time entry.

6. Adopt an Electronic Pre-Bill Process

Many law firms still rely on paper-based pre-bill review processes that are fraught with issues. For instance, these processes create bottlenecks anytime that multiple lawyers must review bills. A bill’s first draft is often rife with inaccuracies, such as incomplete or vague descriptions or missing details like task codes, meaning the bills must be returned to the timekeeper for revisions—further extending the billing cycle and adding to the lawyer’s non-billable workload. If these issues aren’t corrected, clients may refuse to pay and lose faith in the firm, leading to lower collections in the near term and a decline in overall revenue in the long term.

Paper processes afford little transparency into billing practices, particularly edits and writedowns. Furthermore, there’s no audit trail documenting who made changes or when changes were made, which may create challenges if clients later dispute the charges.

An electronic pre-bill process avoids the delays of circulating paper printouts of pre-bills, reduces the risk that documents will be lost, and eliminates the frustration of illegible handwritten adjustments. Billing software that allows online revisions also enables firms to see changes at a glance and track bill changes over time, avoiding writedowns on top of writedowns and allowing businesses to identify the source of changes in the future.

7. Streamline Your Approval Workflows

Billing software can automate the approval process, notifying the next person in the workflow when the prior reviewer’s work is complete. This process also gives lawyers and accounting immediate visibility into where bills may be stuck so they can rectify delays.

8. Measure Billing Key Performance Indicators (KPIs)

Billing is no exception to the adage that what gets measured gets managed. Billing KPIs should go beyond basic metrics such as hours billed and realization rate. Consider adding metrics to improve timekeeping quality, such as the number of edits made during pre-bill review and the dollar value of those edits. A review of metrics would then suggest which timekeepers may require additional training on billing processes (and if you're curious about how to create a billing training program, check out How to Create a Legal Practice Management Software Training Program). Firms may also want to measure the time it takes to finalize a bill or other time-related measures that may identify logjams in their billing processes.

9. Establish a Set of Written Billing Policies and Enforce Them

Your firm should establish clear policies that govern billing for attorneys, administrative staff, and accounting. Outlining your billing processes will help you identify problems that you need to resolve and enforce your policies. It may be prudent to add a penalty for those who persistently violate your policies.

10. Follow Change Management Best Practices

Technology is the linchpin for effective change in billing efficiencies, but it cannot stand alone. New solutions must be reinforced with policies, training, and support. Timekeepers and administrative staff must learn how to use billing software and understand billing guidelines. Follow-up training will help to increase adoption and reduce mistakes.

Answering the most common questions around your firm’s finances and expenses are heavily tied to – yes, you guessed it – bookkeeping. One should never overlook the importance of accurate bookkeeping, especially since that’s the very lifeline to how your business keeps the lights on and your employees working. As a managing partner for a smaller firm, it may seem more economical to do the books yourself, but bookkeeping functions as a solid foundation for all your other expenses, trust accounts, and taxes that come later on in the year knocking. 

You probably have questions as to what you need to know about law firm bookkeeping and ways to get ahead of those pesky, end-of-year shuffling for those receipts and expenses that may have gotten lost. With proper records of revenue, you’ll have all the itemized data needed to move forward with important business decisions so you can stay in business and, possibly most importantly of all, stay profitable when you want to expand or sell your business later on down the line.

Now let’s dive in further to understand what law firm bookkeeping is and how you can build a solid foundation for your business.

What is Law Firm Bookkeeping?

While this may be spoken in tandem with accounting, bookkeeping is considered the baseline for how accountants and CPAs operate. After all, you need to know multiplication before you can advance into algebra. If the sums are incorrect, the rest will fall apart by proxy.

Think of bookkeeping as recording everyday business expenses, including: 

If you save it or spend it, bookkeeping must track it. Aggregating all of this data lets you move one step forward to making strategic business decisions, which is where accounting comes in.

Financial Accounting

If bookkeeping can be described as multiplication, then accounting is when you move into algebraic formulas and beyond. Far more than just helping you file tax returns, knowing accounting processes and how CPAs operate is invaluable to having accurate, profitable financials in a law firm. 

Accounting includes:

Having a CPA helps you make the right choices for your firm’s future, including the best way to manage trust accounts and avoid common costly mistakes when taxes come around. 

Bookkeeping vs Accounting

Both bookkeeping and accounting build on each other to become a powerful force of data for your firm. Not many attorneys go into business with the intent to be a numbers guy or girl. 

When thinking of how bookkeeping and accounting work together, understand these key differences:

Both cannot function without the other, so be sure to have a dedicated bookkeeper ready to have everything organized for you not just tax season, but every season.

IOLTA Bookkeeping

All funds meant to go to clients must absolutely go into a trust account separate from everyday funds. Often referred to as “interest on lawyers trust accounts,” or IOLTA, these must abide by certain compliance standards – which going against can mean disbarment in severe circumstances. Taking any money out to pay for other fees or day-to-day operations is known as borrowing and can be very problematic if mishandled.

Here are some integral pieces you need to know about IOLTA accounts:

Weekly Cash Forecast

The value of accurate bookkeeping lets you gain insights to know your inflow and outflow of cash at any given time. Since things have been extra turbulent with COVID-19, having as much transparency as possible to the cash flow in your firm is essential now more than ever. 

Working with a CPA and the power of applicable legal accounting software lets you pull data and spend history from any time period that’s been entered. From there, you can print checks and even sync with your current point of sale (POS) system easily, accounting for every dollar going out and in. 

Controller and Monthly Financial Meeting

Many times, law firm bookkeeping has a monthly overview going over firm revenue, payroll, and other operational costs and ledgers to keep you informed. 

These financial results and forecasts are shared as a way to make informed decisions without any detail left out. The great thing with software? There’s a free CPA login option on most legal billing and accounting software programs, giving them all that’s needed for reporting and state-specific compliance for your area of law.

4 Tips and Best Practices for Bookkeepers

To help your bookkeeper, here are some best practices:

#1: Know Your Accounting Method

Choosing between the two methods of accounting – cash accounting or accrual accounting – sets the stage for all your financial documents and impact cash flow. 

The cash accounting method records funds whenever they’re moved regardless of the time they were received, while the accrual accounting method records as it happens, no matter what. As you may already realize, the cash accounting method is more popular, as it isn’t as time-sensitive or dependent on accounts receivable and payable. 

#2: Be Aware of Billable Time vs Non-billable

As a law firm bookkeeper or CPA, the main pulse of profitability is evaluating whether a firm’s time is spent on revenue-generating activities or being stuck in the mud of administrative tasks. Staff productivity can be a common roadblock for law firms being profitable, even if many cases are successful and money’s coming in. Proper reporting on billable time vs non-billed hours can easily provide data to managing partners to help cut down on those tasks and get their legal billing in a better place – before it gets out of hand.

#3: Check all Tax Obligations

Law firms are constantly dealing with revenue and funds that are transferred, disbursed, and deposited. Being knowledgeable with all the taxes for firms to be aware of can help meet all the sales tax obligations before growing, hiring, or buying a new office. 

Types of taxes include:

It can all pile up and be very overwhelming to keep track of. Couple that with unique state taxes based on your property, location, and structure… well, you see it’s very complex, and not something attorneys have time to keep track of. The right CPA can sort all of the pieces with you to ensure reporting is tracked and necessary taxes are paid to stay in business. 

#4: Automate as Many Billing Processes as Possible

Since there are so many things that can get lost – receipts and other transactions such as new office equipment or training – automating billing can ease a lot of the burden on retroactively finding this information. What does this mean, exactly? Having a software system that tracks recurring expenses can help bookkeepers better forecast spend and cash flow. Plus, electronic pre-bill approval lets attorneys make edits to bills without back-and-forth emails. Notate right on the bill; it gets fixed, and sent out quicker than ever (up to 30% faster we’ve found, in fact).

Knowing your money in real-time, and giving employees the ability to log anything spent on a case from any mobile device can be a powerful tool to give you accuracy at any given moment. Plus, electronic billing is also easier to keep track of – for money coming in and going out.

Choosing the Right Bookkeeping Software for You

To help keep a pulse on your firm’s funds, law firm bookkeeping is an essential way to ensure bills are paid and clients’ trust funds are tracked accordingly. With practice management software, you can sync with any accounting software such as QuickBooks, so your CPA has a quick view of funds whenever they need it. Less stress on you, and more forecasting for them. 

Want to learn more about staying agile in a technology-driven world? Centerbase offers many of the automated billing features mentioned in this article, and we’d be happy to help see what you need for real-time reporting and insights to stay profitable. Feel free to contact us for more information, or subscribe to our blog for the latest updates in the legal world.