January 6, 2016
Editor’s Note: This series, Firm Resolutions, is written by small law firm consultant Jared Correia. For a jumpstart on your resolutions, request a free trial of Firm Central, Thomson Reuters’ practice management software.
For the majority of your clients, time is of the essence when their cases are pending; of course, when representation has been completed, and the piper is to be paid, the typical client’s sense of time becomes more amorphous. In addition to this general complication (getting a client to pay you, when you have nothing more to offer them), certain hurdles respecting billing and collection are endemic to most law firms. There are clients who experience financial difficulties, and can’t pay their bills. There are clients who object to unclear, or unconvincing, bills. There are clients who resent the lack of alacrity in the billing process, and take their time to make good on stale invoices.
Those relayed scenarios represent three reasons why law firm billing becomes past due.
Fortunately, there are solutions available for resolving each of those issues, for moving your law practice into a space in which you are regularly paid on time.
- If your law firm continuously engages clients who are unable to pay you, that problem is most likely rooted in client selection. What lawyers often conveniently forget is the free choice attached to each attorney-client relationship: for every client a law firm engages, the same law firm had a chance to reject that engagement at the outset. Law firms that make the decision to vet and take on good clients are paid at higher percentages than those law firms that bobble the opportunity.
Neither does it take a rocket scientist to test a client’s bona fides. If you want to test whether a client will pay you in the future, ask them to pay you in advance.
Charging reasonable retainers will weed out those clients who say they will pay you, but really can’t. A type of retainer called an ‘evergreen retainer’, where it is the client’s responsibility to reset the retainer back to a settled amount at predetermined intervals, allows you to test your client’s continuing commitment to pay you over time. Extend a retainer; if it’s not met, don’t extend a fee agreement.
- If your law firm is subject to consistent disagreement over submitted invoices, those invoice are probably poorly constructed.
- Billing clients is an art. In the first instance, you must implement an effective time tracking software, and keep contemporaneous (digital) notes of what you’ve done. You won’t remember later; and for lengthy matters you can’t reconstruct a bill covering several years’ time, all in your head.
- Once you have the raw information respecting the time you put in, the next step is to draft a compelling invoice that does not, at the same time, give away sensitive information. There have been entire books written on this subject; but, the thesis is that you have to present clients with bills that they will feel comfortable paying. This is one of those times, in the life cycle of the attorney-client relationship, when the lawyer must reaffirm for the client why he chose the lawyer in the first place. The scope and effect of the law firm’s performance must be conveyed via a bill, otherwise the client will dispute, or refuse to pay, what has been presented.
To that end, automated billing offers clear advantages over traditional manual billing constructed either by hand or on a word processor or spreadsheet. Auto-generated invoices, built from systematic time logs and upon pre-set templates, offer consistency and clarity. Automating billing reduces reliance on typists, thereby reducing human error, including transposition errors. If a law firm can construct a bill faster, it also leaves more time for a managing partner to finalize that bill, using it to convey a more compelling case for prompt payment.
- Perhaps the easiest bad billing prescription is written for sending out timely bills. Waiting too long to send an invoice carries consequences. You, or your client, will forget the circumstances of the representation, which means either you will not be able to cobble together a truly compelling invoice, or your client will not recall all the good work you did.
Additionally, your firm’s delay sets a low bar for timeliness of the next step (a.k.a. payment). If you take 8 weeks to bill, expect a minimum of 8 weeks before you see the first payment installment.
Not to mention the primary issue in sending out overripe bills: lawyers have absolutely zero chance to be paid, until their bills are sent out.
A final thought: Reporting. Law firm management has traditionally been fueled by guts and guile. But, even if attorneys rarely seek accounting data to affirm their decisions, modern practice management tools make accounting data assessment available. A case management system that features reporting tools within its accounting module is necessary for law firms that want to make informed choices about the clients and case types they engage, about the effectiveness of their billing procedures and for streamlining collections.
Thomson Reuters’ Firm Central makes available robust reporting features for time and billing. Check them out, by accessing a free trial today.