Law firm billing is a subject of much debate. Many small firms regard billing as a means to an end. Then they wonder why they struggle to get paid.
There are a number of things you can do to avoid this unfortunate consequence. In this article we shall take a look at a few of these and some others that will help with your general productivity.
When you go to a restaurant, you know how the billing procedure works. Either it’s pay after the meal in the more salubrious establishments or pay up-front in your local chophouse. The point is, you know what to expect.
When your clients come to you for legal help, they probably don’t know what to expect. So, set out your stall from the outset. If your billing terms and timescales are nebulous, your payments will end up in the ether too.
Billing is usually regarded as the final stage in the relationship with clients. It shouldn’t be. Managing expectations at the start of a piece of work will avoid problems arising when it is finished. Tell your clients how, when and how much they will be billed. Think also about using interim billing where you can. This will help to spread the burden for clients. It will also spread your own risk and improve your cashflow. It’s far better to be on the receiving end of non-payment for half your costs than for all of them.
Never forget, the older a bill is, the less chance you have of being paid.
Once you have laid the ground rules, stick to them. I have lost count of the number of times I have seen clients informed of the billing process up front and then witnessed those good intentions evaporate.
Clients are only human. If they expect a bill and it doesn’t land, few are going to complain. The problem is compounded when certain clients, having seen your inability to stick to your own billing timescale, decide that they can make you wait a little longer. Don’t create a rod for your own back.
If you are in any doubt about the status of your current bills, check them out on your practice management software. Good accounts software should allow you to check out your work in progress and your whole firm accounts and cashflow statement. Make sure you look at these financial health snapshots regularly – very regularly. Crack the WIP – as one of our previous articles states.
There is method behind the madness of this tip. Obviously bills set out an outstanding balance to be paid, but what else do they communicate? Complicated invoices that are difficult to comprehend can lead to disgruntled clients. Bills that don’t match client expectations go the same way. Whatever the event, it is likely to lead to a challenge to the bill. Challenges slow things down and that means the bills are getting older and less likely to be paid.
If in doubt, keep them concise and make them reflect precisely the work carried out. Your practice management accounts system will provide more detail if it is needed.
The test for all legal practices is the percentage of time spent doing billable activities. It’s easy to get wrapped up in the minutiae of admin when you work either in a small firm or as a sole trader.
A survey carried out some years ago by Lexis Nexis shed some light on the problem. Figures varied but the bottom line was that up to 24 minutes of every hour spent could be attributed to non-billable activities. I’m all in favour of non-billable hours – if these bring in new business. However, removing or delegating some of the drudgery of admin. is a key priority.
Whether you charge an hourly rate or fixed fees, use the time-recording mechanism within your practice management software. This will help you to establish the extent of the issue and to make work prioritisation decisions.
How support staff are spending their time can be equally important from a business perspective.
By tracking this, you can see how support staff contribute to non-billable activities. Armed with that information, you can establish what else they can do to allow you to focus on billable work.
This follows on from #5 above. You didn’t enter the legal profession to spend your time doing administrative and minor managerial jobs. Concentrate on what you are good at and delegate those other tasks to people who are good at them.
If you are not in a position to do this, take a look at the options outlined in the last tip.
It’s very easy to fall into the bad habit of writing down bills – even without this being demanded by clients. Goodwill is one thing. However, writing down will eventually reduce the value of the work you do for good. Clients will begin to expect more of the same and that kind of goodwill message soon gets around.
Write-downs for other reasons need investigating! If you find that client dissatisfaction is causing them, either you are picking the wrong clients in the first place or you have some serious process and expectation management issues to address. In my experience, it’s usually the latter.
Back to the restaurant analogy. If you visit a restaurant and order your meal, you generally expect to pay for it by credit or debit card. If they cannot process the transaction in that manner, they are in trouble! The same applies when it comes to your clients paying you.
Cash and bitcoin aside for obvious reasons, open up as many payment options as you can for your clients – card transactions, direct bank transfers, mobile and on-line transfers.
It’s not just about mechanisms either. Where appropriate, consider payments by instalment or a retainership basis for ongoing work. A variety of payment options makes life easier for the client and, as a result, easier for you.
There is a plethora of tools and software on the market for all businesses when it comes to billing and accounting. However, it makes sense to choose wisely.
The very nature of legal accounts and compliance means it is the sensible option to choose software specifically built for the legal profession. In addition, if you wish to focus as much time as possible on legal work, it makes no sense at all to use different systems for accounts, time recording and case management. That often leads to duplication of effort when so-called “integrated systems” are not quite as integrated in real life as the marketing blurb would have you believe.
Again, it’s a case of time is money. A single, purpose-built practice management system that includes everything from time recording and billing to case management and MS Office will save you both.
Lastly, there are plenty of options available for outsourcing non-billable work. Cashroom services and virtual assistants are the most popular. Cashroom services in particular are professionally set up and can remove the entire burden of book-keeping and accounts from your shoulders at a fraction of the cost of employing someone to do it or doing it yourself.
Before you choose any of these options, ask yourself a few basic questions. Will it free your time? Will it work seamlessly? And, will it save money?
From the ten points above you can see that there is plenty to consider when it comes to how you manage your billing. It’s not just about managing client expectations and getting paid on time. It’s a more fundamental question about how you go about your job and how you choose to spend your time.
The clock is ticking…
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