The billing process is one of the key pillars of law firm success with impacts on financial and organizational health. It drives the performance of multiple important KPIs: cash flow (liquidity), A/R turnaround, billing and collection rates, and overall profitability.
When it comes to the operation of a law firm, an attorney’s principal focus should be on the quality of their legal counseling and representation services. However, unless the firm can collect accounts receivable in a timely manner, its liquidity will be put in jeopardy, leading to financial distress. Therefore, attorneys should understand the importance of the billing process on their organization’s performance. While they are not responsible for the billing administration, lawyers have a substantial impact on the processing and turnaround of legal services bills.
The need for accurate time tracking
On the administrative side, the accounting team manages the billing process, from handling timesheet submissions to depositing client payments in the firm’s bank account. Most firms today use billing and timekeeping software or applications to assist with the management of the billing process. To effectively use these systems, the legal and administrative teams of a firm need to work together.
Even though non-hourly fee arrangements are on the rise, the billable hour is still the prevailing form of legal service pricing. While hourly billing certainly requires detailed timesheets to bill for legal hours, pricing alternative fee arrangement is easier using firm internal time tracking records. Other benefits include time management and performance assessment.
Inefficient billing processes harm cash flow
Timesheet administration often presents a challenge for attorneys, as the time spent on tracking time reduces time available for legal hours. Many attorneys recreate their billable hourly increments at the end of the day or the week, or whenever they have time available for administrative duties. The problem with this practice is that the memory gets weaker the further back in time a task was performed. This can cause issues for lawyers who perform a variety of tasks throughout the day, and the time recording requires much detail.
Typically, timesheets are created in a program like excel or even handwritten and then handed off to a legal assistant or directly to the billing team. The administrative team is often frustrated at this point due such things as illegible timesheets, unclear abbreviations and explanatory details, missing tasks, wrong billing codes, and incorrect billing per certain client service agreements. Additionally, attorneys might forget specific activities over time, leading to decreased billing rates. These and other obstacles create a lot more work for the administrative team, especially at the end of the month when they must collect outstanding timesheets, prepare bills and close out the month.
In cases where firms have a pre-bill review policy, these inaccuracies delay the timeline for bill finalization and distribution. The billing team typically makes a lot of revisions on the initial timesheet. Attorneys must review these revisions, often requiring more time than originally planned due to their legal workload. The accumulation of deficiencies may lead to clients refusing to pay for certain services, causing decreased collection rates and overall firm income.
Using billing software more efficiently
While the previously described billing workflow is fairly common, many firms do not have a written billing policy, which is the first step we recommend for streamlining and improving the billing process. As mentioned before, the billing process administration requires teamwork. When formulating the firm’s policy, it is important to set hard deadlines for both attorneys and the billing team, since the whole chain only functions well if all steps are carried out consecutively by the responsible position. Furthermore, we recommend training attorneys to submit timesheets directly into their billing software.
Policies that are based on the aforementioned provisions produce more accurate timesheets and reduce the turnaround time for bill distribution to the client. However, the implementation success highly depends on a collaborative effort from attorneys and administrators. On the one hand, attorneys seek a deeper understanding of the firm’s billing software, as well as the entirety of the billing process and their significant role in it. On the other, the accounting team itself needs to be trained to fully understand the capabilities and operation of the billing software.
The following graphic lays out an example of a streamlined time and billing process that allows for firms to send all bills out to their clients early in the month. It is important to clarify that whether clients are billed monthly or according to a different arrangement, the quicker the bills go out the door the lower the A/R turnaround time.
STREAMLINED TIME AND BILLING PROCESS
Ideally, attorneys add entries to their timesheet drafts with a couple of clicks and a small paragraph with details on the specific task performed. Compared to a hand-written timesheet, not only does the direct time entry save one step but is also less time-consuming and more convenient for attorneys. When submitting time, billing software lets the user select a specific client, matter, fee arrangement, and activity from the customized database, which eliminates the need to look up matter numbers, activity descriptions, etc. Time can be entered manually or recorded with built-in trackers to increase accuracy. Hours and fee totals are calculated by the system and can be manually overwritten by the billing attorney to apply write-downs or write-ups during the pre-bill review.
Switching from traditional analog timesheet submissions to immediate (at least EOD) software-based time entry improves timesheet accuracy and reduces timesheet creation time. Additionally, unnecessary time spent on pursuing, editing, and entering timesheets is eliminated for the accounting team. A combined effort from legal and accounting departments is critical for a successful implementation. Ultimately, this process leads to increased collections and realization rates and decreased A/R turnaround times, improving cash flow and attorney profitability.