From Worked to Billed to Collected: The Complex Context of Law Firm Invoices
By Dillon Colgan
October 24, 2022 | 6-minute read
Client Services Project Management Content Type Article Additional Options Content Level: Essential
It is well understood that time entry and invoicing are critical functions for efficient law firms. Most have well-documented processes to effectively deliver invoices to their clients; however, these processes can often fall short, primarily because they are tedious, administratively burdensome and costly for the firm and its clients.
The proliferation of electronic billing providers in the last decade is a testament to these costs. With clients seeking new ways to ensure compliance with their billing preferences, law firm accounting departments now grapple with providers who rigorously enforce billing guidelines. This rigorous enforcement can delay and/or lengthen the revenue cycle, should the provider reject billing due to reasons such as the appearance of a previously unapproved timekeeper, rate or block billed narrative. According to Aderant’s 2021 report, “Law Firm Leader Survey on Outside Counsel Guidelines,” nearly 60% of law firms have had billing and collection cycles lengthened because of outside counsel guidelines — with 26.1% seeing a delay of 90 days or more.
Despite the almost daily appearance of new technologies promising a streamlined integration of billing and practice management tools, myriad industry reports point to reconstructive time keeping, vague narratives, block billing and a general failure to consistently comply with outside counsel guidelines as key sources of lost revenue and leakage. (In the same Aderant survey, nearly half of the firms (46.2%) admitted they do not monitor lawyers to ensure they follow the guidelines for their matters.)
As outside counsel guidelines have become more complex, compliance has only compounded opportunity costs for law firms, as high-value partners spend more time reviewing and editing invoices — all while legal project management teams and pricing professionals have multiplied across the industry.
Increasing skepticism — and subsequent pressure — from clients for alternatives to the traditional hourly billing structure forced law firms to pivot to an array of alternative fee arrangements, from blended rates to fixed budgets, menus and collars that sought to differentiate their services to clients as a value proposition. This pivot has added to the complexity of the billing cycle, as these new fee structures were not readily adaptable to existing processes whereby lawyers recorded their time in six-minute increments.
Moreover, the concomitant consequence of all of this has been an increased willingness among clients to unbundle legal services from a single, well-established provider to a disaggregated array of firms with bespoke technical expertise and a comparative advantage in core practice areas. Clients are searching for the best value for a variety of work, typically under fixed fee arrangements, with the promised sweetener of future volume, from a plethora of traditional and non-traditional legal service providers. It is, undoubtedly, a buyer’s market.
So what can law firms do to improve their processes and avoid the pitfalls of electronic billing, while better communicating the value of their services and fee arrangements?
A necessary first step is educating attorneys to recognize billing procedures as a core component of their marketing strategy. Ultimately, invoices are client communications and should be understood within that rubric as an opportunity to demonstrate transparency, competence and most importantly, value. In truth, this is nothing more than what is required by the Model Rules of Professional Conduct:
- Rule 1.3 requires that lawyers be timely and “act with reasonable diligence” when representing a client, and this extends to their timekeeping practices.
- Rule 1.4(b) requires attorneys to be sufficiently descriptive to “permit the client to be reasonably informed.”
- Rule 1.5, governing fees, similarly requires transparency and reasonableness.
The realities of modern-day practice place a significant premium on attorney time and entering that time can be, and often is, an administrative burden. But firms can adopt strategies to alleviate that burden. When negotiating the scope of client representation and the fees associated with it, partners should be prepared to discuss how they will direct their associates to describe the work they are performing across certain tasks and phases.
Having an agreed upon language for billing in advance of the commencement of a matter provides clarity to the client and practitioners alike. It sets forth guidelines for associates to describe their work substantively using language that eschews administrative nomenclature and communicates the value of the work performed.
Moreover, timekeeping platforms can be programmed to facilitate a menu of approved narratives for a particular client matter and can be structured around codes specific to tasks and phases. This can make for more efficient timekeeping practices, improving accuracy and minimizing delays in the billing cycle.
The ability to comply with a client’s outside counsel guidelines or billing preferences demonstrates competence and reduces unnecessary and wasteful communications with the client. Doing so goes a long way to eliminate, or materially reduce, occurrences of rejected invoices. This improves the revenue cycle, reduces opportunity costs and builds goodwill with clients.
The harder challenge for law firms going forward will be adapting to the continued untethering of the billable hour from attorney productivity. In the short term, approaching billing and invoicing with a marketing mindset will allow attorneys and business professionals to reevaluate their processes and reorient them towards demonstrating competence and value.
Billing is Marketing: Quick Tips for Legal Marketers to Share
By Katherine Hollar Barnard, Firesign
Invoices that show clear value and purpose (and that are submitted in line with the organization's stated preferences) are more likely to be paid on time and in full. While many firms keep legal marketers siloed from the accounting department, this is an area where communications professionals can make a difference as bills are the most frequent, direct marketing material there is and can provide regular opportunities to show benefits to clients.
Tips for better billing:
- Be specific. No "handled matter for client" or "counseled client on real estate project." The client in question may receive dozens (or hundreds) of legal bills each month. Don't make them search their memory banks.
- Use action verbs. No one wants to pay for inertia. Show action and use: researched, contacted, drafted, argued, negotiated.
- Show progress toward a goal. It's not just due diligence research, it's research to ensure the client is well positioned to minimize risk and maximize ROI in the pending transaction.
- Follow the rules. Submit the invoice on the preferred platform, on the preferred cadence, in the preferred format. Do not think your firm can buck the outside counsel guidelines; build a reputation as respectful and responsive.
- Don’t issue surprises. The bill should not be the first time your client sees a new timekeeper or learns the project has exceeded budget. Maintain frequent communications about the matter between bills to minimize any questioning of them.