No matter what business you are running, billing is integral to your success, and law firm billing is no different. In fact, legal invoicing is considered a challenging, time-consuming, and labor-intensive process.
As a law firm, you must manage your clients, bill them, and take care of your own expenses. You may need to go after your clients for timely payments and ensure the accuracy of the bills before sending them.
And it is a lot of work. However, with suitable systems and technology solutions, you can improve your billing for lawyers and address errors that might crawl into the process.
In this comprehensive guide on billing in a law firm, you will learn about setting up the best process and formulating a policy for billing.
Standard billing process in a law firm
In any legal firm, the standard billing process would be similar to the following:
1. A client is onboarded for a case or lawsuit
2. Billable time, expenses, fees, etc., are logged as the case progresses.
3. At the end of the billing cycle, the expenses and bills for each client are compiled into a draft bill for assessment.
4. The attorneys or lawyers assess the draft bill, add notes, and make changes to the bill before approving the same.
5. After approval from the lawyers or attorneys, a final bill is made and shared with the client to release payment.
6. The clients check the bill, and the payment is released using a payment method accepted by the law firm if they have no disputes.
7. Upon receiving the payment, the accounting team logs it into billing software for law firms and follows up with the clients for pending payments.
Although these steps are easy to understand, numerous challenges can come up. These may lead to process bottlenecks and wastage of time, such as prolonged approval time from the billing attorney, too many notes in the draft, etc., which your legal firm may not have time for.
Therefore, you need to evaluate each step of the process and anticipate the challenges proactively to have systems to eliminate the concerns altogether.
This is exactly why you need to have a comprehensive law firm billing process that saves you time, effort, and money.
Importance of having an intelligent attorney billing process in your firm
Before getting into the nitty-gritty of legal invoicing, you need to know what it means to your business.
Here are a few crucial ways a streamlined legal invoicing process and policy can help legal firms.
Gets rid of billing bottlenecks in the firm
Inconsistencies and errors are the biggest challenges that most law firms face when it comes to billing. These errors may take a lot of time to trace back and create bottlenecks, preventing the bill from moving forward.
If this is a constant occurrence in your billing, it can seriously affect your entire accounting efforts. However, having a thorough and streamlined process can get rid of these errors.
It would also be easy to track down errors even if they happen when you have a forthright process.
Better collaboration and efficiency
Edits, invoice notes, and corrections are an integral part of every law firm’s invoicing. With the right billing process, anyone involved in the process, including partners and attorneys, can check the notes and understand them as they choose.
As a result, it improves collaboration between the people involved, and the invoice consensus can be obtained as quickly as possible.
When there is no ambiguity, the process can move forward quickly and more efficiently.
Helps ensure accountability
Accountability is another important element when it comes to law firm billing. With an optimized billing process, everyone can understand who is doing what and who is making what notes.
The result is that everyone is accountable for their inputs and contributions to move the invoice forward.
This obvious accountability helps ensure clarity and more diligence from everyone.
Creates better client relationships
Another way a thorough and intelligent billing process helps a law firm is by creating better client relationships. Most of the time, billing can be an area of contention and dispute.
However, when the process is clear and thorough, you can present invoices that are easy to understand. As such, the client would not need to guess anything about the billing.
This will make them confident in your billing and clear your bills faster.
Limits human errors from happening
An important role of having a strong legal firm billing process and structure is to act as guidance when a challenging situation comes up. A billing process is like a standard operating procedure or SOP.
When you lay out your terms and requirements for different challenges and scenarios, the person handling the same can understand what they need to do next.
As there is a defined path to follow, the chances of errors and ambiguity go down. This not only speeds up the process but also makes it easier to find errors and address them.
How to create an efficient legal billing policy in your law firm?
As you have understood the benefit of having a standardized billing process, it is time to discuss how to create an invoicing process for your firm.
Ideally, the billing policy must guide you with:
- How to bill your clients efficiently and accurately
- Understanding common errors and how to address them
- What causes the process to slow down and how to address it
- Ensuring timely creation, approval, and sharing of invoice
Therefore, when you draft your law firm billing policy, keep these in mind and stick to the following steps:
Templatize your invoice and share guidelines
Templatizing your invoice makes it easier for your accounting team to create an invoice draft and send it for approval quickly. With the template, you also need clear instructions as to the following:
- When the invoice must be sent for approval
- The length of the description for items on the invoice
- What expenses must be included and what must be overlooked
- How the invoice needs to be addressed to the clients
While this may sound a bit challenging, establishing systems that everyone can understand and follow is crucial to ensuring accruable law firm billing.
Not only will the policy help you save time and effort, but you can also bring down expenses considerably over time.
Create a flow of your firm’s billing process
As the partner or owner of a law firm, you must know who is doing what and when after looking at an invoice. In fact, you must know the billing cycle just by looking at the client.
How can you do that? Well, creating a single flow of your bill helps you do that, and the flow will also dictate:
- Who reviews the invoice of a particular case?
- What is the order of review?
- How is the invoice sent to the client—mail or email?
- Who must be informed or tagged when sending the invoice?
This clears out a lot of air, and everyone will understand what must be done and who must do it. No matter who is handling a case, there is no ambiguity at all.
When you know this thoroughly, it becomes easier for everyone to create better client experiences.
Guidelines for billing reviews by attorneys
Reviewing draft invoices is a crucial part of firm billing. Therefore, establishing a standardized review system ensures fewer chances of errors.
If you have a legal firm management software, you can specifically set a list of requirements for the review process and ask the attorneys to review bills on the software itself.
Having a system expedites the entire process, and you can make it even better by using automation software.
Bring your accounting team into the process
Communication is another important part of billing. You must let the accounting team know when you are sending your bill. Therefore, establish communication processes that keep them updated with the status of the bills.
When there is a clear line of communication, your finance team will know how much you have received from clients, what the arrears are, and the amount that is being written off.
In the absence of clear communication, not only would it be challenging to manage the bills, but it would also create internal tensions between the teams.
Establish standard processes for collections
Unpaid bills are always a concern. However, the longer you wait, the less likely the client will ever pay you. The best way to address this is to establish a clear process for collections.
Create a process to filter unpaid clients and have systems to remind them of the pending payment. Ensure that every payment request you send is professional, personalized, and courteous.
Avoid sending emails that alienate the client or are unprofessional.
Ensure you have a system for disputes
Bill disputes are not uncommon in the legal sector. In fact, every legal firm faces such situations once in a while.
When your invoice is disputed by a client, understand that it is a very natural thing to happen.
During a dispute, know who is best equipped to handle the same from your time. Ideally, it must be the attorneys who worked with the client and who made notes on the draft bill.
You also need a framework to resolve the issues in a friendly and professional manner.
Create a public billing policy for your clients
When you are onboarding a client and as you begin working together, setting the right expectations in terms of billing is crucial.
Hence, you need to create a clear, easy-to-understand, and articulate billing policy for the public. This policy must ideally educate your clients on:
- How frequently you send your bill—monthly, bi-weekly, etc.
- Your accepted payment methods
- How much time the clients have to make the payment
- Your internal policy regarding late payments
- Your policy for disputes and collections
While terms on late payments, collection, and disputes might feel a little overwhelming to the client, they will understand its importance once they review it.
Also, encourage your clients to get back to you if they have any confusion or need clarity regarding any terms or conditions in the policy.
What should your law firm invoice entail?
The design of your invoice plays an important role in helping you optimize your billing process. Ideally, the invoice must be easy for anyone to interpret and understand.
As a legal firm, you may work with larger corporations to small local businesses. Large corporations might need you to follow specific billing conventions, which may not be the case with small businesses.
The best way, however, is to establish a standard for your invoice for consistency internally and with the clients.
When designing your invoice, ensure it includes the following:
Include adequate billing descriptions
Describing a billable item is important for the client to understand why and how they are billed. The description must not be too lengthy or short. It must provide just enough information about the item.
Having a billing description for each item helps avoid disputes in the future since the client would know how they are billed and what for.
A few examples of billing descriptions are:
- Legal research to make the arguments stronger
- Met with the client to discuss the next step of the litigation
Law firm billing codes
Another essential element that every law firm invoice must include is law firm billing codes.
These are codes that explain the item for which the bill is generated.
A few of the codes could be:
- Meetings
- Research
- Drafting
- Revisions
Although these codes can change from one firm to another, you must keep them consistent across your organization to avoid ambiguity.
LEDES billing
Legal Electronic Data Exchange Standard or LEDES is a formatting standard for electric billing in the law sector. If you work with large businesses, they would need you to use LEDES codes for entries showing fees, depositions, research, etc.
This is preferred by large businesses as the codes make it easier for them to trace, assess, store, and access them.
As a law firm, you need to check with your client if they prefer LEDES billing. If they ask specifically for such billing, you need to provide it. Or else, you need not use LEDES in your invoice.
Alternative billing methods to billable hours
Billable hours are the most common billing methods that law firms go for. However, depending on the client and the project, you may also choose the following alternative billing methods:
Subscription
In this type of billing, you provide certain legal services and assistance to the client as they need it and you bill them a fixed subscription fee every month. This billing method is suitable for clients who need regular support with IP protection, trademark registration, etc.
One of the most significant advantages of this type of plan for your legal firm is that it ensures a steady income for your business.
You can also create better and stronger relationships with your clients. As your clients grow, you can grow as well.
Evergreen retainers
If you want to get paid on time for the legal services rendered, this is your best option. This is how it works:
- Your client provides a retainer which you can bill against.
- You provide the legal services that the client needs.
- When the retainer reaches a set minimum balance, they refill the retainer.
While this type of billing helps you with timely payment, you must also inform the client about the status of the retainer on time.
Using a reliable law firm calendaring software solution that can automate the notification is the best way to take advantage of this type of billing.
Sliding scale fees
In this billing system, your clients pay for your services based on their incomes instead of a standard fee. This works best with smaller businesses, and when you want to grow your client base, this is the best option you can go for when it comes to billing.
Flat fees
Billing your clients a flat rate every billing cycle is another option if you can determine the exact value of the services you render them.
In this type of billing, you charge a flat rate for the value you deliver to the client instead of billing the hours you work for them.
Of course, there is a risk to this type of billing as you might end up getting underpaid. However, if you can scope the work intelligently, this can work out well.
Payment plans
This system works for businesses that cannot meet the expenses of hiring a law firm because they don’t have the money to pay the fee at once. In this case, you can create payment plans for them and create a win-win situation.
However, when creating a payment plan, you need to set out the terms clearly in the beginning, how you will collect the agreed payment, and what the consequences are for late payments.
While this may not be your best option, it can help expand your business reach.
Contingency plan
In this type of billing, the fee of the legal firm is deducted from the settlement that the client receives upon successful litigation. While opting for this type of billing, consider the following factors:
- How complex the case is
- Expenses to retain the experts for the case
- The cost of litigation and procedures
Unbundled billing
You can bill a client for the specific service instead of working on the whole case. An example would be preparing a legal document and billing only for that particular service.
Another example would be charging an hourly fee for conducting legal research for the client’s case.
How to set the right billing rates?
As a law firm, setting your rates right is one of the biggest challenges you may face. You need to be careful to not get underpaid while not alienating clients because your charges are exorbitant.
Here is what you can do in the initial stages to ensure that you are on the right track with your attorney billing:
Research your local market
Conduct research on your market to see what the prevailing law firm charges are. Based on the same, you can arrive at a price that may be accurate for your market.
Charge based on the value
If you are an excellent firm with sizeable and reputed clients, you can determine the rate according to the value you assign to your services.
Rates based on competition
This is where you fix your rate based on the rates of your competition. You may set the rates lower than your competition or charge higher by offering better value to the client.
Want to improve the billing process? Try these proven tips
Although having a streamlined billing process can help with your legal firm invoicing, there could be many challenges on the way.
Here are a few ways to address these concerns and improve your billing process:
- Setting up the right expectations with the client to avoid future disputes and billing challenges.
- Always track and record your time in the best way possible to ensure accurate legal bills.
- Include short yet adequately informative descriptions on your legal invoices so everyone can understand them.
- Create a habit of creating and sending out bills frequently and consistently. This ensures the client that you are on time and consistent. This also helps you avoid late fees.
- Another critical thing to consider to improve your law firm billing is to automate the same. There is diverse billing software for law firms and calendaring software that can help you automate your legal invoicing.
Conclusion
Although translating the work you have done for a case or project into a bill accurately and presenting them to the clients can be challenging, using intelligent billing software for law firms can help you in more ways than one.
Not only will these software solutions help you streamline and save a lot of time, but they will also reduce human errors, which have always been an area of contention in attorney billing.
Although legal invoicing through software solutions is a sweet spot for law firms, you must exercise due diligence while choosing a solution for lawyer billing. The software must be able to satisfy all your requirements while also being reliable and affordable.
With the right software to help, you can take care of a huge responsibility—legal billing—of running a successful law firm effortlessly and divert the time to focus on growing your business.