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February 12, 2024

Best Practices for Law Firm Billing

Streamlining your billing process is essential to your firm’s long-term health and reputation. Most legal professionals believe that they have good billing practices, but struggle with firm-wide enforcement, tracking billable hours, client follow-up and which legal billing software to choose.

Good billing hygiene is essential for the financial health of your law firm, not to mention client satisfaction: the last thing you want is to strain a client relationship because of unclear expectations.

We’ll briefly cover best practices for billing on a regular cadence, creating (and enforcing!) protocol around when to bill or to write off WIP (work in progress), and developing clear terms of payment and followup.

Timely Billing

Bill early and often. Timely billing is the cornerstone of any billing policy. While it may seem intuitive, many small firms struggle with timely billing.

It starts by ensuring that all lawyers stay on top of their time-entry and submit their billable hours regularly. Adopting firm-wide timekeeping templates can smooth this process.

The other side of the coin: invoice on a regular cadence (at least monthly) with all lawyers reviewing their WIP, and determining write offs and billable hours, by a specific day of the month.

Once all information is gathered, bills should be sent out at the same time. This sets clear expectations with clients on when they will receive their bills, which leads to stronger, long-term relationships.

Setting a regular cadence also helps your billing department cut down on time-consuming followup. To further streamline this process for your finance department there are various practice management software options, as well as virtual accounting offerings, that can improve billing automation and followup.

When sending bills via email, take advantage of features that indicate whether an invoice has been opened. If you wait to check until the bill is past due, you may end up adding another month to your collection time.

Clear Billing Policies

The second most important piece of good billing hygiene is developing and communicating comprehensive billing policies, to your clients and the lawyers in the practice.

When building a new client relationship, it is paramount to clearly lay out:

  • your hourly rates, contingency fees, flat fees or retainers
  • what counts as billable hours (will they be charged for a phone call? what about emails?)
  • how you track time
  • how you bill and the cadence of those bills
  • payment processing (online payments, credit card and cash policy, etc.)
  • payment terms and late payment policies

This sets you both up for success by setting clear expectations.

I recommend sending out an early, smaller bill when you get a new client, to see how they respond and if they’re going to pay within your terms. Be sure to enforce your payment plans by following up if payment is not received promptly and by sending out bills on a strict cadence.

If they don’t respond within the time period communicated, you can give them another chance, but you may want to terminate the relationship because if they can’t be timely with a small bill and follow up, they are most likely not going to be an A+ client.

Internal Enforcement of Policies

Good billing habits are a two-way street.

If attorneys consistently fail to follow firm policies, don’t look the other way. It is critical for every partner to clearly understand billing rates, and track and submit their billable time on a daily basis. They should also have a clear understanding of the consequences on monthly cash flow should they fail to meet the billing system set by your law firm.

Partners who bill every six months — even if they ultimately bring in large amounts — are actually asking the other attorneys to finance their bad habits. When you let partners run afoul of your internal policies, you’re saying it’s okay.

There are two ways to approach this challenge.

  1. Spend time on improving billing hygiene: conduct regular trainings on your law firm’s billing practices for everyone, address challenges related to time-tracking, and provide invoice templates and modes of billing automation for partners.
  2. Tie billing hygiene to compensation: everyone needs to know that should they fail to bill and collect in accordance with firm policies, they will take a pay cut, and the lawyers who follow the policy will receive that money instead. Actions (and compensation) go a long way towards changing behavior and ensuring your firm’s profitability.

Timeliness, clarity, and consistency across your law firm’s billing practices is key to the success and longevity of both your firm and your client relationships. Setting up and enforcing systems with standardized templates and legal billing system automation is easiest but also requires enforcement through relationships and impacted cash flow.

If you would like to spend more time running your law practice and less time worrying about billing clients, we invite you to learn more about our Virtual CFO services for law firms.

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