Billing clients for legal services, and collecting on those payments, is critical to the success of your law firm. Create a simple, straightforward billing process—with clear expectations for how clients should pay their bills—and you’ll reap the rewards of happier clients, happier staff, and a higher rate of collections.
And yet, for many law firms, billing clients and chasing down payments can still be one of the most time-consuming, repetitive, and dreaded parts of the job.
According to the 2018 Legal Trends Report, lawyers record only 2.4 billable hours per day on average, with the rest of their day going towards tasks like preparing and sending invoices, processing payments, and updating trust ledgers.
A key aspect of running a client-centered law firm is communication. There’s a whole lot of communication happening when you’re invoicing clients and following up on payments. If you want to meet modern consumer expectations, get more clients, and grow your firm (we’re betting you do), it makes sense to invest in consistently improving the way your firm shows up during the billing process.
This guide to law firm billing and payments includes plenty of tips to help shift this trend and get your law firm’s billing process running smoothly.
Billing best practices
Good billing comes down to clear communication with clients. A bill isn’t just an invoice: It’s a tool for communicating the value you provide to your legal clients, so don’t sell yourself short!
Follow these billing best practices to create a client-centered law firm billing process.
Set expectations up front
Depending on your practice area, hiring a lawyer may be one of the most expensive things your client ever does. Don’t subject them to sticker shock and unexpected bills: Set clear expectations from the beginning of your engagement as to what clients can expect to see on invoices, when they’ll receive them, and how they’ll be able to pay.
Taking the time to set expectations up-front can ease client worries. It can also help avoid miscommunication and disappointment down the line. For example, you may want to send a welcome letter giving clients an overview of what to expect from your firm, like Palace Law does.
Track your time as you work
If you’ve ever sat down at the end of a work day and tried to remember exactly where your time went, you know just how difficult it is to get everything recorded on a bill. Use a timekeeper to track your time as you work, and take notes to ensure the client is crystal clear on the value you’ve provided. This is the best way to ensure nothing gets missed, and that every time entry is accurate.
Create clear, detailed bills
Your invoices to clients should be easy to understand, but that doesn’t mean they should lack detail. Make sure you clearly articulate everything you’ve done for your client: A line item for a 15-minute call to review the case with no context might leave a client feeling confused or anxious about the charge.
Conversely, a bill with clear information and just enough detail will lead to fewer questions, less back-and-forth, and goodwill with clients who trust you’re billing fairly.
A bit of time invested in going over draft invoices to revise any unclear (or missing) notes could mean countless hours saved on calls and emails dealing with questions. Consider: Katy Young of Ad Astra Law Group prioritizes adding clarity and detail to bills because she believes it creates trust, which makes her clients more willing to pay.
Bill frequently, and consistently
With the right system, bills and reminders can be sent out quickly, so there’s no reason to put off billing your clients. Sending out smaller bills consistently can lower the sticker shock that comes with a large, unexpected bill—plus, there’s the added benefit of encouraging a smoother cashflow for your firm.
Consider billing monthly, bi-weekly, or even weekly—whatever makes the most sense for your clients, your practice areas, and your firm. Whatever you choose, be sure to set expectations about when bills will arrive to avoid surprises and give your clients a chance to prepare their payments.
Automate, automate, automate
When it comes to improving your firm’s billing, there’s no need to go it alone. There are plenty of tools available to help automate routine tasks so you can spend your time and energy on things that can’t be automated—like answering difficult questions, or giving your clients peace of mind.
Before you implement any tools at your firm, it’s important to note that process should come before technology: Implementing technology for the sake of implementing technology isn’t a recipe for success. Make a solid effort to understand the kinks in your billing processes, then start looking into tools that could help improve them.
Some examples include:
- Using a platform like Clio Manage to generate draft bills in minutes.
- Using InvoiceSherpa to automatically chase late invoices.
Once you’ve improved the way you send out bills, read more tips for better collections at your firm.
Setting your rate
Of course, one of the most important parts of billing is knowing what to charge. If you’re in a situation where your rate is chosen for you, this isn’t something you need to work about, but if you’re a solo or a partner in a small firm, you may need to do a bit of thinking about how to choose your rate.
To start, read this article on how to calculate your hourly rate, based on your cost of doing business and the number of billable hours you expect to record in a year (if your firm bills hourly instead of via flat fee or contingency).
Then, check how closely your chosen rate tracks against market rates. The Legal Rates Benchmark Tool allows you to compare with benchmark rates for your state and practice area based on data from the Legal Trends Report. If you’re low, consider raising your rates. If you’re high, think carefully about how you’re providing extra value to your clients to make that rate make sense.
However, at the end of the day, remember that the rate you charge is to some extent up to you. If you’d like to charge a little less to keep legal services affordable for others in your community, like Nicholas Hite does, that’s completely fine.
Billing beyond the billable hour
The billable hour has long been a subject for healthy discussion in law firms: It’s alive and well in many practices, but plenty of lawyers also advocate that this isn’t the best way to charge for legal services—at least not for every practice area.
Here are some tips for using two other common alternatives to the billable hour: flat fees and contingency fees.
If you’re able to accurately scope the amount of work required for certain types of cases, flat fees can be an excellent approach to law firm billing. They create clarity on costs up-front, and are a form of value-based billing, meaning that you bill based on the value you provide to your client, rather than commodifying your time.
Of course, there’s some risk of underestimating the work required for a case and setting fees too low. But with diligent case scoping, flat fees can provide an excellent alternative to the billable hour.
With contingency fees, there’s potential to help clients who can’t afford a lawyer, since you’re paid a percentage of the money paid out to the client if the case is successful. Depending on the case, this amount can be quite substantial.
Of course, there’s also the risk that you won’t get paid for your work. But, if you can stomach the risk, billing on a contingency basis is a great way to build a profitable practice and serve those who otherwise might not be able to afford your services.
Note: Contingency fees are prohibited for certain types of cases, so double check your state’s ethics rules before deciding to bill on contingency.
Ethics and billing: Reasonable fees and price transparency
When it comes to ethics and billing, clarity is key.
Rule 1.5 of the ABA Model Rules of Professional Conduct states that a lawyer may not collect an “unreasonable fee” or an “unreasonable amount for expenses.” The ABA provides eight factors to consider when determining whether a fee is reasonable, including fees charged for similar legal services, the reputation of the lawyer, and any time constraints.
Best practice is to make your bills as clear and accurate as possible. If you’re billing by the hour, provide clear, detailed notes on work performed. If you’re billing via fixed fee or contingency, ensure you’ve got solid reasoning as to why you think your fees are reasonable.
If you’re in the UK, you’ll need to be mindful of the SRA’s price transparency rules, which state that price information must be provided in a clear and easy-to-understand format. Other requirements include the need to provide a total cost, explain the basis of your charges, and clearly communicate what is and isn’t included in your services.
Evergreen retainers and payment plans
Depending on the needs of your clients and your firm, you may want to consider using evergreen retainers or offering payment plans. Evergreen retainers help ensure your firm gets paid.
Evergreen retainers simplify the process of getting paid on time. Here’s how it works: Your client provides an original retainer held in trust against which legal services are billed—and when their trust account hits a predetermined minimum balance, they replenish the funds.
The key with this type of system is making sure to notify clients when trust funds are at or below the minimum balance required.
Technology can help here. For example, Clio’s Evergreen Management features allow you (or a staff member) to easily receive automated notifications when a client’s trust account drops below the minimum balance. From there, you can easily send a new Trust Request to the client.
Given that 44% of law firms say clients don’t pay their bills because they lack the funds to pay at once, according to the Legal Trends Report, offering payment plans can be a big help for ensuring your firm gets paid.
Before you start, it’s important to set up a system: Create clear guidelines for when to offer payment plans, draft an agreement template to determine how payments will be collected, what methods of payment will be accepted, and what happens when a payment is late.
Then, set up a system for billing clients and collecting funds. Tools like payment plans in Clio Manage can help automate much of the repetitive follow-up that comes with client payment plans, meaning your firm will need to invest less time in collecting on outstanding funds.
Accepting credit card payments
If you’re still asking your clients to pay by check, you may be asking them to use a payment method they haven’t used in years (or one they’ve never used). In the digital era, clients expect convenient, online credit card payments, and as a lawyer, there’s no reason you can’t give them this option.
All it takes is a bit of due diligence to ensure you’re accepting credit card payments in accordance with ethics rules.
First, choose the right credit card processor for your law firm. Law firms need a credit card processor that does not allow chargebacks on trust accounts, and that does not take fees from trust accounts; if a client disputes a charge that results in a chargeback, and the credit card company withdraws money from a pooled trust account, this may add up to an ethics violation.
Usually, this means using a credit card processor tailored specifically towards lawyers, such as Clio Payments, powered by LawPay. With Clio Payments, your $20 monthly LawPay subscription is covered, and clients can easily pay bills online via secure payment links.
Law firm billing software
Still manually drafting bills for your clients? It doesn’t have to be that way. Investing in law firm billing software can make a huge difference in how you spend your time—and mitigate your risk of error.
For example, Clio Manage lets you easily create branded invoices and customized billing plans, and accept payment by credit card with Clio Payments. Clio Manage’s trust accounting features also integrate with your favorite accounting programs including QuickBooks Online, Xero, and Klyant, so it’s easy to keep all of your financial information in-sync.
Investing in legal billing software to help your billing process run more smoothly can be invaluable for your firm: Chris Trebatoski of Treblaw LLC gets all his bills out each month in a matter of 15 minutes with Clio—a task that used to take him much longer at a larger firm.
“I spend less time doing my time entries and sending out my bills using Clio than I spent being the Chair of Billing and Collection at a large law firm calling other lawyers saying, ‘Could you get your bill out?’,” he says.
Again, it’s crucial to think about your process before technology, and to avoid haphazardly implementing new tools at your firm. But don’t be afraid of a learning curve when it comes to law firm billing software: Platforms like Clio Manage are more intuitive than you’d expect, and a small investment in learning how they work can yield a lifetime of simplified billing practices for your law firm.
Better billing, better law firm, happier clients
Billing is the last step of the client journey, and it isn’t just the act of handing your customer an invoice. It’s about thoughtfully communicating with your client and presenting the value you’ve provided. It’s an opportunity to build trust, cement your relationship, and lay the groundwork for positive reviews and referrals of future business.
When done right, billing can shift from a time-consuming chore to a simple task, and your staff and clients will be happier for it. For better billing:
- Communicate clearly. No one likes a convoluted invoice. Clearly communicate the service you provided for your clients.
- Consider alternatives. It doesn’t have to be all about checks and the billable hour: Fixed fees, contingency fees, payment plans, and credit card payments are all tools to explore as part of your billing process.
- Use software. When aiming to improve your billing process, don’t go it alone. Use technology to mitigate risk of error and save valuable time.
Let’s get to it: We’ve all got bills to pay.
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Categorized in: Accounting
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