Find Out How Much You Are Overbilling Your Clients

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Ask someone how much they worked last week, and they will probably overestimate the number by 5–10%, according to a study published by the Bureau of Labor Statistics. And the more someone thinks they worked, the greater their overestimate is likely to be, says the Economix blog at the New York Times.

Humans (well, American humans, at least) have really inaccurate memories when it comes to the time they spend working, in other words. We aren’t nearly as busy as we think we are, according to sociologist John Robinson, even if we feel like we are working all the time.

Lawyers are even worse when it comes to remembering billable time. Viewabill, a service that allows clients to see what their lawyers bill in real time, says that waiting until the end of the month to record your time means you are probably overbilling your clients by about 23%.

Delayed Billing Adds Inaccuracy — And Cost

That number comes from Viewabill’s aggregated data. By comparing timely entries to delayed entries, co-founder David Schottenstein estimates firms that keep time regularly are saving their clients as much as 23%:

timekeeping-viewabill

Viewabill thinks its software changes behavior through transparency, because clients can see the time as it is entered. If you know your clients can see what you bill in real-time, you are less likely to record all your time at the end of the month. (Again, Viewabill’s aggregated data bears this out.) Schottenstein says Viewabill is like an empty police car next to the freeway. Even if clients don’t check in very often, they could — and they can see when time was recorded no matter when they check in. This strongly encourages lawyers, to change their behavior.

After this article was originally published, Viewabill added some context to its numbers on Twitter in response to questions from @DiligenceEngine and @abziegler:

You don’t need Viewabill to ensure your timekeeping is accurate, of course. But you do need to record your time as you work. The more frequently you record your time, the more accurate it will be. If you wait until the end of the month and then reconstruct your time, you are probably overcharging your clients.

“Capture More Time!”

Related“How to Keep Track of Your Time”

Many timekeeping products claim to help lawyers “capture more time.” Time Matters, for example, cites “[c]aptur[ing] billable hours and client expenses while you work to prevent revenue leakage” among its benefits. Rocket Matter says you can “Forget about losing track of precious billable time or expenses.” Amicus Attorney says it will help you “capture more billable time.” You can see similar claims from most practice management and timekeeping-and-billing software.

The idea is that, by making it easier to record your time, you will record it more frequently, so that you are less likely to miss things. This makes perfect sense, and it does turn out to be true, according to Schottenstein.

If you bill more frequently, you are likely to capture time you would miss if you tried to reconstruct your time at the end of the month. But, he says, your bills will still go down. That’s because you probably aren’t missing 23% of your bill. The time you overestimate you spent is almost certainly greater than any missed time you might catch with more-frequent timekeeping.

Teaching Old Lawyers New (Timekeeping) Tricks

Whatever the benefits of real-time timekeeping, some firms really don’t want to do it. Or at least some influential partners at those firms don’t want to. Faced with clients who wanted them to use Viewabill, two large firms (one a prominent employment law firm based in San Francisco, another a large employment law firm in DC and Cleveland) mounted a spirited defense that included spreading a bunch of uninformed FUD about the cloud.

Why? Well, assuming the lawyers at those firms aren’t trying to pad their bills by 23%, the most-likely reason is that, as one firm admitted to Schottenstein, 80% of its billers do not put in their time until the last two days of the month. Apparently, they are willing to fight for their right not to change. You can’t always teach old partners new tricks, even if it means overcharging clients.

But clients are not yet insisting on real-time timekeeping and transparency. They probably will, eventually, no matter how hard the holdouts try to convince them not to. Eventually, those firms will be forced to accept greater billing transparency, and those partners will have to change. If that 23% figure is anywhere close to right, corporate clients will not stand for end-of-the-month billing for long. Sooner or later, they will make real-time billing a condition of representation.

How About Alternative Fees?

If waiting until the end of the month to record time means you will be overbilling your clients, then you probably ought to stop it, and start billing in real time.

A partial solution might also be to stop using time to measure the cost of representation — at least when you don’t need to. If you quote flat fees or use subscriptions, unbundled services, or alternative fee arrangements, you can stop tracking time altogether. No timekeeping, no padding (inadvertent or otherwise).

Except sometimes hourly billing really is best, so don’t give it up entirely. Just use other options when they make more sense.

And when you do bill by the hour, consider doing it in real time. Don’t wait for your clients (or ethics boards) to find this article and start asking questions.

Updates

  • 2014-02-06. First published.
  • 2014-02-10. Updated with tweets from @DiligenceEngine and @abziegler.
  • 2014-09-11. Updated with links to new studies.

Featured image: “Businessman and earning balance concept” from Shutterstock.

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  • Senior Partner- NY AmLaw100

    Insightful. Really needs to be a wake up call to some of us. My firm uses Viewabill with clients who ask for it but my guess is we’ll soon be offering it to all of our clients. Based on this we certainly should, seems like the right thing to do.

  • Paul Spitz

    Viewabill is only halfway there. Clients can’t really be sure their attorneys are actually doing work for them until they can see the lawyer’s computer screen, and maybe watch the lawyer too via a webcam. Even if a lawyer is “billing in real time,” he may actually be goofing around on Facebook or reading Lawyerist.

    I’d be very interested in hearing from people that use subscription billing with their clients. It’s an intriguing idea, and I’d like a better understanding of how people price and structure it.

    • There’s an old discussion on subscription billing in the Lab. Feel free to resurrect it, or post a new thread. I’m sure you’ll find other lawyers who are doing it.

    • qning

      Ever seen TimeSnapper? I love that thing. I keep it running all the time and it has saved my ass numerous times. Not only from a timekeeping perspective but getting back to a site I forgot to bookmark, salvaging a bunch of writing that did not get saved, whatever.

      Point to ponder – the application creates a treasure trove of discoverable evidence in the event that you get sued for over-billing or whatever. This is not legal advice, but the adage applies – throw away the empties yo.

      • Sounds similar to Chrometa, which is built specifically for lawyers.

        I guess it slipped my mind while writing this post, but something like Chrometa (or TimeSnapper, I guess) would make real-time billing a lot easier.

        • Paul Spitz

          I think timekeeping is just a discipline, no matter whether you hand-write entries in a day planner, or use a program like Freshbooks. I started using Freshbooks, and I like the ability to run a time-clock on specific matters and log it. It’s super easy, provided you remember to do it. Even if you forget to start the clock on a 15-minute phone call, you can still go in and log the time. Anyone that waits until the end of the month, and hasn’t been keeping track all along, is just making stuff up, in my opinion. It’s just poor management, not a quality I would look for in a lawyer.

  • Geronimo

    Our firm declined to use it (I think we are one of the two firms mentioned in this article). We told clients it was because Viewabill raises “attorney-client privilege concerns”. It doesn’t and we know that but firm management is terrified at the idea of our billing practices being suddenly exposed to clients. Based on what I see around here I can’t really blame them :) I am not going to stick around here for long.

  • LawMaven1967

    We use Viewabill and I can openly say that we didn’t buy the FUD that this SF employment firm tried selling us in their refusal to connect us to our matters. Luckily for us one of our large employment firms does use Viewabill so we simply re-allocated work to them. More trustworthy (clearly).

  • Lovethelaw

    Reed Smith is using Viewabill and offering it to clients as a value add. Smart move!!

  • beezuskiddo

    I don’t get how people even try to reconstruct their time…I can’t remember what I did yesterday, much less weeks ago, even with the help of looking at my emails.
    Our firm hasn’t adopted Viewabill, but the only method I’ve been able to effectively work out for timekeeping is that I keep a handwritten log throughout the day, every day, and then write up my entries once a week. It keeps me on-task at least because there are times I look at my log and realize I just spent an hour reading the internet, and good lord I need to get back to work.

    • Lovethelaw

      Why don’t you ask your firm to adopt it? Have they refused? It’s definitely cutting edge but I suspect the industry is going to continue moving in that direction.

  • In my practice I wound up reducing my administrative time considerably by switching over to flat fees. This saved me from having to go to court on Motions to Withdraw, saved the one full day a month I would have to spend generating invoices, etc. Higher end cases were the ones I would take by the hour however.

    The reduction in administrative time meant more time was available to work on cases, so I could have a higher case load. It wound up being good for me because overall profitability increased and good for my clients as they had a fixed cost.

  • Frankly I’m amazed that there are lawyers out there who keep there “time recording” until the end of the month. Sure if it’s the end of the month, it’s no longer time recording so much as just describing your work and allocated an arbitrary cost. If you ever get challenged on your costs, how can you possibly say with a straight face that your entries align with your actual time spent?

    • Thalia

      As someone who records officially at the end of the month, it’s because I despise our billing system. I actually record daily in Excel, I just don’t boot up the PC to move it into the billing system except at the end of the month.

      I don’t think anyone actually fails to track their time entirely, and just makes it up at the end of the month.

      I’m also curious about the lack of distinction made by Viewabill between “cost per entry” and “cost per project.” It’s possible that people just record time in larger blocks, but record in aggregate equal or even less time per project. I’m not sure the comparison offered is a fair one.

  • John Kuntz

    The only way to correctly have time entered is for the fee earner to do so contemporaneously. With the use of smartphones, iPads, and other tablets the “work” is being completed everywhere but the office. To wit: 67% of all emails are read on smartphones pro tablets. The only way to correct this is to have a mobile time entry app on your smart devices. Our data shows that an attorney accurately bills 1.4 – 2 hrs more a week when they have our service, iTimeKeep.

  • New2Law

    How does this reconcile with all the studies saying the longer the attorney takes to bill, the more time they lose to billing? This completely contradicts those studies claiming waiting a day, week or month to bill causes leakage of hours because the longer you wait to bill, the less likely you are to remember every time you worked on a client. Both studies can’t be right, so where does the truth lie?

    • From the post:

      If you bill more frequently, you are likely to capture time you would miss if you tried to reconstruct your time at the end of the month. But, he says, your bills will still go down. That’s because you probably aren’t missing 23% of your bill. The time you overestimate you spent is almost certainly greater than any missed time you might catch with more-frequent timekeeping.

  • MLSandler

    I don’t think you can earn an ethics violation by under billing, but it is just as bad. At two of the firms I worked at we discovered a lost of approximately 30-40% (varied by timekeeper) when timekeepers delayed time entry or used manual logs (still after the fact) to write down their work. One way we proved it was by cross referencing the amount of time a person logged as working on something (a letter) and looking at the document management system’s history for the actual amount of time spent in that letter. The person was billing 30 minutes when they’d actually worked on it for close to 105 minutes! (one and three quarter hours) In firms where billing a minimum number of hours per week/month/year is highly valued, this person was severely under valuing himself. Any tool that helps collect more time, more accurately can’t be a bad thing.

    • Paul Spitz

      105 minutes for a letter? Must be some letter. This is the problem with hourly billing. Was it really worth 105 minutes? Was this a letter composed by Ernest Hemingway?

  • MLSandler

    Well, full disclosure is that it was a paralegal, and the time included editing, printing, more editing etc before the final print and the document showed as closed. My point was that there is just as much under billing and that is “cheating” the firm and yourself.