It’s safe to say that, while performing work as an attorney is critical, it’s what comes after the work that keeps your firm afloat. The cash you bring into your business is one of the most important tools for growth. In fact, you can’t do much without it.
Law firm billing is often a sore subject for many attorneys, however. We’ve all had those clients who simply refuse to pay on time. We’ve all scrambled, trying to send out invoices and receive payment before we need to pay next month’s bills.
It doesn’t have to be this way. Over the years, through a ton of hair-pulling trial and error, we’ve found the processes and tools that have helped us perfect our law firm billing and collections. Now it’s time for you to do the same.
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Perfecting Your Law Firm Billing for Financial Success
From paying your bills to purchasing updated equipment for your office and making payroll, you need money. A solid law firm billing process can ensure you have the cash flow necessary to meet the demands of your firm.
It Starts With the Invoice
Once you perform the required work, your billing process begins with the invoice. We talk a lot about the importance of being a client-centered law firm around here. This means that the processes you put into place should work for your clients as well as your firm.
Your invoice is one of the many ways you communicate the value of your services to your clients. Your invoices should be clear and concise, meaning your clients should be able to easily read them. After all, when they know what they’re being billed for, they’re more likely to pay.
If you’ve followed our advice on billing or practice management software, you’ll easily be able to create uniform invoices with built-in templates. Make sure your invoice template includes a few key elements:
- Service description: This includes a description of the legal services you provided — as detailed as possible, with layman’s language. Simply stating “legal services” with the total number of hours spent isn’t enough. Break down each service you provided.
- Contact information: Include your client’s name, address, and phone number. Do the same for your firm.
- Dates: Add the date of the invoice as well as the date you expect to be paid.
- Invoice number: This not only helps you keep track of each invoice you send. It also helps your clients keep track of which ones they’ve paid.
- Payment methods: Describe the payment methods you accept such as cash, check, credit card, etc. Accepting more than one payment method gives your clients some flexibility, increasing the likelihood of on-time payment. Many billing programs allow you to send invoices electronically and include a link right to your credit card payment method.
- The total: Make sure you include the total service cost on your invoice.
It’s also important to organize your invoices for easy storing and pulling when needed. We believe wholeheartedly in the benefits of the paperless law firm. You can organize invoices electronically using a simple client filing folder system.
Think about your invoices this way: they’re a way to communicate with your client about the value of your services. Treat each invoice like any other client communication—keep them clear, organized, and efficient.
It’s Time to Ditch the Billable Hour
Oh, and: it’s time to ditch the billable hour. It’s worth saying again: ditch the billable hour.
Billing by the hour isn’t valuable. In fact, you often lose money by billing in this way. Moreover, you don’t capture the true value of your work.
You see, your clients don’t want to buy your time. They want to buy a solution to their problem. An invoice with a list of tasks tied together with time increments won’t help them see that solution.
Additionally, when you’re focused on billing by the hour, you’re focused on the time it takes to do your work. Stop it. Instead, you should be focused on the value you can provide to your client.
Luckily, there are several ways to bill for your work that allow you to focus on what matters most and that helps your client better see the value of your services. You can check out our thoughts on pricing models to learn all the options, but here are a few to consider:
- Subscriptions: Some attorneys choose to use subscription-based models for clients they retain on a monthly or yearly basis. For example, you might charge a subscription fee for acting as outside counsel for a small business.
- Sliding scale: The sliding scale method is a great way to adjust your fees based on each client’s ability to pay. Not only does it provide the best value for each client, but it may also attract more clients to your door.
- Flat fee: Using this method, you charge a flat fee for each service you provide. The days of watching the clock to track by the minute are over!
You could pick one of the above, a combination of two or more of these options, or something else altogether. Find something that makes sense for your clients and that works for your firm.
If You Bill Hourly, You Must Capture Time
Here’s an example: meet Juan. When he first joined our coaching program, Lab, he admitted that some of his clients hadn’t received a bill for six months or more. Juan was busy practicing law and dealing with client emergencies each day and never stopped to record his time. Common story, right?
He told himself he’d take a few minutes at the end of each day and put it all into the system before going home. When the end of the day came, he was tired and running late to be with his family so he told himself he’d just do it in the morning. You see where this is going.
Of course, the morning brought another client emergency and the delay continued. Because he wasn’t routinely invoicing his clients, cash wasn’t coming in. His system was broken and his firm was suffering.
Unfortunately, Juan is not alone. We often meet attorneys who bill by the hour, but who don’t track their time as they work. Instead, they attempt to go back through phone logs, emails, and filings in an attempt to recreate their time and prepare invoices.
This often leads to significant underbilling and loss of potential income to the firm. It’s a huge waste of time and resources spent recreating time entries for the invoices instead of just capturing the time and tasks as the work is being done.
If you’re going to bill by the hour, create a system to ensure everyone in your firm captures their time while the work is being done and with as little effort as possible.
Today’s software gives you so many helpful options to help timekeepers get this right, including timers, voice dictation, and even AI tools that record your keystrokes and determine where your efforts are spent. Your firm has to get this right on the front end or risk losing significant money on the back end.
The Importance of Sending Invoices Promptly
Because Juan was behind on capturing his time, he also wasn’t getting his invoices out promptly. This negatively impacts the firm in so many different ways.
First, there’s direct correlation between the time invoices are sent and client payment. The more time between the work being done and the invoices being sent, the less likely you are to collect the funds. To avoid situations like this, you must send invoices promptly.
Even if you do eventually get paid for the invoice, you’re losing the ability to use that money for the intervening 6-7 months. You still have your regular expenses (rent, utilities, payroll), but your firm doesn’t have the benefit of using the cash from the work you did to finance those expenses.
Think of it this way: you’ve done the work your client agreed to pay you to do. The money you earned is sitting in their bank account instead of yours.
Failure to send invoices leads to more issues than you may realize. Beyond simply not receiving payment, your clients will stop trusting you and your ability to perform. Why? Because sending an invoice six months late speaks volumes to your clients about your organization, responsibility, and client service.
So, when should you send invoices? We recommend sending your invoices on a regular, predetermined schedule—at least monthly.
Use Legal Billing Software to Automate the Process
The year was 2019, yet Rob still created invoices the old-fashioned way. Every day, he’d send his assistant an email with all of his time and tasks for the day. The assistant would convert the email into an Excel spreadsheet and they would use that to manually create an invoice.
Whew. The time it took to complete this complex process (sometimes days!) was time that could’ve been spent on more important tasks.
That waste of time could’ve been resolved quickly by implementing legal billing software. After all, the software provides the necessary accuracy in your records and works as a “set it and forget it” solution for your billing processes. There is also a wide range of billing software tools you can choose from.
For example, some legal time and billing software can track time, create invoices, and reconcile accounts without you needing to lift a finger. There’s also software for expense tracking, providing estimates, accepting online payments, and setting recurring payments. Some of our favorites include:
We recommend considering what tools you need based on your billing methods and find a time and billing software solution made specifically for lawyers that fits those specific requirements.
Law Firm Collections: How to Avoid Snags & Get Paid for Your Work
Although it’s true that solid billing practices can help decrease collections, the need for collections won’t disappear completely. It’s important to have a collections process that helps eliminate frustration for both you and the client.
Invoices typically go to collections after a certain amount of time passes without payment. It’s typical for any organization to wait at least a month or so before they begin the collections process.
As a solo attorney or the owner of a small firm, you’re often responsible for handling collections on your own.
The Importance of Honest Communication
A lot of attorneys we talk to feel that if they’re honest about how much the representation will cost, they’ll turn clients away.
This isn’t true. In fact, being upfront about what you charge will help your clients understand whether they can afford your services. It could lead to a helpful conversation where the attorney and client determine the path forward based on what the client actually needs and can reasonably afford.
Instead, attorneys often tell clients it will be $X.xx per hour. Clients have no idea what that really means, and then everyone is frustrated in a few months in when invoices are mounting and the clients can’t pay.
Instead, we recommend attorneys speak to their clients about what services they’ll require and their cost before you start work.
Also discuss the potential for snags, hiccups, and surprises that often crop up in legal situations. The key is to be as transparent as possible, so they’re as prepared for their bill as possible.
Structures & Processes
Just like everything else you do in your firm, you need a solid structure and process for your collections. You must set expectations by explaining your processes and sticking to them.
Consider the following questions when you’re creating your process.
- When will you consider an invoice aged or ready for collections?
- Will you call the client first or send them a letter? Will you use another method of communication?
- Who on your team will be responsible for collections? Will it be you or someone else?
- If a client disputes an invoice, what process will you have in place for handling disputes?
- Will you offer to settle debts for less after a certain period of time?
Staying on Top of Your Accounts Receivable
Your accounts receivable is a representation of the money owed to your firm by your debtors, a.k.a. your clients. You should monitor your accounts receivable regularly.
If you use a billing or bookkeeping software, you should have access to an accounts receivable report that shows you past due accounts.
If you don’t use software (which you should!), we recommend creating and updating a manual accounts receivable report at least weekly.
Put Your Billing & Collections Process Into Play
As you monitor these numbers, you’ll need to put your billing and collections process into play. Now, there’s no reason why you have to wait until a bill is a month past due to send little nudges about payment.
For example, you could send an email reminder three days after an invoice is sent and a quick phone call after a week. And some firms have started sending texts.
A simple billing and collections process might look something like this:
- Send and record invoice
- Send payment reminder via email after three days of non-payment
- Call client after a week of non-payment
- Call client again and send a letter after two-to-three weeks of non-payment
- After a month of non-payment, move account to collections
Whatever you choose to do, it’s critical that you follow your plan for every single account. It’s the only way to keep up. Again, billing software can automate each step in your process for you.
How to Have the Collections Conversation
If you shuddered at the thought of calling your clients over a past-due bill, you’re not alone. This is one of those tasks that no one enjoys. If you want your firm to stay afloat, though, it’s required.
Making the Call
First things first, make sure you review the client’s financial file to gather the amount owed, any late fees or penalties, the date of the last payment, and any other relevant information. Once reviewed, call your client and ask if now is a bad time to talk. If it is, ask to schedule a call at a different time.
We recommend starting with gratitude, thanking them for being your client. We also suggest asking if they’re satisfied with your services. If they’re not, it may help you understand the delay in payment.
Then explain their past due amount and ask the client to work with you to find a solution. Offer the ability to make a partial payment and set up a plan for the remaining balance. It’s best to remind them that you can’t continue to represent them until they pay their balance or start a payment plan.
Finally, remember to document each call you have with each client.
You Don’t Have to Do It All in a Day
We know you’re working hard at being an effective attorney while running an efficient business at the same time. Everything, including billing and collections, seems to fall on your shoulders.
Take a moment to breathe; you don’t have to figure out all of this in one day and you don’t have to figure it out alone.
Start with a simple billing process and make changes over time. Look into investing in legal time and billing software to take the burden of billing and collections off your shoulders. Whatever you do, make time to prioritize doing what it takes to ensure your hard work does indeed pay.
Learn More About Perfecting Your Law Firm Billing
Thousands of attorneys have gone before you, carving out their own unique billing and collections processes. And we go over this in our law firm survival guide, The Small Firm Roadmap. Click here to join Insider and download the first chapter.