How to Tune Up Your Billing System

Getting a physical is an important part of everyone’s life. You need to look at the important parts of your body like the blood, the heart, etc. Just like your body, your law firm has parts that are vital to its health—none more important than your billing system. Time accounting and billing is the lifeblood of your firm. Without timely and accurate billing efforts, you will work harder than you should at less money than you should make. We do what are called “systems audits” which is just a fancy name for a billing system physical.

First, let’s get this out of the way: you should track your time even if you are a completely contingent firm. Why? Because you need to understand if your efforts are paying off in certain matters. For instance, how much are you making per hour on a DUI matter? You could be investing more effort than it is worth.

Where to Start

The first item is to ask yourself just what kind of information does your billing system need to give you. If your billing system could talk to you, what would you want it to say? The easy stuff is:

  • How many hours did I account for last month?
  • How much did I bill?
  • How much money did I bring in?
  • Who owes me, and how much?
  • How long have they owed it to me?

If you are not making a certain level based on an hourly basis, you should consider raising your prices, becoming more efficient, or not doing that kind of work as often… if at all. Yes, you could be using that kind of work as a “loss leader” like the retailers do, but if you know what you are averaging per case, you can make the decision based on facts, not gut feelings. Doing a certain kind of law may (or may not) bring in more work. But make your decision based on facts.

Recording Time, and Reporting

Run a report each week/month that tells you how much time each member of the firm has entered into the computer. Make the effort to keep that number as high as you can. Have your associates and staff do the same. If you are not billing for their time, you are missing out on a strong revenue stream.

Make sure that if you choose to track your time, do so religiously. Make sure your staff and associates also do the same. There is nothing worse than getting ready to bill and having half of your staff (or yourself) not turn in their time. It delays the process and makes everyone frustrated.

This is probably the single most important part of the process. Gathering the data needed to make decisions or make judgments about performance is the bedrock of the entire process. If people don’t turn in their time, they need some kind of sanction for failure to follow the rules. I favor the withholding of their paycheck. That usually gets their attention quickly.

However, many (most) bar associations frown on the practice. Sometimes radical measures are called for. I guess I am too much of a tough guy when it comes to this, but I have to say it is really that important. You can also make this task one of the criteria when evaluating an employee’s performance in the firm. If they don’t follow the dictates of time recording, they are not performing up to expectations.

Draft Bills

Assuming you get the time turned in, that is only the first step. Now you have to print draft bills and get them reviewed. Lawyers are the worst for doing the tasks that are considered administrative. I think they view it as beneath their level of work. After all, they are lawyers, not billing clerks.

But they are the ones that will be sending the client the bill. You want it done right and you want it done accurately. Check the time entries. Look at the financial status of the matter. Is there enough in the retainer account? Do they owe you money? Are the time entries descriptive enough?

Make sure the edits are clear as to what must be done… and by the way, please do this right away.

Holding on to the draft bills for a month does nothing to help the process. Make sure the edits are entered promptly. Again, adhering to the policy of doing edits immediately is important, and should become part of the employee’s evaluation process. It really is that important.

I have clients that have been trained to edit their own draft bills on screen without using any paper whatsoever. Once they get the hang of it, the bill edits become far easier to do and takes far less time. No printing, no handling of paper, immediate changes. How simple is that?

Once the final bills are printed, they are typically put into the mail. However, more and more bills are being sent via email. When you engage your client, make sure the fee agreement states you will be sending your bills via email with a return receipt requested. That cuts out mail time and the old “I never received your bills” excuse.

Accounts Receivable

Now consider accounts receivable management. Your bills are just as legitimate as doctor’s bills, dentist’s bills, plumber’s bills, and anyone else’s bills. Many lawyers don’t want to get their hands dirty with “money” issues, but the practice of law is intensely personal and so should be the financial side of the relationship.

Make sure your fee agreement states the terms of the business relationship. If the bill is not paid in the allotted time (typically 30 days), you need to send a reminder statement to the client. At that point, I would have them on my radar to watch and to be concerned about if they want further work.

An aged accounts receivable report should be run and analyzed every two weeks. This is business. It is not a charity. The longer you wait to inquire about your bills, the less chance you have of collecting on those bills. It is said for every 30 period a bill is past due, the chances of collecting drop by 10-15%. Keep that in mind when you decide to let a bill slide for another 30 days.

In summary: create a fee agreement, turn in your time, do your draft bills immediately, send final bills via email, and manage your accounts receivable; those are the tasks you need to perform regularly and with discipline to make your billing system stay healthy and work at top efficiency.

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