There are so many ways that lawyers leave money on the table—unnecessarily.
The top five reasons will make you smack your forehead. The good news is that you can start fixing these problems today.
The amount of time you lose if you don’t keep time contemporaneously is shocking. According to studies compiled by Ann Guinn for her ABA blog, if you don’t get your time in by the end of the day, you’re likely to lose 10% of your billable hours. If you don’t get it in the next day, you’ll lose 25%. If you don’t get it in by the end of the week, you’ll lose a full 50%.
Realistically, if you don’t keep time contemporaneously, you’re making up what you put on your timesheet. Your clients aren’t stupid. They will sense something is wrong, making it more likely you won’t get paid or your bill will be contested. And then you have to spend time explaining the bill to them—if you can remember. How much do you charge per hour? Well, you won’t be able to charge that as you explain the invoice to your clients. What usually ends up happening is that you discount it to save time and move on.
Send your invoices at the end of each month—not thirty days or three months later. If you don’t have urgency behind your invoices, neither will your clients. Also: you will forget how you used your time (see: Timekeeping, above) and likely err in your clients’ favor. Then, since it’s been so long, you have to take the time to explain the invoice to them. Time is money. Send the invoice when the work is fresh in everyone’s memory. Invoicing is another touchpoint with your client: when they see your professionalism, they will step up to meet you on that front.
Many lawyers fail to set up retainers because the IOLTA guidelines for these accounts are complex. News flash: studying law is more complex than managing an IOLTA account.
If you take the time to set up retainer accounts for your clients, you will not be chasing money—you’ll be transferring it from the trust account to your operating account. You’ll improve your cash flow and won’t have to wait 90 days to get paid because you have access to the funds. But again, this depends on accurate timekeeping and timely invoicing.
Choosing the Wrong Client
You know who the wrong clients are: not just the people who suck your time away, but also those who don’t pay on time or whose work you’re not really interested in. If you take retainers, log your time contemporaneously and send your invoices in a timely manner, you won’t need to work for the wrong clients. You’ll have plenty of cash flow so that you can focus on the work you’re passionate about. Consider getting credit reports for new clients and reject clients who aren’t credit-worthy or at least require a retainer. You’re a lawyer, not a bank. Don’t let your clients finance your time.
Hire a Pro
Lawyers can lose money by not hiring an accounting professional to handle the records. Attorneys are best served by delegating this task to someone who is an expert and using that time for what they do best: lawyering.
If lawyers let the accountant handle the books, keep them reconciled and up-to-date so they have real-time data at their fingertips, not only will the attorney sleep better at night knowing this task is being handled, but he or she will know that they will be in the best position to see how their firm is performing.
The Accounting Professional’s Perspective
To get a perspective from an accounting professional, we asked Lynda Artesani, a QuickBooks ProAdvisor to weigh in:
If the attorney’s books are a mess, then there are areas where the lawyer is losing money. Let me explain…
Advanced costs are a big one: Are there workflows in place to be sure that all fees are captured and invoiced? Are all advanced costs added to those invoices? Does the attorney have a desk covered in paper receipts that are billable expenses? Keeping track of these receipts is key in being sure to not miss adding the reimbursable expense to the client’s invoice.
A process I use at my firm is to have the attorney upload the receipt to the app, Hubdoc. I code them to Advanced Client Costs and add the client matter to the transaction. The digital receipt and transaction are then pushed into QuickBooks Online and then if you use a two-way sync legal billing software that draws in that transaction, it’s ready to be billed to the client.
Not Watching Receivables
You won’t catch every problem client before they hire you. But you can save a lot of time and money by catching problems early. The longer your client takes to pay you, the less likely it is you will get paid. Be disciplined and run an aging report regularly. Be sure your books are kept up to date in real time so you don’t lose a month or more before you spot a problem. Make sure it’s someone’s job to follow up on aging receivables. Honestly, it probably shouldn’t be you, at least earlier in the cycle, because you’re really busy and may not get to it (and your hourly rate is too high to be messing with routine collections calls).
If you can integrate these best practices into your timekeeping and billing workflow, you can add thousands of dollars a month to your bottom line.