Mastering Legal Billing: An Essential Guide for Attorneys
Running a successful legal practice isn't just about winning cases; it's also about managing finances.
Legal billing is, for many attorneys, one of the most annoying and contentious aspects of managing your daily work. It requires an understanding of time management, bookkeeping, and compliance with regulations—all while providing a service to your clients that is both accurate and efficient.
It can be overwhelming for those just getting started, so in this guide I'm going to provide you with the tools to achieve success in legal billing.
The process of setting up legal billing doesn't have to be intimidating or difficult. With the right legal billing software, you can track time accurately, maintain compliance with regulations, and increase your firm's efficiency in billing your clients.
I'll show you how to get set up quickly and easily, provide some tips on how to make sure your clients are satisfied with their bills, and discuss some potential pitfalls that you should avoid when setting up your system.
Or, back up and start here: Definition of legal billing software.
Legal Billing 101: How to Bill for Your Time
Tracking your time and managing billing for your legal firm is an essential part of running a successful business. To make sure you're running an efficient and profitable law practice, it's important to have an accurate understanding of how you're charging and getting paid for the work you do.
When starting out, there are a few key things to consider.
Use the Right Tools
Firstly, it's important to ensure that you have the right types of tools for legal billing and time tracking. There are plenty of options available, such as online programs or apps that allow you to easily enter in activities and track your time efficiently.
I honestly find it surprising how many people are still struggling to record their time accurately in a complicated Word Doc or Excel sheet—there are some really easy tools for managing legal billing and time tracking below, and I definitely recommend you use them.
Plus, you need to make sure that any software or applications are compliant with the specific rules and regulations set by your state bar association.
Accurate Rates
Setting up accurate bill rates that reflect the nature of the services provided is essential to getting paid fairly for the work being done.
Common billing models for legal rates include:
- Hourly Rates: Charges based on the amount of time spent on a client's case, typically measured in hourly increments.
- Flat Fees: A set fee agreed upon in advance for a specific legal service, regardless of the time spent.
- Contingency Fees: Payment dependent on the outcome of the case, usually a percentage of the settlement or judgment.
- Retainer Fees: An advance payment to secure a lawyer's services, often held in a trust account and used as work is performed.
Note: Accurate time tracking in legal billing often relies on a legal billing chart to ensure compliance and clarity. The legal billing system that’s right for your firm depends on the types of cases you handle and your firm’s preferences.
Getting set up with legal billing requires some thought and understanding on behalf of the attorney or practice owner. Taking a few moments to understand the tools available and what needs to be considered when setting up pricing will go a long way toward ensuring success in this arena.
Billable vs. Non-Billable
In legal billing, billable hours are the hours that attorneys can charge clients for, including time spent on tasks directly related to a client's case, such as legal research, court appearances, and client meetings.
Non-billable hours are the hours that attorneys cannot charge clients for, which include administrative tasks, professional development, and other activities not directly related to client work. These hours are necessary for the operation and growth of the law firm but are not directly compensated by clients.
Setting Up a Billing System for Legal Services: Best Practices
Setting up a billing system can seem intimidating when you're just getting started, but the billing process is a necessary part of running a successful legal practice. Fortunately, there are some strategies you can employ to make the task easier and more efficient.
1. Establishing Clear Billing Guidelines
Setting up a system for legal billing involves several best practices to ensure efficiency, accuracy, and compliance with industry standards. One of the first steps is to establish clear billing guidelines that align with the ABA's ethical standards. These guidelines should detail acceptable billing methods, such as hourly rates, flat fees, contingency fees, and retainer fees, tailored to the specific practice area of the firm. By doing so, firms can create a legal billing process that is both transparent and predictable for clients.
Explore the leading small law firm billing software solutions.
2. Leverage LEDES
LEDES billing, which stands for Legal Electronic Data Exchange Standard, is a widely adopted format in the legal industry designed to standardize and streamline the electronic exchange of billing information between law firms and their clients. Developed by the Legal Electronic Data Exchange Standard Oversight Committee, LEDES legal billing codes addresses the complexities and inconsistencies often associated with traditional billing methods.
The LEDES format includes comprehensive details that ensure accuracy and transparency in legal billing. It encompasses essential billing aspects such as timekeeper information, billing rates, the time spent on various tasks, and expenses incurred. By providing a uniform structure, LEDES billing facilitates the seamless transfer of billing data between different software systems used by law firms and their clients.
3. Utilizing Customizable Legal Practice Management Software
Utilizing a customizable legal practice management software can significantly streamline the attorney billing process. These systems often come with features like expense tracking, legal time tracking, and automated billing in increments that meet standard billing practices. LEEDES billing formats, which are widely recognized, can be incorporated to ensure consistency and compliance with industry norms. The ability to make edits to billing entries before finalizing invoices helps prevent errors and ensures accuracy, saving attorneys from time-consuming revisions later on.
4. Implementing Evergreen Retainer Systems and Flexible Payment Plans
Implementing an evergreen retainer system can be beneficial for maintaining a steady cash flow. This method involves keeping a predetermined amount in the client's account, replenished as the funds are used. Additionally, offering flexible payment plans can make legal services more accessible to clients while ensuring the firm gets paid for its services. Tracking metrics related to billing practices, such as billable hours versus non-billable hours and payment turnaround times, provides valuable insights that can be used to optimize the legal billing process.
By focusing on these best practices, law firms can reduce the administrative burden associated with legal billing, allowing attorneys to spend less time on billing and more time on client work. Upfront communication with clients about billing practices and methods, supported by detailed legal documents, ensures there are no surprises when invoices are issued. In the end, a well-organized legal billing system enhances client satisfaction and improves the overall efficiency of the firm.
Must Read: The impact of advanced degrees on the salary potential of legal billing specialists + tips and tricks for making more money now.
Types Of Legal Billing Tools To Try
You want to ensure that your firm's billing is done right, so you'll need the right tools for the job. Fortunately, there are a variety of legal billing programs available on the market. Below are some of the best options for lawyers seeking to set up their own in-house billing system.
Legal Billing Software
The most popular type of legal billing software is legal time tracking software. These programs are designed specifically to make it easy to track your time for hourly billing and create accurate invoices. They can also help you track client payments and generate reports on time spent on different matters as well as billable hours.
Some of these types of programs allow you to actually process online payments, while the more basic ones are better suited to just tracking time and invoicing.
You do have to spend some time in the beginning setting up your hourly rates or entering in the types of flat fees associated with certain tasks, but once you have it set up, you pretty much just add your time entries and let the system do the rest.
An example of this type of software is LawPay, a popular legal billing solution.
Free legal billing software is ideal for startups, whereas enterprise-grade systems are better for larger firms.
Legal Trust Accounting
Legal trust accounting tools (an example of this is CosmoLex) are more advanced than simple billing and time tracking software specialized for law firm accounting. This type of software has additional functionality for trust accounting, so that you can both bill clients and manage client ledgers through a compliant IOLTA.
Often, these products also have time-tracking modules in them, but they are more focused on helping you to manage client funds without mismanaging them.
Client Portals
Another legal billing software feature that can be useful when setting up your law firm's billing system is a client portal. This allows your clients to access their documents and invoices within a secure portal on your website and pay electronically via credit card payments or ACH Debit payment methods.
By leveraging these tools at your firm, you can ensure accurate invoicing and an efficient payment process that will help you get paid faster.
An example is Soluno, which offers client portals for them to access their documents and interact directly with the firm through a secure portal.
How to Track Time and Billing Accurately
Accurately tracking time and billing are crucial steps when it comes to mastering legal billing.
I know, I know: This is where many people get stuck. It’s very common to simply dislike timekeeping (it’s a hassle, it’s hard to maintain), but it’s an essential part of the business.
As an attorney or practice owner, it’s important that you have a system in place that can keep track of the time each attorney spends on a case and ultimately, how much the client will be billed for services rendered.
Strategies for Accurate Time Tracking:
- Use tools—such as integrated law practice management software, which allow you to track your activities in real-time and provide meaningful data about how much time you’ve spent on specific matters.
- Track all tasks—even if they’re small. I know many legal professionals dislike this part of the job, but if you’re not tracking even the smallest task, it may accumulate to significant amounts of wasted time that won't be captured or billed correctly.
- Leverage technology—like voice-to-text software so that lawyers can dictate notes, ensuring all details are captured accurately and quickly during client meetings or court hearings.
- Choose a user-friendly software—this can make things much more efficient when it comes to logging in time sheets or entering details into a platform after meetings or hearings have finished.
By implementing these strategies, you can ensure accurate time tracking and billing across your firm, no matter how big or small it is!
Common Mistakes to Avoid With Legal Billing
If you're new to law firm billing, there are some common mistakes that beginners often make. To ensure your billing system runs smoothly, here are the top mistakes to avoid:
Not Automating Billing
When starting out, it's tempting to stick with manual processes and spreadsheets because you don’t want to invest the time an energy into using an automated time or billing management solution. The problem is manual processes don't scale very well as your practice grows and take up a lot of time for administrative staff.
An automated system like a custom software platform or an industry-specific solution can save hours of time in the long run by providing background workflows so you can focus on delivering top quality service.
An additional reason to set up automated billing is to improve the client experience—many people expect to be able to easily use different payment options, or even submit payment quickly through a mobile app. The legal industry is a bit late to this party, but most people nowadays take it for granted—we expect easy, flexible, and accessible billing.
Not Training Accounting Staff on IT Systems
Failing to train your staff on the accounting software or billing solutions they must use can lead to errors in data input or even failed billings. Make sure that anyone who is going to be using accounting systems is properly trained and up-to-date on their skills.
More resources:
Failing To Issue Prompt Invoices
Getting invoices out quickly is important if you want top be paid promptly. Failing to automate this process also means there’s no reminders when invoices are due or late, which can negatively impact cash flow. Make sure all of your processes are automated so you never miss sending out an invoice and ensure prompt payment from clients!
Most firms leverage legal invoicing software to make this process more automated and easy. Invoicing tools have built-in reminders for bill processing and payment, taking away the administrative burden of chasing clients all the time.
Evaluating Your Legal Billing System
With your legal billing system set up and running, it's now time to evaluate its performance. The best way to do this is to regularly review your billings and financial statements. Doing this will give you an idea of where your business stands and what revenues you have collected from different clients in a given period.
When evaluating your legal billing system, paying attention to the following things:
- Are clients paying on time? Late payments can affect cash flow, so it’s important to have established payment terms that are clear for each client.What is the average time between when you send out the invoice and when you receive payment?
- Are there any discrepancies between the hours worked, versus what’s being billed? This could indicate a potential billing error that needs to be addressed immediately
- Is there an increase or decrease in revenue year-over-year? Knowing this information can help inform strategic decisions related to profitability.
Keeping a close eye on these elements of your legal billing system (like spend management systems) will help ensure that everything is running as smoothly as possible and that you're getting maximum return on investment for your time and money spent on invoicing and collecting payments from clients.
Conclusion
Mastering legal billing is a necessary but intimidating task for practice owners and lawyers. With the proper tools and systems in place, however, it doesn’t have to be overwhelming. By setting up tracking tools, staying organized, and consistently reviewing and monitoring progress, legal billing can be a simple and straightforward process.
Take the time to explore your options and understand the software you are using. With the right system, you can effortlessly manage legal billing from start to finish, freeing up your time to focus on the more important aspects of your practice. With a little effort and planning, you can develop an efficient and effective legal billing system that will help ensure your firm’s success.
For more legal insights and resources, subscribe to our newsletter and join a community of innovative legal practitioners shaping the future of law.