Is it time to consider a legal analytics system for your law firm? It’s no…
Clients facing financial pressures of their own have become more demanding of their legal counsel and hesitant to pay fees billed by the hour which can be unpredictable and opaque. Law firms have had to devise alternative methods of billing through budgeting and commoditization to address cost pressures from clients.
Law firms may need to adjust a client’s invoice which could be due to lack of communication of the billing process, dissatisfaction with service or simply trying to bargain your rate. No matter the reason, rate reductions add up over time and can affect the attorney’s bottom line. Having the proper legal billing software can help reduce law firm write-downs and boost your revenue.
There is a considerable amount of money written off and readily accepted as part and parcel of business life. These write-offs are often a significant percentage of turnover, which can only have a dramatic impact on realization rates. Firms have not internalized the changes driven by the changes in the legal service market. Rather, they have simply taken the financial hit to their bottom line adjusting to these changes with a short-term focus by reducing costs, rather than building a firm for the future established around technology and efficiency. With heavy discounts and write-offs as the primary client cost-cutting strategy, there should be no surprise that there has been little growth in firm profits across the sector. Many firms have not adjusted how they work to the new realities of the market for legal services.
Considering the various factors above, the causes for Write-offs could be listed as further-
Inaccurate budgeting – Modern firms have moved past the point where every matter is considered to be a more systematic, consistent, and of similar pricing model. While every matter is the same, there will always be some level of variation with some legal engagement purview. Wherever possible, firms should work to standardize process and pricing, as this will allow for accurate budgets and billing practices for both the client and the firm. But bad budgeting can be worse than not budgeting at all.
No Concrete Practice Management Technology – By using practice management technology, law firms can better understand their work, their people, their clients, and their business. Instead of undervaluing their work, firms can better predict costs and communicate to clients about the budget.
A robust practice management system can even allow a firm to help clients anticipate possible issues ensuring that there are no surprise budget-busters later in the engagement. Investing in systems that help firms accurately price matters making them more predictable helps with client relations and can help boost fee realization.
Client Relations – Clients, on the other hand, prefer to stay engaged with firms with whom they trust and have established relationships. With these factors in mind, law firms should be looking to technology to help them partner with clients to achieve their objectives. Law firms are in an advantageous position to help clients find solutions to problems and can help in-house law departments by sharing legal technologies and by helping to develop these tools for client use. If firms find ways to utilize technology to reduce the burden of their loss leaders, they can then market these services as commoditized products. Billable hours written-off as a part of the loss leader can become a profitable product the firm can market to clients. Clients also benefit because they now can keep more of their legal work with a firm with which they have an established relationship. In this way, technology can be used for business and client development purposes while also reducing the burden of billable hours write-offs.
Inefficient time tracking – A failure to produce or accurately record your billable time. This typically results in under-billing. An associate performs a particular task but they don’t fill out their timesheet until the end of the week. Attorneys waste time manually filling out timesheets. Instead of relying on a hassle-free system to track their time, they’re relying on excel spreadsheets. Or scribbling them down on post-it notes. If the time tracking process is difficult or tedious, attorneys are more likely to put it off. This delayed tracking inevitably leads to reconstructive time entries.
Ways to handle write-offs the right way –
Initiate Interest Fees on Late Payments
Often lawyers pre-emptively offer discounts on late bills simply to get clients to pay. However, this leaves the client with little incentive to pay. And it could even lead to an assumption that more discounts await the longer they hold out. Adding interest fees to late payments becomes an automatic incentive since the client will continue to watch their bill grow the longer, they wait. Fortunately, adding interest fees doesn’t mean more work is required to update those invoices. Various software solutions offer the ability to track bills and their collection status for easy management. So, with the right accounts receivable software, lawyers can take action on late payments to more effectively incentivize client response.
Provide Various Payment Options
Streamlining the methods through which clients can make payments further incentivizes them to pay those bills. If you’re only offering one or two methods for payment — and none of them are online or electronic — consider automated payment technology. With online payment as an option, clients will not be able to point to user-unfriendliness as a reason to stall. By making it faster and easier to pay, you increase your chances of full remittance.
Create Better Billing Habits
There are smart ways lawyers can alter their billing practices to create a better payment experience for clients. Start by creating consistent invoice dates. You don’t need to hire an AR person to do so — instead, you can use software to automate the times of the month in which you send invoices. Creating an expected billing period will give clients a better sense of when payment is due, and your practice will look more efficient and organized. Make sure to provide enough detail and explanation of charges as well. When clients are confused about line items on their bills, they are more likely to delay payment or put it out of their minds for addressing later.
Change Your Mindset About Accounts Receivable
The Accounts receivable is certainly among the least sexy functions of legal practice. Yet to reduce write-offs, attorneys need to change their perspective about this crucial function. Instead of it being a necessary evil, it can become a stress-free process with the right technology. For example, using AR technology that automates the collection process through features such as personalized emails and tracking client activity in real-time can transform how you collect overdue bills. This most insidious part of the AR process then becomes a painless, auto-piloted activity.
Offloading manual parts of the AR process in this way also allows lawyers and staff to spend their time strategically contributing toward high-value work instead of spinning their wheels with nonbillable busy work.
Technology has changed the AR process for businesses in almost every industry — and legal is no exception. Look for ways to leverage the best technology available to collect on your hard-earned work, and ultimately ensure the future health of your law practice.
Lawyers can start off with the basic write-offs and add the write-off categories as the need arises. Also, deciding on which write-offs require managerial approval and which may be done with staff approval is important. Make sure write-offs are addressed in compliance plan so staff understand their responsibilities. Review all write-offs categories monthly and pay attention to unusual spikes as well as creeping trends. Auditing the write-offs periodically to make sure that are being sone correctly will make sure that the numbers lawyers and attorneys are making in business decisions on are sound.