Law Firm Billing

Like any business, law firms provide services with the expectation of being paid at the time the work is finished. Unfortunately, the average law firm only collects about 85% of invoiced amounts, which can add up to tens of thousands of dollars in lost revenue.

Collecting debts can be challenging, but it’s part of running a successful law firm. Instead of leaving billable hours on the table, learn how to set up a collections process for legal debts to keep your cash flow moving.

How Do Law Firm Collections Typically Work?

Law firm collections is a means of requesting clients pay for their outstanding invoice balance. Typically, this is done with a lawyer debt collection letter, also known as a demand letter of payment or a letter of demand.

A good law firm collections process can resolve client debts by encouraging your client to pay or opening the line of communication to find a resolution that works for your client and your firm. Then, if you have to take further legal action, the debt collection letter supports your case.

Why Do Law Firms Struggle with the Collections Process?

One of the mistakes law firms often make is considering the collection process only after the client receives the invoice. Instead, the relationship with the client — and the expectation to be compensated — should begin from the first interaction.

Clear, unambiguous language that establishes the fee agreement, what clients are getting for their money, and when they’re expected to pay sets the stage for fewer collections and more invoices paid on time. Also known as a legal billing policy.

In addition, detailed invoices that are easy for the client to understand also reduce collections. Some law firms send bills with just an amount due and vague descriptions of what a client is paying for, which can lead to disputes that delay payment.

7 Tips to Improve the Billing and Collection Process at Your Law Firm

Here’s how you can improve the collections process at your law firm:

1. Assess Your Firm’s Current Billing and Collections Process

Having the right systems in place is the first step to ensuring that clients have timely, clear, and accurate bills to pay your firm.

Assess your current billing and collection processes. Do you have a standardized process? Is there a fee agreement that’s clear to clients and well-defined guidelines for your billing policies? Do clients understand what they’re paying for, when they’re expected to pay, and what they’re getting in return?

If you haven’t already, be sure to create a legal billing policy that answers these questions and any other necessary billing items. You include invoicing timeframe, accept payment methods, late fee policies, and more. 

2. Identify Areas for Improvement

Once you have an outline for your current billing and collections process, you can identify areas where you can improve. 

For example, if you’re allowing each attorney at your firm to track hours in their own way, review bills individually, and send them out using mail or email as they choose, this could create opportunities for delays and errors that only make the collections process harder.

3. Create a Standardized Internal Collections Process

Start with a standardized internal collections process that includes time-tracking policies, standard invoicing policies, and a process for how hours are tracked and invoiced.

Up to 30% of billable time is lost because of poor timekeeping. With legal time tracking software like Bill4Time, you can quickly and accurately track your billable hours without sticky notes, notepads, or spreadsheets. Capture your time in real-time with detailed time blocks that illustrate what your client is paying for.

Bill4Time also standardizes the invoicing process with custom invoice templates that allow you to convert your billable hours to detailed, branded invoices you can send with just a few clicks.

4. Communicate Your Firm’s Billing Terms to Clients

Having a clear communication plan for your billing expectations should be part of the initial client intake process. With this plan, you should provide the scope of your work, billing timeline, payment options, fee arrangements, and the billing point of contact.

Draft this plan into a legal billing policy document, which you can store in Bill4Time so it’s accessible across your firm and easy to provide to clients.

5. Accept Multiple Payment Methods

One of the best ways to get clients to pay on time is by making it convenient for them to do so. Clients have come to expect the convenience of paying invoices online, even for their legal services, which you can offer with Bill4Time Payments.

The secure online payment portal processes transactions within Bill4Time, without third-party services or integration. You can reduce missed payments with customizable payment plans, such as weekly or monthly installments, with an eCheck, credit card, or debit card. 

Bill4Time Payments has industry-low transaction fees and 100% compliance with IOLTA, ABA, and state bar guidelines, so you can offer convenience for your clients without it costing extra.

6. Send Reminders

As we mentioned before, simply sending an invoice isn’t enough. Proper follow-up will keep your firm and the client accountable for ensuring payments are completed on time. By setting up automated payment reminders, you can ensure that your clients know when they’re expected to pay. No more calling or emailing clients to remind them of their upcoming invoices or missed payments.

7. Track and Measure Your Collection Policy

Bill4Time has built-in expense reporting to track your invoice payment windows and keep tabs on client payment status. You can use these reports to track and measure your collection policy, identify areas for improvement, and get a look into your firm’s financial health.

Transform Your Law Firm’s Collections Process with Bill4Time

With Bill4Time, you can simplify every step of the billing and collections journey, from accurate time tracking to customizable invoices and convenient payment options for your clients. Instead of chasing payments, let Bill4Time handle the heavy lifting so you can focus on your clients.

Ready to take the stress out of collections and improve your cash flow? Schedule a demo today and see how Bill4Time can empower your firm to get paid faster and with less hassle.

Billing can often be a challenging aspect of law firm management. Along with being a time-consuming process, outstanding bills and poor cash flow can have a negative effect on law firm profitability. Some law firms wait 60 or 90 days for payment after an invoice is sent, and if it’s still not paid in 120 days, they may write off the debt or offer a steep discount.

No business can function if bills aren’t paid – including law firms. Legal time tracking software and a uniform billing process ensure your law firm gets paid on time – and it all begins before you even take on the client.

Why Does Billing Matter to a Law Firm?

Precise and timely billing has a direct impact on a firm’s financial stability, client trust, ethical compliance, and long-term growth.

Here are the ways that billing impacts your law firm, both positively and negatively.

Cash Flow

Accurate and timely billing provides cash flow for your firm, which you need to cover your overhead costs, pay your team’s salary, and reinvest in your firm to capitalize on growth opportunities. If you don’t have that cash flow because of slow or error-filled billing, you may not be able to operate efficiently and won’t be able to reinvest in your staff.

For example, with adequate cash flow, you can cover your regular operating expenses and have full visibility into your firm’s financial picture. You know where you stand so you can allocate resources to training, technology upgrades, expansions, or other opportunities.

Client Relationships

Transparency in billing plays a key role in client satisfaction and retention. When clients know what to expect from the billing process and see a detailed breakdown of the legal services they receive, they understand the value and feel more trust in the firm. Conversely, if you have vague bills or inaccuracies, they may think they’re being overcharged or the bill is “padded.” This affects both the client relationship and your firm’s reputation.

For example, itemized invoices and accurate timekeeping – which you can reference to address client billing questions – give clients confidence that you performed the work you billed.

Resource Allocation

Efficient billing practices ensure your firm can allocate resources effectively. You have full visibility to assign your team to projects based on their current workload or productivity, optimizing your firm’s time management. If your billing processes are inaccurate or inefficient, you could end up devoting resources that would be better spent elsewhere.

For example, you could be consistently undercharging for a service or failing to record time that you spend on casework. Regularly reviewing your billing reports allows you to view the trends and evaluate your profitability to find areas for improvement.

Legal Compliance

Accurately tracking billable hours is crucial to complying with lawyer billing ethics. Billing errors or unethical billing practices, such as upbilling, can have devastating consequences for your firm’s reputation and your practice, including fines or disciplinary action.

For example, submitting an invoice with incomplete summaries or non-standard descriptions of services – such as “email client” – isn’t unethical, but it may be suspicious to clients. However, padding expenses is an unethical practice that defrauds clients.

What Are the Three Methods of Billing Clients in a Law Firm?

Law firms are increasingly offering alternate methods of billing, but the three most common methods of billing law firm clients are hourly billing, flat fee billing, and contingency fees. The way you use and implement each will greatly affect how and when clients pay their bills. Here’s how these billing methods are structured in law firms:

Hourly Billing

Hourly billing is the most traditional billing method that involves charging clients based on the number of hours spent on casework. Lawyers record the time spent with a detailed description of the tasks performed, typically in 6-minute increments, and charge an agreed-upon hourly rate. However, this rate can vary based on the type of law, geographic location, and the lawyer’s experience level.

This method of billing offers several advantages, including transparency for the client, cost control, and flexibility. For example, if the case proves more complex than the lawyer initially thought, they’ll be able to bill for the extra work – which isn’t an option with some other types of billing.

Flat Fee Billing

Flat fee billing is a method of billing in which clients are billed a fixed, established amount for a specific legal service. The scope of work is clearly defined at the start, with the flat fee, so the client is prepared. Often, clients pay the full amount of the fee upfront, or they pay a portion upfront with the remainder due when the case or services are complete. This is often helpful for clients because they’re prepared for the total costs in advance, and the lawyer doesn’t have to concern themselves with detailed timekeeping.

Typically, flat fee billing is used for routine casework, such as drafting a will, in which the lawyer has an expectation of the work involved. Otherwise, the case could extend beyond the scope or have a lengthier process, which eats into profits.

Contingency Fees

Contingency fee billing is a method in which the attorney’s fee depends on the successful outcome of the case. This is determined on a percentage basis, which is typically 30 to 40% of the client’s settlement. The fee is determined in advance and should follow the guidelines outlined in ABA Rule 1.5. If the case is unsuccessful, the lawyer doesn’t receive a fee but may charge other costs associated with the case.

This method of billing is often used in personal injury, medical practice, and other civil litigation cases. It provides equal access to justice for clients who may lack financial resources, and the lawyer has a strong incentive for success with the case. However, the risk falls primarily on the lawyer, which is why it’s not used for cases like criminal defense.

What Are Legal Billing Duties That Promote Timely Payments?

Legal billing duties cover a wide range of activities, from tracking time to drafting invoices to sending them to clients at regular intervals. Having a standardized legal billing process is the best way to promote timely payments, even before your firm takes a case. Some of these duties include:

Tracking Time Accurately

Accurate timekeeping is the foundation of a robust billing process. This ensures that all work performed for a client is accurately recorded – neither under- nor overinflated – and can be included in the bill. This also provides a reference for client questions or disputes.

For example, the best law firm billing software should allow you to log your hours with automated timers to track every moment spent on a client case, including phone calls, email responses, or court appearances.

Creating Transparent and Detailed Invoices

As mentioned, detailed and transparent invoices about the services rendered and the time spent on each task help clients understand what they’re paying for and the value they’re receiving. All of your invoices should have a breakdown of the specific tasks, time spent, agreed-upon rate, and any applicable expenses.

For example, don’t use block billing. What is block billing? It’s when you group a bunch of individual billable tasks into one collective billing entry with a total time, making it difficult for clients to fully understand how you spent your time. Some sample attorney billing entries of block billing are “drafted pleadings, sent email to client, phone call with client (1 hour)” or “prepared for court hearing, filed pleadings, met with client (3 hours).” Instead, it’s best to break these down with detailed descriptions, including time spent on each individual task for clarity and transparency.

To illustrate, a better example would be “Prepared motion for temporary orders and proposed order (.5 hours); emailed same motion and proposed order to client for review (.1 hours); received call from client to discuss edits to same motion and proposed order (.3 hours); implemented requested edits from client per phone discussion (.1 hours).” This example demonstrates more value to the client and gives a clear picture of how you spent that entire hour.

Following Regular Billing Cycles

Regular billing cycles give clients reliable billing expectations and help your law firm ensure steady cash flow. The schedule you set depends on your firm, but they’re typically monthly, bi-monthly, or based on milestones in the case, allowing clients to budget for their expenses – and pay on time.

Upon your initial consultation with the client, you should go over the billing process and the billing cycle. For example, if you’re billing according to case milestones, you can prepare the client that they will receive a bill after the serving of a suit, court filing, deposition, date of trial, or after the conclusion of the trial.

Distributing Invoices Efficiently

A big part of an efficient billing process is sending out invoices according to the schedule you set. If you delay your invoices, you’re delaying your payments. Automation and a law firm invoice generator with software like Bill4Time allow you to create professional, branded invoices in minutes to distribute to your clients. With the secure client portal, you can send invoices automatically, saving you time and energy in the billing lifecycle.

Offering Multiple Payment Methods

Giving clients multiple payment options increases the likelihood of on-time payments. Clients want to be able to pay their invoices online, from any device or location, without the hassle of mailing checks, making phone calls, or using third-party services and integrations. With Bill4Time’s secure and compliant online payment portal, you can customize your payment options and send clients invoices that can be paid with an eCheck, ACH, debit card, or credit card at their convenience.

Proactively Communicating and Following Up

You should have open lines of communication with clients and follow up on outstanding invoices to address any concerns or issues. Include payment reminders and receipt of payment in your billing process, and make sure you’re available to address any client questions about their bills to encourage timely payments.

Timely client payments start within your law firm billing practices. Bill4Time can help you create a streamlined and standardized billing process – from start to finish – that fosters trust, improves organization and cash flow, and promotes on-time payments from your clients. Sign up for a demo today!

If you ask any lawyer what their least favorite part of the job is, the number one answer will likely be “billing.” Law firm billing and invoicing is a constant source of frustration for many in the field. It’s labor-intensive and tedious, from timekeeping to billing cycle monitoring.

While it’s tempting to point fingers at clients for delayed payments, the root of such problems often lies in a law firm’s billing strategies. Using legal time tracking software will solve these issues, but there are a few additional secrets successful law firms employ to make billing less of a headache. If you’re experiencing a rise in late payments or extended billing cycles, try implementing these three strategies for a higher chance of law firm billing success. 

1. Create Legal Billing Guidelines

One of the biggest problems in the law firm billing cycle is consistency across staff members. Consider creating legal billing guidelines or a legal billing handbook to give your staff a set of rules to follow when it comes to billing. Here are the basics of what your legal billing guidelines should include:

Introduction

Start with an introduction that explains the purpose of the guidelines and sets the tone. This section should highlight the benefits of adhering to proper billing practices and emphasize the commitment to transparency and fairness. Use the American Bar Association’s Model Rule 1.5 on Fees as a source of inspiration.

Clear Staffing Policies

Outline who is authorized to work on which cases and the expectations for the experience level necessary for various tasks. This section should also include rules for billing rates based on the staff’s roles and expertise.

Sample Attorney Billing Descriptions

Pick some tasks in your firm that everyone does more frequently, and include a list of sample billing descriptions for those tasks. Consider including “bad” legal billing examples and corresponding “good” examples. For instance, a bad example might be “Made initial pleadings,” whereas a good example might be “Prepared petition for divorce and summons according to details from initial client consultation.” Add some sample paralegal billing descriptions as well for your paralegal’s most common tasks.

Legal time tracking software makes this process much easier with multiple features that speed up time entry creation. With Bill4Time, for instance, you can speed through writing descriptions with auto-text. Auto-text allows you to write abbreviations for commonly used time entry descriptions (e.g., typing “RR,” which automatically changes to “research and review”). 

Deadlines for Submitting Time

Specify the frequency of submitting time across the firm. At a bare minimum, your staff should submit their hours monthly, but many firms require weekly submissions. Weekly submissions may be superior, as it’s easier to remember everything you’ve done within a week as opposed to a month. If you use time tracking software, you can even make daily submissions because it’s so easy to record your time in real time as you do the work. This process ensures you capture every minute versus relying on your memory at the end of the week or month.

Invoicing Procedures

Make sure that anyone in your firm can easily answer the question, “How do I make an invoice for a law firm?” by defining the format and content of invoices. For example, if a specific format like LEDES is preferred, mention it explicitly. If you’re using legal time tracking software, provide step-by-step instructions for its use or a link to the software’s help center. Be sure to include how frequently clients should receive invoices — monthly invoicing is a good place to start. 

Signature Requirement

Include a signature page to confirm that all parties have read, understood, and agreed to the guidelines. Requiring a signature helps in enforcing your policies and prevents future disputes.

2. Use Action Verbs for Legal Billing

The language you choose in your time entries plays an important role in whether or not clients pay your invoices. Using action verbs is an effective strategy, as these words bring clarity and assertiveness to your billing statements.

Why are action verbs effective? First, they convey a sense of urgency and importance. Words like “filed,” “researched,” or “drafted” emphasize the work done, making it tangible for the client. This clarity helps clients understand the value of the services provided, encouraging timely payment.

Second, action verbs enhance the professionalism of your billing statements. They reflect the precision and attention to detail that legal professionals apply in their work. For instance, saying “conducted an in-depth analysis of case law” versus “spent time looking at case law” provides a clearer, more professional depiction of the activity.

Some examples of action verbs that can enhance your billing descriptions include:

• Analyzed
• Drafted
• Negotiated
• Researched
• Reviewed
• Communicated
• Facilitated
• Advised
• Examined
• Developed
• Investigated
• Prepared
• Filed
• Attended
• Resolved

Incorporating these verbs into your billing can transform how clients perceive the invoice. Instead of seeing a list of hours spent, they see a list of actions taken on their behalf to accomplish their legal goals.

3. Conduct Regular Legal Billing Training

By facilitating regular legal billing training, there is a much higher chance that your firm will meet its billable hour requirements and that clients will pay invoices. This approach ensures that all team members are up-to-date on the best practices in legal billing.

How often you conduct this training is up to you. Quarterly training sessions are ideal, as this frequency allows for adjustments in response to regulatory changes, technological advancements, or internal policy updates. Additionally, every new employee should undergo this training as part of their onboarding process.

Here are a few examples of content to include in your quarterly training sessions:

• Timekeeping Accuracy: Training should cover how to categorize different tasks and the level of detail required in time entries. Consider highlighting some good examples of billing descriptions you’ve seen from bills that quarter.
• Use of Technology: Provide training on the latest billing software and tools. Perhaps focus on a specific feature in your legal time tracking software and how to use that feature more effectively. Your software may even have a library of training videos you can show during training, taking the burden of planning off your plate.
• Billing Policies and Procedures: Review the firm’s policies regarding billing cycles, rates, and client communication. If you’ve noticed that staff aren’t following a particular policy, bring attention to that policy and emphasize why it’s essential to the firm’s bottom line.
• Client Communication Skills: Train staff on effectively communicating billing matters with clients. Discuss how to address client queries and set client expectations for receiving and paying invoices. Ask your team about the biggest complaints they hear from clients about their bills and brainstorm ways to address these issues.

Bonus Secret: Use Bill4Time

While the strategies mentioned above will improve your billing cycle, using Bill4Time is the best way to find law firm billing success. By incorporating Bill4Time, law firms can address common billing and invoicing challenges more effectively, freeing up time to concentrate on providing top-notch legal services. See how it works by signing up for a free demo, or explore the platform for yourself with a free trial.